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CANSLIM is a very famous investing strategy. It is actually a combination of 7 criteria of a winning stock:
C: Current Earnings - Any acceleration in quarterly earnings?
A: Annual Earnings - Is the company growing year after year?
N: New Conditions - Anything new in the company or the industry?
S: Supply - How many outstanding shares are there?
L: Leaders - Is it a leading stock in a leading industry?
I: Institutional Buying: Any big investors are after the stock?
M: Market Direction: Is the general market in a steady uptrend?
Here is a recent example that qualifies quite well with CANSLIM:
MasterCard
About the Company:
I don't think MasterCard (NYSE:MA) needs any introduction. It is currently the world's second-biggest provider of card payment services. More consumers worldwide are using plastic debit cards, and to a lesser extent, credit cards, as their primary means of payment on all sorts of transactions. MasterCard continues to outpace expectations, thanks to the rapid growth of debit and credit card transactions in emerging markets.
How It Fits CANSLIM:
Below is how MasterCard satisfy the CANSLIM criteria as a winning stock. However, the "M" in CANSLIM (Market Direction) would not be discussed, because the general market direction is independent to any individual stock, and should be treated separately.
C: Current Earnings
Both the most recent quarterly sales and EPS show a steady growing trend:
Both have strong recent acceleration in growth.
A: Annual Earnings
The annual earnings of MasterCard of the past four years.
With a notable exception of a dip in the 2008 crash, it has been showing increasing profit.
In addition, it also has a whopping return on equity (ROE) of 38%, which is much greater than the minimum 17% as required in the CANSLIM strategy.
N: New Conditions
MasterCard's second-quarter wins in 2011 included signing up a pair of big banks, SunTrust (STI) and Banco Santander's (STD) U.S. affiliate, Sovereign Bank — to offer MasterCard debit cards. Previously, those two banks offered Visa debit cards.
S: Supply of Stocks
The current number of outstanding shares is 107.4M, the lowest available in 5 years, which means that big investors have been accumulating its shares.
It also has a long-term debt to equity (LTD/E) ratio of zero. These are extremely rare.
L: Leaders of Market
First of all, the industry of the company, credit card processing, is currently ranked 11 out of a total 197 by Investor's Business Daily, so the company is in an leading industry.
Secondly, MasterCard is also the number 2 of the industry, just behind VISA, so it is a leading company in a leading industry.
Lastly, on technical ground, the stock is also outperforming the S&P 500, which is a sign of strength.
I: Institutional Support
This is most interesting point. According to a report here, two very famous investors, Will Danoff (Fidelity Contrafund) and Warren Buffett (Berkshire Hathaway), were increasing their stakes in the company. Note that while Buffett was a famous value investor, Danoff was a growth investor. When two investors of different styles agree in a stock, it must be a good stock.
Conclusion
You can see a lot of CANSLIM features in MasterCard, which makes it a good watchlist material. However, it does not mean you should buy it straight away. You must wait for a resumed uptrend in the general market, as well as a sound technical formation in the chart, to get a optimal buying opportunity.
The new IPO Francesca (FRAN) could be another CANSLIM stock.
About the Company:
Based in Houston, the company operates 249 boutiques in 38 states and has its sights on 900 more locations. It sells clothing, jewelry, accessories and gifts to fashion-minded women age 18 to 35.
How it fits CANSLIM:
C: Current Earnings
Strong prior-year quarterly growth.
Trailing 12-month data not available, so I cannot see the acceleration in EPS and sales of recent quarters, but according to an article here, "The company delivered triple-digit profit growth in two of the past four quarters. Over the same period, sales growth ranged from 62% to 80%."
A: Annual Earnings
The company has a very strong annual income growth.
N: New Conditions
Francesca's came public on the Nasdaq on July 22. Goldman Sachs, JPMorgan Chase and Jefferies were the lead underwriters. New issues can make for some of the market's biggest winners, but they can also be more volatile.
S: Supply of Stocks
During the IPO, it sold 10 million shares at 17 each, above an indicated range of 14 to 16 a share.
L: Leaders of Market
Its apparel retail industry group ranked 26th out of 197 groups in Investor's Business Daily at the time of writing.
The company also has the best EPS growth in the industry, according to Investor's Business Daily again.
I: Institutional Support
Not enough data here, but Francesca's had a big opening week after the IPO, when it traded as high as 28.85 and as low as 22.46. This indicates at least some institutional interest.
This time, we would like to see how the CANSLIM methodology could be applied to an newly issued IPO stock, and Arcos Dorados (ARCO) is our exmaple.
About the Company:
The Argentina-based firm is the largest operator of McDonald's (MCD) in Latin America and the world's biggest McDonald's franchisee. The company — whose name means golden arches in Spanish — runs 1,755 eateries and has exclusive rights to own, operate and sub-franchise McDonald's restaurants in 19 countries and the Caribbean.
A brief review of CANSLIM:
In case if you are not very familiar of CANSLIM, here is a reminder about the seven things you should check when you buy a stock:
- C: Current Earnings - An acceleration in current (quarterly) earnings.
- A: Annual Earnings - A steady growth of earnings over the years.
- N: New Conditions - Novelties that may spark growth in company or industry.
- S: Supply - How many outstanding shares are there?
- L: Leaders - A leading stock in industry, or in a leading industry, or both.
- I: Institutional Buying: How many big investors are supporting the stock?
- M: Market Direction: Is the general market in a steady uptrend?
How it fits CANSLIM:
C: Current Earnings
Despite of some fluctuations in EPS, it has a steady growth in sales.
A: Annual Earnings
Except a dip in the year of 2009, where the world was affected by the market crash, the company has been showing a strong EPS growth in recent years.
