Ask Colin

Can William O'Neil's CANSLIM method be used in Australian stocks?

To answer this, we need to examine every element of the CANSLIM method, from his book How to Make Money in Stocks:

C is for Current Quarterly Earnings. We can only get quarterly earnings on Australian stocks listed overseas where quarterly reporting is mandatory and a few who report quarterly here anyway. Miners have to give quarterly production reports from which earnings can be inferred. However, the method can be used in Australia, but on the semi-annual earnings reports mandatory here instead.

A is for Annual Earnings Increases. This is easily done for Australian stocks.

N is for New products, New management and New highs. This can be done here, but takes quite a bit of research time. New highs is the easiest one to research.

S is for Supply and demand (small capitalisation). This can be done here. The Australian Financial Review shares table available for subscribers in spreadsheet format on their web site can be easily sorted by capitalisation. It can also be done by hand from the Shares magazine tables section.

L is for Leader or laggard. This is a little harder to do now with the broad GICS sectors than it used to be with the old ASX sector indices. The sector breakdown in the Australian Financial Review on the weekend is helpful. So, it is possible, though it needs some research time.

I is for Institutional Sponsorship. This one is interesting, because superficially the S and the I are in conflict in our market - small capitalisation stocks do not generally have much institutional backing. However, this is a broad generalisation. The information is there in the top 20 shareholders lists, but they take some time to research.

M is for Market direction. This is easily done in Australia. The ASX All Ordinaries Index is the broadest measure for this purpose.

In summary, you could use the CANSLIM method here, with the proviso on quarterly earnings and the research time needed. I have given a very quick tour above and there are more aspects of the whole thing in the book. In general terms, I take note of all the things O'Neil does, but I do it a bit differently. I learned a lot from his writing, both confirming what I already thought was important and adding some aspects I had not previously weighted highly.

It should be kept in mind that CANSLIM is essentially a growth stock strategy. It is fine in bull markets, but in bear markets and the start of bull markets especially, the value approach seems to work better.