William J. O’Neil’s How to Make Money in Stocks has been a trusted guide for investors for decades. His CAN SLIM method provides a structured approach to identifying high-potential stocks. But how relevant is this strategy in today’s market?
The CAN SLIM Strategy in Modern Investing
CAN SLIM is an acronym representing seven key factors O’Neil identified in top-performing stocks before their biggest gains. Each component represents a crucial factor in stock selection:
1. Current Quarterly Earnings (C)
O’Neil emphasized that stocks with strong earnings growth outperform the market. Earnings reports are more accessible than ever in our current digital age. Investors can track earnings surprises and revenue growth using platforms like Bloomberg, Yahoo Finance, and company investor relations websites.
2. Annual Earnings Growth (A)
Companies with consistent annual earnings growth attract investors. Look for firms with at least 20-25% earnings growth over the past few years. Tech firms, SaaS companies, and innovative healthcare stocks often exhibit strong earnings expansion.
3. New Products, New Management, or New Highs (N)
A stock’s price often surges when a company introduces groundbreaking products, undergoes leadership changes, or reaches new highs. Investors should watch for AI advancements, clean energy innovations, or disruptive technologies that can drive growth.
4. Supply and Demand (S)
Stocks with limited supply and increasing demand tend to rise in price. Monitor trading volume and institutional ownership; high demand from mutual funds and hedge funds often signals a strong stock.
5. Leader or Laggard (L)
O’Neil advised investing in industry leaders rather than laggards. Today, leaders in cloud computing, semiconductors, and fintech have shown strong momentum. Investors should compare relative strength ratings to find top-performing stocks.
6. Institutional Sponsorship (I)
Institutional investors (example: pension funds, hedge funds) play a crucial role in driving stock prices. Modern investors can track institutional holdings through 13F filings and platforms like Morningstar or MarketWatch.
7. Market Direction (M)
O’Neil stressed the importance of understanding market trends before investing. Today, investors can use technical indicators, macroeconomic data, and sentiment analysis tools to gauge market health.
Adapting CAN SLIM to Today’s Market
While the core CAN SLIM principles remain relevant, investors must adapt to modern challenges:
● Rise of Retail Investing: With commission-free trading apps, retail investors influence market movements more than ever. Stocks can become overvalued quickly due to hype, requiring careful analysis.
● Algorithmic Trading: AI-driven trading strategies create rapid price fluctuations. Investors should be mindful of short-term volatility and focus on long-term trends.
● Global Events Impacting Markets: Geopolitical tensions, supply chain disruptions, and central bank policies significantly affect stocks. Investors should incorporate macroeconomic analysis into their research.