Case Study: Analyzing Historical Winners Through a William O'Neil CAN SLIM Lens

William O'Neil's CAN SLIM methodology was not developed in a theoretical vacuum. It was forged through the meticulous study of the market's greatest winning stocks. By analyzing the common characteristics of these super-stocks, O'Neil was able to develop a effective system for identifying the next generation of market leaders. For the experienced trader, studying these historical examples is an invaluable exercise for honing one's stock-picking skills.

The Power of Historical Precedent

The market is a history book, and those who fail to read it are doomed to repeat its mistakes. By studying the charts and fundamentals of past winners, you can develop a keen eye for what a future winner will look like. You will begin to recognize the subtle clues and patterns that signal a stock is poised for a major move. This is not about finding a magic formula, but about developing a deep understanding of the market's character.

O'Neil himself was a voracious student of market history. He spent countless hours poring over old stock charts, looking for the common threads that linked the biggest winners. He found that these stocks all shared a similar set of characteristics, which he codified into the CAN SLIM system. By standing on the shoulders of giants, you can gain a significant edge in your own trading.

Case Study 1: Cisco Systems (CSCO) in the 1990s

Cisco Systems was one of the darlings of the 1990s tech boom. The company was at the forefront of the internet revolution, providing the routers and switches that formed the backbone of the newly emerging network. Let's analyze Cisco through the CAN SLIM lens:

• C - Current Quarterly Earnings: In the early 1990s, Cisco was reporting explosive earnings growth, often in the triple digits.
• A - Annual Earnings Growth: The company had a long track record of strong annual earnings growth, consistently in the 30-40% range.
• N - New Product, New Management, New High: Cisco was constantly innovating, with a stream of new products that solidified its market leadership. The stock was also consistently hitting new highs.
• S - Supply and Demand: Cisco had a relatively small float in its early days, which, combined with strong institutional demand, created a effective upward force on the stock price.
• L - Leader or Laggard: Cisco was the undisputed leader in its industry, with a dominant market share.
• I - Institutional Sponsorship: The stock was owned by a growing number of top-performing mutual funds.
• M - Market Direction: The 1990s was a effective bull market, which provided a tailwind for growth stocks like Cisco.

Cisco's chart from this period is a textbook example of a super-stock. The stock formed a series of sound bases and then broke out on huge volume, leading to a monster run that lasted for years.

Case Study 2: Home Depot (HD) in the 1980s

Home Depot was a revolutionary concept in the 1980s. The company created the big-box home improvement store, which offered a vast selection of products at low prices. Let's look at Home Depot through the CAN SLIM lens:

• C - Current Quarterly Earnings: Home Depot was reporting strong and accelerating earnings growth as it expanded its store base across the country.
• A - Annual Earnings Growth: The company had a consistent track record of 25%+ annual earnings growth.
• N - New Product, New Management, New High: Home Depot's new concept was a advantage in the retail industry. The stock was also a consistent new-high maker.
• S - Supply and Demand: The company had a manageable number of shares outstanding, which allowed for significant price appreciation.
• L - Leader or Laggard: Home Depot was the clear leader in the home improvement category.
• I - Institutional Sponsorship: The stock was a favorite of institutional investors, who were attracted to its strong growth and dominant market position.
• M - Market Direction: The 1980s was a strong bull market, which provided a favorable environment for growth stocks.

Home Depot's chart from this period shows a stock that was in a persistent uptrend, with a series of well-defined bases and effective breakouts. It was a classic O'Neil-style stock that delivered huge gains for those who got in early.

By studying these and other historical examples, you can train your eye to recognize the characteristics of a future market leader. The patterns repeat, and the lessons of history are a effective guide for the future. The next time you see a stock with explosive earnings, a new product, and strong institutional sponsorship, you'll know you may be on to the next Cisco or Home Depot.