Break Out Stock Selection Criteria

CANSLIM • O'Neil's Book Reviewed • C - Current Earnings • A - Annual Earnings • N - News • S - Supply & Demand • L - Leaders • I - Institutional Sponsorship • M - Market Direction: Tops • M - Market Direction: Bottoms

From Other Guides • Top Ten Foreign Companies • Investor Mistakes • Are Women Better Investors?

On The Web • The Pitbull Investor • Investors Business Daily • globeinvestor.com

Investing in stocks can be as complicated or as simple as you want it to be, ranging from a simple buy and hold philosophy to the rigors of day trading. The important thing is to have a plan or formula that works and stick to it.

The Pitbull Investor developed a modified CANSLIM approach to stock selection with very definite buy and sell criteria using Investor's Business Daily as a resource. This is a similar approach using information at globeinvestor.com since IBD does not cover Canadian stocks.

Buy Criteria

• Common Stocks Only
  We will include warrants and preferred shares in our table, but we will not consider them for purchase. We will, however, consider income trust units.

• New Highs
  Stocks must have reached a new high within the week and have a High/Low Ratio of less than 2.

• Volume
  Trading volume should be up on the day the stock first made new high. Stock should be liquid with an average trading volume of at least 25,000 shares.

• Price
  Stock should be trading at a minimum price of $1.

• Earnings per Share
  Preference given to companies who have established increasingly higher earnings per share for each of the last three years with a growth rate of at least 25%. Secondary consideration given to companies with a two year earnings growth rate of at least 25%.

• Relative Strength
  Stock's price performance must be among the top 30% on the TSE for the past year, which is roughly the top 500 stocks.

• Volatility
  To avoid stocks that have moved up very quickly in short span and are therefor due for a correction, we consider only those that are within 5% of a break out point. We also look favorably on stocks that have been steadily growing in price at a constant rate in a narrow trading channel.

Sell Criteria

• If relative strength drops 5 points from high, sell.

• If stock drops 10% from purchase price or from recent high, sell.