CAN SLIM

The stock you selected has to show a major percentage increase in current quarterly earnings per share compared to the prior year’s same quarter.

-Focus on EPS, the greater the percentage increase, the better!!

-Check sales and EPS

Watch out for misleading ones(EX. Sales up 20% all time high and earnings 5%)

How much are the current quarter’s earnings per share up(in percentage terms) from the same quarter the year before?

(Sales up 10%, and net income up 12%- not necessarily good concern about total net income )

Compare EPS to the same quarter a year earlier, not to the prior quarter to avoid from any distortion of seasonal things for more accurate evaluation. Let’s do 2-3 EPS comparison to see the growth.

Avoid low EPS Up at least 18% or 20% in the most recent quarter versus the same quarter the year before. Look for 25% to 30 % as their minimum earnings parameter. Prefer to show powerful earnings gains of 40% to 500%.

-Look for Sale Growth as well as Earnings Growth

At least 25% growth last three quarters
For IPO, average 100% or more in sales grows in each of the last 8, 10, or 12 quarters

Understanding the principle of earnings acceleration or deceleration is essential!!

Tips: take the latest quarterly earnings per share along with the prior three quarterly earnings EPS and plot them on a logarithmic –sale graph to get a clear picture of earning acceleration or deceleration. Plotting the most recent 12 month earnings each quarter should put the earnings per share point close to or already at new high.

-Check Other Stocks in the Group

In the same industry group, if you cannot find at least one other impressive stock, drop it.
Find Current Earning Report on investor’s Business Daily.

Current quarterly earnings per share should be up a major percentage 25-50% at a minimum-over the same quarter the previous year. The best companies might show earnings up 100-500% or more!!

Look for annual EPS growth last three years

The annual growth rate should be 25%, 50% or even 100% or more. (Between 1980-2000 average:36%)

Two other measurements of profitability and growth:

Return On Equity (ROE) Cash Flow Per Share

Study showed that nearly all the greatest growth stocks of the past 50 years had ROEs of at least 17 %( Superior growth will be 25% to 50% :ROEs)

Check the stability of a company’s Three-year Earnings Record

Cyclical stocks in basic industries such as steel, chemicals, paper, rubber, autos, and machinery usually lag in the new bull market’s early phase. Some of these companies weren’t competitive until the demand for steel, copper, chemicals and oil surged as a result of the rapid buildup of a industry.

-How to weed out the losers in a group

Three years of earnings growth will help you quickly week out 80% of the stocks in any industry group.
Price/Earnings Ratios (P/E)
Primary consideration should be given to whether the rate of change in earnings is substantially increasing or decreasing
From 1953-1985, the average P/E ratio for the best performing stocks at their early emerging stage was 20 (The average P/E of the Dow Jones Industrials over the same period was 15) As they advanced, the biggest winner expanded their P/Es by 125% to about 45%
From 1990-1995, the real leaders began with an average P/E of 36 and expanded into the 80s. Beginning P/Es for most big winners ranged from 25to 50 and expanded 60 to 115 or more.

P/E rations is good to estimate the potential price objective for a growth stock over the next 6 to 18 months based on its estimated future earnings.

Cyclical stocks normally have lower P/Es
high P/E stocks will be more volatile, particularly in the high-tech area

New Product and New Services that sells rapidly and causes earnings to accelerate faster than previous rates of increase

Change of management

New industry conditions-supply shortages, price increases, or the introduction of revolutionary technologies

1800-2008

Stunning growth- railroad industry, electricity, light bulb, the telephone, camera, auto, air plane, radio, refrigerator from icebox, TV, the computer, jet planes, the personal computer, fax, the internet, cellphone

Search for companies that have developed important new products or services, or that have benefited from new management or materially improved industry conditions. Then buy their stocks when they are emerging from sound, correctly analyzed price consolidation patterns and are close to, or actually making, new price highs on increased volume.

List of Super Success Corporation and Products

1. Northern Pacific was chartered as the first transcontinental railroad. Around 1900, its stock rocketed more than 4,000% in just 197 weeks.
2. General Motors began as the Buick Motor Company. In 1913–1914,
GM stock increased 1,368%.
3. RCA, by 1926, had captured the market for commercial radio. Then, from June 1927, when the stock traded at $50, it advanced on a presplit basis to $575 before the market collapsed in 1929.
4. After World War II, Rexall’s new Tupperware division helped push the company’s stock to $50 a share in 1958, from $16.
5. Thiokol came out with new rocket fuels for missiles in 1957–1959, propelling its shares from $48 to the equivalent of $355.
6. Syntex marketed the oral contraceptive pill in 1963. In six months, the stock soared from $100 to $550.
7. McDonald’s, with low-priced fast-food franchising, snowballed from 1967 to 1971 to create an 1,100% profit for stockholders.
8. Levitz Furniture’s stock soared 660% in 1970–1971 on the popularity of the company’s giant warehouse discount-furniture centers.
9. Houston Oil & Gas, with a major new oil field, ran up 968% in 61 weeks in 1972–1973 and picked up another 367% in 1976.
10. Computervision’s stock advanced 1,235% in 1978–1980 with the introduction of its new CAD-CAM factory-automation equipment.
11. Wang Labs’ Class B shares grew 1,350% in 1978–1980 on the development of its new word-processing office machines.
12. Price Company’s stock shot up more than 15 times in 1982–1986 with the opening of a southern California chain of innovative wholesale warehouse membership stores.
13. Amgen developed two successful new biotech drugs, Epogen and Neupogen, and the stock raced ahead from $60 in 1990 to the equivalent of $460 in early 1992.
14. Cisco Systems, yet another California company, created routers and networking equipment that enabled companies to link up geographically dispersed local area computer networks. The stock rose nearly 2,000% from November 1990 to March 1994. In 10 years—1990 to 2000—it soared an unbelievable 75,000%.
15. International Game Technology surged 1,600% in 1991–1993 with new microprocessor-based gaming products.
16. Microsoft stock was carried up almost 1,800% from March 1993 to the end of 1999 as its innovative Windows software products dominated the personal computer market.
17. PeopleSoft, the number one maker of personnel software, achieved a 20-fold increase in the 3½ years starting in August 1994.
18. Dell Computer, the leader and innovator in build-to-order, direct PC sales, advanced 1,780% from November 1996 to January 1999.
19. EMC, with superior computer memory devices, capitalized on the everincreasing need for network storage and raced up 478% in the 15 months starting in January 1998.
20. AOL and Yahoo!, the two top Internet leaders providing consumers with the new “portals” needed to access the wealth of services and information on the Internet, both produced 500% gains from the fall of 1998 to their peaks in 1999.
21. Oracle’s database and e-business applications software drove its stock from $20 to $90 in only 29 weeks, starting in 1999.
22. Charles Schwab, the number one online discount broker, racked up a 414% gain in just six months starting in late 1998, a period that saw a shift to online trading,
23. Hansen Natural’s “Monster” energy fruit drinks were a hit with the workout crowd, and its stock bolted 1,219% in only 86 weeks beginning in late 2004.
24. Google gave the world instant information via the Internet, and its stock advanced 536% from its initial offering in 2004.
25. Apple and the new iPod music player created a sensation that carried the company’s stock up 1,580% from a classic cup-with-handle base price pattern that was easy to spot on February 27, 2004—if you used charts.

