Inspired by Frank Cappiello's New Guide to Finding the Next Superstock, I decided to summarize some of his insights.
Each year there are stocks that do better than the stock market averages. In many cases spectacularly better. More importantly, there are stocks that year-in and year-out outperform the market as a whole in good as well as bad markets.
Those excellent performers possess the following common characteristics:
1. Small market capitalization (compared to the industry average)
2. Sales, growing much faster then the annual inflation
3. Gradually increasing and accelerating EPS
4. Rising profit margins (higher than the industry average).
5. ROE higher than the industry average and the market average.
6. Relatively low debt ratio
7. Gradually increasing P/E multiple
8. Low, but increasing institutions’ holdings
By being careful and disciplined about the stock’s selection, timing in its purchase will not be a significant factor in the long run. Put the other way, the right stock bought at the right time means fantastic price performance. The right stock bought at the wrong time results in substantial price appreciation over time. However the wrong stock will always be a disaster.
The Investor's Business Daily , CANSLIM method is just a restated form of the above book. For individual investors looking to outperform the market, growth stocks offer one of the best opportunities. Trading these stocks is easy. The rewards are many fold.