Re: TOO (was:[CANSLIM] WebLinks)

From: Spencer48@aol.com
Subject: Re: TOO (was:[CANSLIM] WebLinks)
Date: Thu, 16 May 2002 13:44:28 EDT

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Katherine:

     Cash-Flow is a good item to check to see if earnings are at least equal 
to the money coming in.  However, to me it would seem that this test would 
only be valid for companies that needn't invest in a lot of R&D (eg. consumer 
and retail companies).

     Companies with a lot of R&D (which are a % of sales, and which are 
deducted from earnings as an expense and not added back in to arrive at 
Cash-Flow) would seem to be an exception to your hard and fast Cash-Flow rule 
(ie. Cash-Flow positive). 

     Moreover, it would seem to me that companies which are investing in a 
lot of R&D would be the same companies which WON suggests are in the most 
dynamic and rewarding industries (eg. technology stocks or biomed stocks).

     I'll give you an example of a stock which has poor cash-flow, but has a 
very high R&D:  ENZN.  One of the reasons I'm looking at it is because of its 
sparkling earnings and sales (sequential, quarterly, and yearly).  Of course, 
the chart looks terrible, but its fundamentals (as far as I'm concerned) even 
with its poor cash-flow, does not eliminate it.

jans


In a message dated 5/16/2002 12:31:05 PM Eastern Daylight Time, 
kmalm@earthlink.net writes:

<< Patrick,
 
 You've been reading my mind!! Couldn't agree with you more. Since really 
spending time getting to the heart of CANSLIM, I concluded that technical 
strength combined with minimum growth characteristics and an identifiable 
strategic advantage are the most important aspects. Here's how I go about 
finding the candidates in more specific terms:
 
 "Must Have"
 =========
 Minimum Technicals:
 RS>=60 and <70 + RS rising--minimum starting point for watch list
 RS>=70 (min at purchase)
 Price >= -15% of 50dMA
 Price >= 200 dMA
 A/D = A, B, C (prefer A or B on purchase)
 Minimum Fundamentals:
 Forward growth rate >=15
 Expected return based on Current Price, past profitability & EPS estimates 
>= return on AAA bonds (this from VectorVest, RV>=1 and a simple measure of 
risk/reward)
 Cash Flow positive
 "N" = identifiable strategic advantage that makes the stock and/or the 
industry a "L"eader with fuel for future growth
 The last two can't be easily filtered, so require due diligence. (Cash flow 
is unreliable in stock screeners because you don't always know whether they 
are using fiscal, trailing 12 months, prior reported year, etc.)
 Sound technical pattern on break out and/or pullback entry.
 
 "Sorting/Elimination/Preference Criteria"
 ===========================
 Operating Cash flow nearly equal to EPS (a quick way to identify accounting 
red flags)
 EPS and Revs growing (prefer >=20%, if a turnaround, at least 2 quarters of 
growth)
 ROE (prefer >=17%)
 D/E (prefer <=50%)
 % Institutional ownership (prefer 10-40%)
 At least one other stock that is a direct competitor or is in the same 
industry is also in similar technical shape (only exception is when the 
company's product/market is so unique that there is no obvious publicly 
traded competitor )
 General industry strength (prefer the same RS requirements as with the 
stock--This acts more as a "draw your eye to strength" indicator for the 
above condition)
 These last items I don't filter for, but the more of the minimums the stock 
meets, the more "points" the stock gets. All else being equal in the "must 
haves", this sorts the cream to the top of the list.
  >>

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