If you’ve ever wondered how to find shares capable of delivering the sort of explosive growth seen by the likes of internet fashion retailer ASOS in recent years, the answer could lie in the work of one of America’s best known investors. Throughout 2013, William O’Neill’s strategy for tracking down companies with the right combination of earnings growth and momentum has produced some terrific results. As with many growth investing models, rising markets this year have reduced the pool of UK companies qualifying for O’Neill’s so-called CAN SLIM® screen but there’s still a bumper line up of potential stock candidates across Europe.
O’Neill is a cult figure among American investors; his 1994 book How to Make Money in Stocks is a masterclass on the use of both fundamental and technical rules when buying and selling shares. Its broad appeal lies in the excitement of finding stocks that are beginning to deliver earnings acceleration but haven’t yet been re-rated by the market. The popularity of this quest to find the stock stars of tomorrow has enabled O’Neill to establish something of a mini empire for his CAN SLIM® strategy, which is driven by his online news and research portal, Investor’s Business Daily.
His strategy marries traditional ‘growth’ characteristics such as earnings momentum and product innovation with ‘technical’ indicators like rising demand for shares and price strength. Traditional valuation measures like P/E ratios don’t feature here, with O’Neill’s studies of the market finding that the greatest winners of all time were all on premium P/Es, with some priced as high as 50x or even 80x earnings. For that reason, the strategy also carries a potentially high degree of risk, which is why O’Neill also insists on setting strict 8% stop-losses on entry points. You can read more about the strategy works and what CAN SLIM® actually means here.
Over the past 12 months a strategy inspired by these rules tracked by Stockopedia has returned a stellar 48.5% against the FTSE 100 which has managed just 12.3%. Behind that performance are stocks like Secure Trust Bank (LON:STB), which rose by 47.7% (to £21.20) during the six months it was held in the CAN SLIM portfolio. Likewise, shares in high street retailer Next (LON:NXT) have risen by 10.3% (to £50.25) since they were bought in June, while…
