CANSLIM stock performance 2013

Attached is a pdf file documenting performance of CANSLIM type picks last year. These stocks are not from my watch lists but I had many of these stocks on my watch lists in the stock picker section. These stocks were featured stocks in the Daily Stock Analysis video hosted on investors.com. This list was given to me by one of the authors of Daily Stock Analysis and was told it could be shared in open forums.

What is common to many of the selections is that these stocks are chosen for mid-to-longer-term holding. For a stock to continue running up it usually needs uncommon earnings growth, there are exceptions to every rule of course. We look for stocks showing accelerating earnings over several quarters, at least 25% growth in the last quarter compared to prior year same quarter; much more than 25% is preferred. We also look for companies that are priced in the sweet spot for institutional investors (>$20) and show institutional trading volume (>400K per day, much more preferred). We also want stocks breaking out of a sideways consolidation such as a cup and handle pattern, double bottom, flat base, etc. Other patterns such as breaking above what we call three-weeks tight are also chosen: 3-WT means the price has closed 3 weeks in a row at nearly the same price, a sign of institutional accumulation. EV can also help decide which candidates are showing large player accumulation just before it breaks out or bounces off a key moving average. In the stock picker section I regularly produce a watch list of these type stocks with buy points and comments as to what type of pattern has formed.

I have spot checked a few of the 79 stocks on this list. The percent gain column means the gain from the time of the recommendation and held it until December 31 (end of year). Some of the gains could have been greater following normal sell rules that trigger from time to time on individual stocks. Thus the percent gain columns are the minimum gain available last year. As far as the 14 losing positions most of the losses would have been limited to no more than 7% as that is an absolute CANSLIM selling rule to cut all losses at 7-8%. Gap downs are the obvious exception.

Thanks Mike for sharing your valuable insights as always. Scanning through the list I see lots of familiar names that I've been involved in over 2013. However, I'm not seeing TWTR on this list so wondering how CANSLIM investors & IBD handle such young issues that demonstrated high demands and explosive price actions but yet to have historical earnings?

I have started watching the DSA videos. I was under the impression that most of these picks were to highlight a stock getting ready to break out of specific pattern? For example, ALGN just broke out above recommended buy point yesterday yet already showed a 3-5% gain on the sheet you provided.

I know you are not their spokesman but is IBD recommending to buy a stock the day it is highlighted in a DSA? If so, doesn't this contradict the buy advice given in the DSA videos? I guess what I am asking is ... why did IBD release this list? Is it simply demonstrate they are identifying stocks early?

I don't expect you to know the answers - just thinking out loud.

[QUOTE=Ken;27269]Thanks Mike for sharing your valuable insights as always. Scanning through the list I see lots of familiar names that I've been involved in over 2013. However, I'm not seeing TWTR on this list so wondering how CANSLIM investors & IBD handle such young issues that demonstrated high demands and explosive price actions but yet to have historical earnings?[/QUOTE]

Ken, I know a few CANSLIM investors who are in TWTR but not many. TWTR shows no earnings and projects no earnings through 2014. Its sales have been growing nicely which is possibly the one excuse to own it. Instead of owning TWTR, in the same industry group are BITA, SFUN and YY. These show tremendous earnings history and at least I would choose them over TWTR. I have learned the hard way that I need a reason to have conviction in my stock selections otherwise I have trouble holding them when they go through a rough patch. All stocks seem to go through rough patches and I tend to sell them at the low print of the rough patch if I don't have conviction.

[QUOTE=Harry;27270]I have started watching the DSA videos. I was under the impression that most of these picks were to highlight a stock getting ready to break out of specific pattern? For example, ALGN just broke out above recommended buy point yesterday yet already showed a 3-5% gain on the sheet you provided.

I know you are not their spokesman but is IBD recommending to buy a stock the day it is highlighted in a DSA? If so, doesn't this contradict the buy advice given in the DSA videos? I guess what I am asking is ... why did IBD release this list? Is it simply demonstrate they are identifying stocks early?

I don't expect you to know the answers - just thinking out loud.[/QUOTE]

Harry,
IBD is not recommending buying a stock on the day of the DSA video. It is suggesting that it might be a good candidate for your watch list however. Stocks should be bought at the right time. In CANSLIM investing the right time is when the stock breaks through a proper buy point on large volume. Buy points of the standard bases are selected usually at a resistance point in the pattern such as the top of the handle in a cup and handle pattern. Volume should be 50% or more above 50-day average volume. For ALGN which has broken out of a flat base the buy point is the top of that base 60.00. Yesterday it broke above that price on volume 67% above average volume. However when I inspect the base I can see an internal resistance point established by the top of 12/26/13 bar at 58.50. This could establish a more aggressive buy point allowing you to purchase it earlier in yesterday's breakout. The DSA video was on 12/6/13 when ALGN was showing that it was forming a flat base and demonstrating that it was holding above its 10-week moving average. Couple this with the last reported increase of 62% earnings increase over the prior like quarter in 2012 made it a reasonable candidate. The price gains shown on the pdf are from the date of the DSA report. I suspect this approach was adopted to make it simple to run the calculations instead of inspecting each chart for the proper buy point and testing for the proper volume criteria for each stock.

Clearly one could have made money in 2013 by blindly purchasing stocks on the day of the DSA but that is not the recommended approach. ARUN (largest loser on list) for example would never have been purchased after placing on a watch list as it never broke out, it just failed prematurely. Waiting for the proper buy point is what is recommended to avoid some obvious losing positions.

[QUOTE=mscott;27273]Harry,
IBD is not recommending buying a stock on the day of the DSA video. It is suggesting that it might be a good candidate for your watch list however. ... The price gains shown on the pdf are from the date of the DSA report. I suspect this approach was adopted to make it simple to run the calculations instead of inspecting each chart for the proper buy point and testing for the proper volume criteria for each stock.[/QUOTE]

Got it. Thank you for your time to write a detailed reply!

Harry