What are Canslim stocks?
A stock can rally in just a matter of days. One day it may rise by 5 points and the next day by 50. Amateur Investors, who do not have extensive knowledge about the financial market, invest by monitoring a stock for some days and entering when it starts rallying. However, the stock may come down in its price with the same intensity it rose, forcing the investor to incur heavy losses. This process is called speculation and is the biggest factor in the stock market that results in losses.
These investors know that they have to learn how to predict the market trend and where the price might go from a specific level they are monitoring. Professional traders, do it through CANSLIM.
But, before you learn about CANSLIM meaning, you must understand Technical and Fundamental analysis.
What is Technical analysis?
Technical analysis is the study of chart patterns, graphs, and diagrams on a screen. The idea is to understand price and volume trends and pick a specific stock. Technical analysis is based on the premise that historical price trends tend to repeat over time. In technical analysis, you sit with historical stock charts, look at price and volume data, and then plot various trends. Based on past wisdom, you find patterns to trade for the future.
What is Fundamental analysis?
Fundamental Analysis measures a stock's real worth or intrinsic value of stock in the share market. Every asset has an intrinsic value, and in the case of equities, the intrinsic value is captured by future cash flows.
With the knowledge of technical and fundamental analysis, let’s understand the meaning of CANSLIM.
What is the CANSLIM strategy?
The slim stocks strategy is a method to screen shares of different companies and high-profit stocks as they appreciate their growth and price over time. The CANSLIM strategy uses a combination of technical and fundamental analysis to complete the CANSLIM process.
The CANSLIM process was first developed by William O’Neil, the founder of Investor’s Business Daily (IBD), an American stock research company. When the CANSLIM strategy was first introduced in 1950, it created a revolution and was regarded as one of the best stock market strategies. Numerous investors still widely use it to find high-growth stocks and invest in them at the right time.
How does the CANSLIM strategy work?
Here is how the investors use the CANSLIM strategy:
- C: Stands for the ‘current quarterly earnings per share of a company. This strategy suggests that you should compare a company’s current-quarter earnings per share with the same earnings in a previous quarter. A company that has a higher percentage in this segment is better.
- A: Stands for ‘annual earnings growth’ (revenue generated by a company annually). Under the CANSLIM strategy, you should look for companies with over 20% annual earnings growth.
- N: Stands for ‘new product, service, management, or events’. Under the CANSLIM strategy, you should look for companies that regularly innovate as such stocks are better equipped to appreciate.
- S: Stands for ‘supply’ of the company’s stocks. Ideally, the supply of the stock should be insufficient and lower than the demand. Only then the price of the stock will appreciate as per the demand and supply forces.
- L: Stands for ‘leading’. Under the CANSLIM strategy, you should look towards investing in a company that is leading in its market sector and against its peers.
- I: Stands for ‘institutional sponsorship’. As per the CANSLIM strategy, a company is better when it has a high level of institutional investors and owners. If a company has recently seen an increase in institutional ownership, it can be a green flag for investing.
- M: Stands for ‘market direction’. Almost all companies follow the market trend, whether it is negative or positive. Under the CANSLIM strategy, an investor must analyze the market and identify an uptrend before investing in a company.
Using these factors of the CANSLIM technique, you can mix technical and fundamental analysis to identify growth stocks and create an investing strategy.
Advantages of CANSLIM stocks
CANSLIM stocks are the highest profit potential stocks available in the stock market. As the stocks are identified through an extensive data-backed process, these stocks can provide hefty profits to the investors. Furthermore, the identification of CANSLIM stocks is also a great way for investors to get an ideal entry point for stocks that are undervalued and can rally soon. As the CANSLIM strategy is a bullish strategy and works well in a fast market, you can use the results to invest in high growth stocks before the stocks increase in their institutional funds
The CANSLIM strategy is one of the most sought-after strategies used by experienced investors. It helps identify stocks that are not considered by common investors and that are well-positioned to rise in their value and price soon.
Now that you understand CANSLIM meaning, you can use the strategy to screen any stock that is showing an uptrend. By using the CANSLIM technique, you can invest in high-growth stocks before they reach their justified value. However, you will need a Demat and trading account for investing in stocks which you can open for free by visiting the IIFL’s website or downloading the IIFL Markets app.
Frequently Asked Questions Expand All
CANSLIM rules of investing are as follows:
- C is for ‘current quarterly earnings per share.’
- A is for ‘annual earnings growth.’
- N is for ‘new product, service, management, or events.’
- S is for ‘supply.’
- L is for ‘leading.’
- I is for ‘institutional sponsorship.’
- M is for ‘market direction.’
The strategy of CANSLIM is to identify and invest in high growth potential stocks in a bullish market. The idea is to enter the stocks before they start rallying and make profits when the growth factors positively affect the price of the stocks.