What is the CAN SLIM strategy?
First, we have to understand what the CAN SLIM strategy is and how it helps us pick up winning stocks.
The CAN SLIM strategy was developed by William O’Neil, a well known stock market expert, to help make the process of picking stocks more scientific and accurate.
The strategy is “techno-fundamental” and focuses on companies that show acceleration in earnings because of innovation and suggests buying them before the stock price witnesses a major spike.
The CAN SLIM method focuses on the Company’s fundamentals and technical factors to determine the opportune time to buy the stock.
A detailed explanation of the CAN SLIM strategy is available in the treatise “Trade Like an O′Neil Disciple: How We Made 18,000% in the Stock Market”.
The acronym CAN SLIM stands for the following:
|C: Current quarterly earnings of the company||The Company should have growth of at least 25% and there must be earnings acceleration over the last three quarters|
|A: Annual earnings growth||There must be annual earnings and sales growth of at least 25% for the past three years and a return on equity (ROE) of more than 17%|
|N: New product, service or management||There must be new products, new services, new leadership, new pricing or a new condition in the industry|
|S: Supply and demand||The demand for the stock must be high while the supply is low. Institutional investors must be interested in the stock|
|L: Leader||The Company must be a leader in its segment|
|I: Institutional sponsorship||Institutional investors must be interested and have a stake in the Company support to fuel its price movement|
|M: Market direction||The stock must trade in sync with the market|
The USP of the CAN SLIM formula is that there is no obsession with the P/E of the stock. It does not matter whether a stock is “cheap” or “expensive” as per the conventional methods. Instead, the focus is on whether there is a high-quality businesses with sustainable competitive advantages.
CAN SLIM method helped identify multibagger stocks like Ajanta Pharma and Astec Life Sciences
Charandeep Singh and Varun Daga, the founders of Girik Capital, have explained the intricacies of the CAN SLIM strategy in an interview with Ramesh Damani.
They revealed that they had used the CAN SLIM strategy as a basis for identifying Ajanta Pharma as a worthwhile investment candidate.
Ajanta Pharma rose from a market capitalisation of Rs. 1,800 crore to the present valuation of Rs. 15,000 crore.
The CAN SLIM strategy also helped the duo identify Astec Lifesciences as a must buy stock.
Astec Lifesciences fulfils all the requirements stipulated by CAN SLIM, Charandeep Singh and Varun Daga opined.
Needless to say, Astec Lifesciences is also a multibagger several times over.
Model Portfolio of ten stocks that fulfil the CAN SLIM strategy criteria
Yogita Khatri has consulted leading experts like AK Prabhakar of IDBI Capital, Deepak Jasani of HDFC Securities and Anupam Singhi of William O’Neil India and cobbled together a model portfolio of ten top quality stocks that fulfill the requirements of the CAN SLIM formula.
These stocks are as follows:
|Stock||CMP (Rs)||YoY gain (%)|
As one can see, the portfolio is perfectly balanced, with large caps like JSW Steel jostling for space with small and mid-cap stocks like Minda Industries, Igarashi Motors etc.
There is also adequate sectoral representation in the portfolio with candidates from the automobiles, FMCG, white goods, paper, steel etc making their presence felt.
Also, several stocks have already notched up hefty gains of up to 192% on a YoY basis, which gives an idea of their potency. Some are languishing, which suggests that they are in take-off mode.
The important aspect is that all the ten stocks are of very high quality and with excellent credentials of corporate governance etc. This makes them fail-safe and an ideal investment for passive investors who like to follow the buy-n-hold strategy.