The price of almost everything in your daily life is determined by the law of supply (Ex. When you pay for books, milk, TV, and beef depend on how much of each is available and how many people want these items.

if you’re choosing between two stocks to buy, one with 5bilion shares outstanding and the other with 50 million, the smaller one will usually be the better performer, if other factors are equal.

Tip: The total number of shares outstanding in a company’s capital structure represents the potential amount of stock available. But market professionals are looking at the “floating supply”. The number of shares that are available for possible purchase after subtracting stock that is closely held.

Another fundamental reason, besides supply and demand, companies with a large number of shares outstanding frequently produce slower results. Older and Big corporation produce slower and sluggish. However, there are some advantages: greater liquidity, generally less downside volatility, better quality.

Excessive stock splits may hurt

Knowledgeable pros and a few shrewd individual traders will probably use the excitement generated by the oversized split as an opportunity to sell and take their profits.

Look for Companies Buying Their Own Stock in the Open Market

(A 10% buyback would be considered big) The company expects to expand its sales and earnings in the future.

It is a good sign for a small to medium-sized growth company to meet CAN SLIM criteria.

Look for a Low Corporation Debt-to-Equity Ratio

Could be clobbered in the difficult period when interest rates are high or during ore severe recessions.

The best way to measure a stock’s supply and demand is by watching its daily trading volume. This is exceptionally important, and its why Investor’s Business Daily’s stock table show both a stock’s volume of trading for the day and the percentage that volume s above or below the stocks’ average daily volume over the last three months.

When a stock breaks out of a price consolidation area, trading volume should be at least 40-50% above normal. In many cases, it will increase 100% or much more for the day.

Buy among the best two or three stocks in a group

Buy great companies that lead their industries and are number one in their particular field
The best quarterly and annual earnings growth, highest ROI, widest profit margin, Strongest sales growth, and the dynamic stock –price action. Superior products and service and gaining market share from its older, less-innovative competitors.

How to separate the Leaders from Laggards:

Using Relative Price Strength (RSI) in Investor’s Business Daily Below 70 = laggards

Tips: Don’t buy 40s, 50s, or 60s. Purchase only RS rating of 80 or higher, 90 is the best.

Find new leaders during market corrections. If overall market comes down 10%, the better stock will correct 15-25, however, the growth stocks that decline the least= Best selection.

Look for abnormal strength on a weak market day

How many institutional sponsors a stock has and whether that number has increased steadily in recent quarters.

Who are sponsors?

At least backed up by One or Two savvy portfolio managers who have the best performance. (Check a mutual fund’s 36- Month Performance Rating in Investor’s Business Daily: A+ . You can also learn the top 25 holdings of each fund plus other data at Morningstar.com
Buy only those stocks that have at least a few institutional sponsors with better than average recent performance records and that have added institutional owners in recent quarters.

Even if you are correct about other criteria, if you against Market, you would be wrong!!

Technical Analysis

Bear markets usually end while business is still in a downtrend.

A stock is discounting!! The stock market is a leading economic indicator, not a coincident or lagging indicator. Similarly, bull markets usually top out and turn down before a recession sets in. For this reason, looking at economic indicators is a poor way to determine when to buy or sell stocks and is not recommended.

Tips: Study market every day,

In bear markets, stocks usually open strong and close weak.

In bull markets, they tend to open weak and close strong.

Your best bet is to learn to interpret daily price and volume charts of the key general market averages. If you do, you cannot get too far off-track, and you won’t need much else.

Three sings the first rally attempt may fail

(1)The index advances in price on the third, fourth, or fifth rally day, but on volume that is lower than that of the day before.

(2)The average makes little net upward price progress compared with its progress the day before.

(3)The market average recovers less than half of the initial drop from its former absolute intraday high.

When you see these weak rallies and failures, further selling is advisable.

C=CURRENT BIG OR ACCELERATING QUARTERLY EARNINGS AND SALES PER SHARE

A= ANNUAL EARNINGS INCREASES: LOOK FOR BIG GROWTH