CANSLIM : Way to picking quality stocks

CANSLIM : Way to picking quality stocks

What is it about investing? Why are so many people intimidated by it?

Is it because experts try to wall you with their intellect and skills,thinking you will be impressed when they talk in terms that make you feel completely clueless.

A great financial lesson is one which is spoken in terms so easy that even a child could grasp the concept.

Personal Finance and investing does not have to be difficult but so many people are turned off because they are intimidated by the notion that investment is risky and its a game only for professionals.

Well there is a seven step method out there for picking a winning stock, all you have to remember is one acronym CANSLIM.

CANSLIM represents the seven fundamental components, so lets dive in this strategy.

Last week, we got a call from Markets smith India, research team they explained the rules & regulations & how they pick the stock.

CANSLIM Approach check list

C = Current Quarterly Earnings per Share.

O'Neil emphasizes the importance of choosing stocks whose earnings per share (EPS) in the most recent quarter have grown on a yearly basis. For example, a company's EPS figures reported in this year's April-June quarter should have grown relative to the EPS figures for that same three-month period one year ago.

Quarterly earnings per share must be up at least 18% or 20%, but preferably up by 40% to 100% or 200% or more , the higher, the better. They should also be accelerating at some point in recent quarters. Quarterly sales should also be accelerating or up 25% or more.

A = Annual Earnings Increases

CAN SLIM also acknowledges the importance of annual earnings growth. The system indicates that a company should have shown good annual growth (annual EPS) in each of the last five years.

There must be significant (25% or more) growth in each of the last three years and a return on equity of 17% or more (with 25% to 50% preferred). If return on equity is too low, pretax profit margin must be strong.

N = New Products, New Management, New Highs.

Look for new products or services, new management, or significant new changes in industry conditions. And most important, buy stocks as they emerge from sound, properly formed chart bases and begin to make new highs in price.

S = Supply and Demand Shares Outstanding plus Big Volume Demand.

Any size capitalization is acceptable in todays new economy as long as a company fits all the other CAN SLIM rules. Look for big volume increases when a stock begins to move out of its basing area.

L = Leader or Laggard.

Buy market leaders and avoid laggards.

Buy the number one company in its field or space. Most leaders will have Relative Price Strength Ratings of 80 to 90 or higher and composite ratings of 90 or more in bull markets.

I = Institutional Sponsorship.

Buy stocks with increasing sponsorship and at least one or two mutual fund owners with topnotch recent performance records. Also look for companies with management ownership.

M = Market Direction.

Learn to determine the overall market direction by accurately interpreting the daily market indexes price and volume movements and the action of individual market leaders. This can determine whether you win big or lose. You need to stay in gear with the market. It doesn\u2019t pay to be out of phase with the market.

10 stocks We picked by CAN SLIM APPROACH - FROM 2014

These stocks, identified using the CAN SLIM method, new high strategy

- AVANTHI FEEDS

- CAPLIN POINTS

- PIRAMAL ENTERPRISES

- BAJAJ FINANCE

- CANFIN HOMES

- CHAMANLAL SETIA

- NATCO PHARMA

- TVS MOTORS

- DWARIKESH SUGAR

- SUNDRAM FASTNERS

What we do actually ?

- We use to screen stocks based on CANSLIM approach for environmental scanning.

- we look for every large sales and earnings increases resulting from unique new products or services .

- we believe that selling unique service / low cost advantage can be phenomenal.

Ex:- CANFIN enjoys the best in class asset quality and is also the fastest growing HFC with a loan book CAGR of 30 % & PAT CAGR of 40 % with ROE 18.6 % . GNPA being 0.7 %. CANFIN's NNPAs continue to be nil since 2010 having provision coverage of 100 % , This is due to Focus on salaried class, first time home buyers, low ticket size . We found this very interesting

- We believe that consistency in the product that creates consistency in the company's profit , company doesnt have to keep changing its product, durable competitive edge will create competitive edge , which leads to 100 baggers will emerge from here . Ex :- Eicher motors, symphony ltd, page industries

- what we see in income statement :- Operating margins, return on equity & the consistency & directions of earnings, we are like company which spends less obviously it is reflected in profit margins

- what we see in balance sheet :- we will come up detailed article regarding the ratio analysis & balance sheet items

- free cashflows must

- CANSLIM principle is based on historian approach, studying and discovering how stocks and markets actually work and teaching and training people everywhere who want to make money investing intelligently and realistically.

- No matter how smart you are, how high your IQ, how advanced your education, how good your information, or nu how sound your analysis, youre simply not going to be right all the time. In fact, you will probably be right less than half the time! You

positively must understand and accept that the first rule for the highly successful individual investor is always cut short and limit every single loss. To do this it takes never-ending discipline and courage.

Reading this article alone though will not let you fully grasp CANSLIM, you need to repeat this and memorize it. These principles definitely helped me grow my portfolio significantly, now its your turn!

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