Also, the current ROE is 21%, which is above the minimal 17% required.
N: New Conditions
Stocks give the greatest growth potential when they are newly issued, and this new IPO, which was issued on 14th April, 2011 at $17, is holding itself up quite well against the current correction, and never reached below $20 since IPO.
S: Supply of Stocks
Arcos Dorados came public on the NYSE in April, when it sold 73.5 million shares at 17 each. This is not too diluted for momentum investing.
L: Leaders of Market
Arcos Dorados is the leader in the Latin American quick-service restaurant industry. It has a market share of 12.4%, or more than three times that of its largest competitor, Burger King. That share should get even bigger as Arcos Dorados expands its footprint in Brazil, Latin America's biggest market.
Also, despite market volatility, the stock is up more than 30% from its IPO price and a modest 5% below its 52-week high. That makes it one of the more successful new issues.
I: Institutional Support
Currently, there are a total of 168 fund holdings in the company. Since it is an IPO, there is no previous record of fund holdings. Hopefully, the number of funds will increase as the result of the company improves.
M: Market Direction
As always, never jump into a stock just because it has good fundamentals. You should enter the market when there is a confirmed uptrend in the general market, as well as a sound chart pattern in the individual stock. For more information on market timing, please look at the free online course on General Market Direction and Chart Patterns on Investors.com.
The CANSLIM example of this week is the leader in the US beverage industry: Hansen Natural (HANS).
About the company:
Hansen's is a leading marketer in the US of all natural alternative as well as functional beverages. Based in Corona, California, Hansen Natural Corporation markets and distributes many brands of beverage, including its famous Monster Energy® brand energy drinks. In addition to that, Hansen’s Natural Sodas have been a leading natural soda brand in Southern California for the past 30 years.
A brief review of CANSLIM:
In case if you are not very familiar of CANSLIM, here is a reminder of what it is about:
- C: Current Earnings - An acceleration in current (quarterly) earnings.
- A: Annual Earnings - A steady growth of earnings over the years.
- N: New Conditions - Novelties that may spark growth in company or industry.
- S: Supply - How many outstanding shares are there?
- L: Leaders - A leading stock in industry, or in a leading industry, or both.
- I: Institutional Buying: How many big investors are supporting the stock?
- M: Market Direction: Is the general market in a steady uptrend?
How Hansen Natural Fits CANSLIM:
C: Current Earnings
It has been showing solid growth in sales and EPS in the past 8 quarters.
A: Anuual Earnings
Its annual EPS is also in a steady uptrend. It also has an annual ROE of 30% in 2010.
N: New Conditions
Its bestselling product, Monster Energy Drink, it currently beating competitors like Red Bulls, according to a report here.
S: Supply of Stocks
The current number of outstanding shares is 88.39M, which is near its two-year low of 88.16. We want to see a decreasing outstanding shares because it means people are buying.
L: Leader of Market
Hansen is one of the leaders in its industry, and its Monster Energy Drink is one of the best selling products in the market.
Technically, the stock has also been outperforming the market:
I: Institutional Support
The number of funds owning the stock is increasing, which indicates a great demand of the shares.
M: Market Direction
On the daily chart, Hansen broke up from a double bottom pattern with above-average volume, which is a sign of institutional interest.
(Click to Enlarge)
So, if you have been following the stock, you should have bought the breakout at $82.70 as indicated by the pattern, and set a stop loss order at $77.00 by the 7% cut loss rule.
A leading drug making company in the US. Soliris is the company's only drug. It's used to treat a rare life-threatening blood disorder. And Alexion is working on getting the drug approved to treat other rare and severe ailments.
How It Fits CANSLIM:
C: Current Earnings
Earnings growth has cooled but stood at a still-strong 45% last quarter. Sales climbed 48% last quarter, the biggest gain in two years.
A: Anuual Earnings
Going forward, analysts see earnings rising 30% in 2011 and 37% in 2012. But ROE only 13.42%, less than the required 17%.
N: New Conditions
Alexion's drug of Soliris is approved in over 35 countries to treat one rare life-threatening blood disorder called paroxysmal nocturnal hemoglobinuria, or PNH. The company expects the Food and Drug Administration to decide if Soliris can be marketed to treat another rare disease, atypical Hemolytic Uremic Syndrome, or aHUS, as early as this year's fourth quarter. The disease primarily affects kidney function. If approved, Alexion officials anticipate the U.S. launch of Soliris for aHUS during the same quarter.
On 23rd September, 2011, as reported here, Alexion got good news from both sides of the Atlantic. The U.S. Food and Drug Administration approved Soliris' use to treat a disease called atypical hemolytic uremic syndrome, or aHUS. And the European Committee for Medical Products for Human Use, or CHMP, recommended that the same indication be extended to Soliris in Europe.
S: Supply of Stocks
Shares outstanding has been increasing slightly from 177M at the beginning of the year to 184M right now, but despite of that, the price of the shares has been increasing.
The 20-day average trading volume is around 1.5M.
L: Leader of Market
The stock is a member of the Medical-Biomed/Biotech industry group, which is one of the leading groups in the market. The company itself has the best Composite and EPS rating inside the group according to IBD, so it's the leader of the group.
I: Institutional Support
Mutual funds seem to have noticed those gains — the number of funds owning the stock has been rising.
M: Market Direction
As always, never jump into a stock just because it has good fundamentals. You should enter the market when there is a confirmed uptrend in the general market, as well as a sound chart pattern in the individual stock. For more information on market timing, please look at the free online course on General Market Direction and Chart Patterns on Investors.com.
CANSLIM Examples 
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