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How Can the CANSLIM Method Help You Pick the Best Stock

23 Sep 2023

Introduction

Have you ever wondered how some investors always outperform the market? Today's investment strategies are more than just investing money in a stock and waiting for it to skyrocket. The CANSLIM method might hold the answer. 

Read on to understand the intent of the CANSLIM method and how to apply it to your investments while looking at real-world examples. 

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What is the CANSLIM Method?

The CANSLIM method is an investment strategy and a systematic approach to selecting the best growth stocks with high potential. The founder of Investor's Business Daily, William J. O'Neil, introduced it. 

How to Implement the CANSLIM Method?

CANSLIM is an abbreviation that indicates that each term contributes to effectively implementing the CANSLIM method. 

1. C - Current Earnings

The first step in investment is to select the best stock, and C says to look for motivated companies with consistent earnings growth over the past three to five years.

2. A - Annual Earnings

To ensure that the company is a good choice, A tells to check if the company has shown annual earnings growth of at least 25% in recent years.

3. N - New Products, Services, or Management

The company's future lies in its contribution to the market, and N says to identify companies with innovative products or services and skilled leadership.

4. S - Supply and Demand 

A successful investment journey is a continuous learning process, and S says to study the stock's trading volume, focusing on periods of high demand.

5. L - Leader or Laggard

Financial freedom comes from picking the best stocks. L says to invest in stocks that lead their industry peers in terms of price performance.

6I - Institutional Sponsorship 

Investing in stocks often involves seeking advice from experts. I say to seek stocks favored by institutions, such as mutual and hedge funds.

7. M - Market Direction

The future of any stock depends on the industry trend, and M says to assess the overall market tends to ensure it's conducive to stock buying.

What are examples of the CANSLIM Method?

Here are a few examples of stocks that have benefited from the CANSLIM method:

  • Apple Inc.: Apple's consistent earnings growth, innovative products, and strong market position have made it a CANSLIM favourite.
  • Amazon.com, Inc.: Amazon's business model and impressive earnings growth align with the principles of CANSLIM.

Final Thoughts

The CANSLIM method offers a systematic approach to stock trading, highlighting crucial factors like earnings growth, innovation, and market leadership. However, it is essential to remember that no strategy is foolproof and that risks are always present in the market. Before adopting the CANSLIM method, conduct thorough research and diversify your portfolio to achieve your financial goals.

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 

 

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