Monday, January 15, 2007

BS in a CAN

If you want to be successful in this business all you need is a system.

Some people say – “all you have to do is CAN SLIM your way to riches.” CAN SLIM is simple – (Courtesy – Wikipedia under “CANSLIM”):

C – current earnings per share are up 30% or more
A – annual earnings are up 25% or more in each of the last 3 years
N – new – the company should be under new management, have a new product, or have a new service. It should also have a new high for its stock price
S - supply and demand. Look for a company that has large trading volume. High demand = increasing prices. Micro- and small-caps are more volatile, they can go down as fast as they go up.
L = leader or laggard? Within an industry, always choose the company that is leading the way, not one that is following in another's footstep
I = institutional sponsorship. Make sure large mutual fund companies (and other institutions) are investing in your stock - you can ride on their capital. Also, focus on the better performing institutions buying your stock.
M = market trends and market indices. Recognize the cup and handle pattern, as well as other market correction footprints. Know when a stock has peaked out. Also, buy stocks only when the Dow, S&P 500, and NASDAQ are going up.

CAN SLIM was popularized by William J. O’Neil in his book Make Money in Stocks: A Winning System in Good Times or Bad.

I think IBD invented CAN SLIM and has a CAN SLIM scan. I also understand that CAN SLIM is best applied to small caps and O’Neil violated this principle in his book.

I often say that S, I, and M are probably the most important part of the puzzle (although some folks disagree with the “I” part). L is Jim Cramer’s favorite in that he often says pick the best of breed and not the also rans – and I believe that he uses C and A and sometimes N to determine L.

Whatever – apparently it works. Probably as good as “buy the dips - sell the rips”. Actually “buy the dips - sell the rips” works a lot better as long as M is being considered.

So then I went and ran a pseudo-CAN SLIM for you using the Yahoo site screener – I’m sure there are better ones out there but that one was handy and the scan was based on the following criteria:

Earnings growth for 5 years – > 20% per year
Institutional holdings - > 75
Average daily volume - > 1 Million
Capitalization - < 3 Billion
EPS (TTM) - > 30 cents

That is just CAN SLIMish but I got the following 6 hits off it –

2 energy – HLX and SPN
1 educational – CECO
1 tech – SLAB
2 retail – CAKE and PSUN

Of these I like SLAB because it printed a crossing pattern on Friday. Of the rest - the energy stocks are down so they are “buy the dip” candidates, the retails are both trending up and could be good investments (based on CAN SLIM rules) and education is falling asleep in class.

Truthfully I could invest in any one of these (CECO after its next breakout) but I will probably play SLAB on Tuesday because I understand its pattern (that’s if I can get past the name). I’ll keep the two energy stocks on my energy watch list.


cmews said...

Thanks Marilyn

Good description to analysis leading to your deduction.

clean, clear and precise...thanks again, cmewsaivte

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A great part of the market that needs more research.