The Timeless CANSLIM Method For Stock Screening

William O'Neil's CANSLIM Method

The CANSLIM approach to stock-picking was developed by William J. O’Neil, the founder of market-oriented publication Investors Business Daily. Designed primarily to find undervalued growth stocks, this multi-faceted strategy is simply the strict use of seven criteria; "CANSLIM" is an acronym for those seven rules.

C: Current earnings performance.  Is the company in question doing well right now?  Do the most recent earnings results reflect it?  As a rule of thumb, earnings growth for the most recently reported quarter should be no less than 18%, and that assumes the solid growth rate isn't an anomaly generated by a weak comparison.

A: Annual earnings performance.  In the same vein as current earnings performance, is the company doing consistently well over time in terms of earnings growth.  William O’Neil believes an annualized earnings growth pace of 25% is required of the market's best growth opportunities.

N: New products, new management, or new high price.  Has something changed recently, for the better, for the company in question?  Does it have a new CEO?  Has a new product or service launched?  Is the stock reaching new all time highs?  Has a new market been entered?  Something new should be in place that makes the company distinctly different than what it was before.

S: Supply and demand.  While the company may make a great product, does anyone really need it?  Similarly, do other companies make a similar enough product that it would be tough to introduce a new competing product?

L: Leader of industry.  Is the company in question recognized up as an industry standout by investors and consumers alike?  Both are ultimately necessary if a stock is to justifiably move higher for any meaningful length of time.  As for the stock itself, it should be outperforming at least 75% of the other stocks in the same industry.

I: Institutional support.  Not only must investors respect and desire shares of the company in question, in the same sense, institutions like pension funds and mutual funds should be willing to own a stake in the company. The more, the better.  At least 60% of the stock's float should be held by institutions.

M: Market conditions.  With three out of four stocks moving in the same direction as the broader market at any given time, first and foremost an investor must determine if the market is in a bigger bull trend or bear trend. A marketwide bearish tide can send even the best of stocks lower in the short run.  It's better to buy at a short-term or even a long-term market lull.

Investors looking to learn more about the specifics of the CANSLIM method should read a recent edition of O’Neil's book How to Make Money in Stocks: A Winning System in Good Times or Bad. Even without knowing all the details, though, the premise can be applied simply by ensuring any potential investment looks decidedly strong on all seven of these fronts.

Note that most of the stocks that meet all of this criteria will most likely be small cap stocks, with the occasional mid cap name earning a spot on the list.