One of the best stock screening filters for finding growth stocks are the parameters of the CAN SLIM Investing System that was created by William J. O’Neil. These parameters were quantified by his study of the fundamental company metrics of the largest winning stocks in the history of the U.S. stock market going back over 130 years.
The stocks that historically met these guidelines were the ones that eventually created the majority of the Alpha in the stock market over the long term during bull market cycles. He looked for the fundamentals that companies in the first stages of big growth cycles possesed.
The CAN SLIM Investing System looks for specific fundamental measurements of a company’s strength of earnings and sales along with its growth rate. It also considers more discretionary company filters like innovative products or business models along with good management.
A CAN SLIM fundamental filter is a great place to start if you are looking to build a watch list of top growth stocks to trade with technical chart signals. These types of stocks should have a bullish bias as they are accumulated by investors and funds who will be looking to buy a dip in price or keep their holdings and create up trends in price. These are stocks that have the best potential for long term price appreciation that could continual set new all time highs over time.
Here are the stock screener settings:
Quick CAN SLIM scan:
- Current Earnings: EPS >= 1.25* EPS [Q4]
- Annual Earning: EPS 5-Year Average (%) > 24.9
- New Price High: Price vs 52-week high (%) >84
- Supply: Shares Available (Millions) > 9
- Leader: Relative Strength Index > 30
- Institutional Ownership %: > 35
- Market Direction – Indexes over the 200 day simple moving average.
Current Quarterly Earnings
Look for stocks with increases in current quarterly earnings of at least 25%.
Annual Earnings Growth
Look for stocks that have grown their earnings at least 25% or more for the past 3 years.
New all time highs
Stock price should be near all time highs with little overhead resistance.
Smaller outstanding shares creates less supply in the market and will help buying demand drive up prices easier.
Focus on leading stocks over laggard stocks in each industry industry. The relative strength index (RSI) can be a technical guide. An RSI above 30 suggests a safer buy and over a 50 RSI shows some price strength.
This should be growing not declining.
Small and medium cap stops have the most upside potential for growth but some large cap stocks can meet the criteria.
Return on Equity
ROE should be over 17% as it shows the company is using its capital efficiently.