C.A.N.S.L.I.M. Focusing on the C (current EPS/Sales) & A (annual EPS/Sales)

1. C.A.N.S.L.I.M. Focusing on the C (current EPS/Sales) & A (annual EPS/Sales) Key Characteristics of the Top 5 IBD 50

2. Sharpen Your Skills • Market Trend • Base line for C.A. (Current/Annual EPS/Sales) • Past EPS/ROE/Sales/Pre-Tax Margin • Present EPS/ROE/Sales/Pre-Tax Margin • Future Estimates EPS/Sales Qrtly/Annually

6. What do institutions look for? • Earning Surprises • Accelerating EPS/Sales • Expanding Margins (profit) • Strong Qtrly/Annual EPS change • Signs that acceleration will continue • EPS break-out, ie.. -4%, 10%, 85%

7. Buy Stocks showing “Huge Current Earnings Increases” • In our models of the 600 best-performing stocks from 1952-2001, three out of four showed earnings increases averaging more than 70% in the latest publicly reported quarter before they began their major advances. Those that did not show current quarterly earnings increases did so in the very next quarter, with an average increase of 90%! • From 1910 to 1950, most of the very best performers showed quarterly earnings gains ranging from 40% to 400% before their big price moves. • The earnings per share (EPS) number you want to focus on is calculated by dividing a company’s total after-tax profits by the number of common shares outstanding.

8. Continued.. • Even profit gains of 5% to 10% are insufficient to fuel a major price movement in a stock. Besides, a company showing an increase of as little as 8% to 10% is more likely to suddenly report lower or slower earnings the next quarter. • Following the CANSLIM strategy’s emphasis on earnings ensures that investors will always be led to the strongest stocks in any market cycle. • Several other factors, which are mentioned in the book “How to Make Money is Stocks” are also essential. It’s just that EPS percentage increase is the most important.

9. Continued.. • You should always compare a company’s EPS to the same quarter a year earlier, not to the prior quarter, to avoid any distortion resulting from seasonality. In other words, you don’t compare the December’s quarter’s eps to the prior September quarter’s EPS. Rather, compare the December quarter to the December quarter of the previous year for a more accurate evaluation. • Our analysis of the most successful stocks also showed that, in almost every case, eps growth accelerated sometimes in the 10 quarters before a towering price move began. • Take particular note if the growth for both sales and EPS has accelerated for the last three quarters.

10. Current Qrly Earnings & Next Qtr expectationswww.cnbc.com www.cnbc.com Qrtly • Earning Surprises and Acceleration • Signs that Acceleration will continue

11. Current Annual Earnings & Next Yr expectationswww.cnbc.com Annual

12. =AVERAGE((E36-E40)/E40)% gain from Q4/12 to Q4/13

13. Use Excel to build a spreadsheet.=AVERAGE((R19-R23)/R23)=AVERAGE((R19-R23)/R23*-1) if negative number www.cnbc.com, www.msn.com Strong Qtrly and Annual % change. EPS and Sales. Expected Est. Change.

14. Current Earnings/SalesAnnual Earnings/Sales • Current earnings should be >25% and/or Accelerating. Ie… 25%, 35%, 45% • Annual earnings, same thing. >25% and/or Accelerating • The higher the % the better. The average EPS before taking off was between 40%-200%.

15. IBD University

22. Annual earnings increases: Look for Big Growth • Any company can report a good earnings quarter every once in a while. And as we’ve seen, strong current quarterly earnings are critical to picking most of the market’s biggest winners. But they’re not enough. To make sure the latest results aren’t a flash in the pan, and the company you’re looking at is of high quality, you must insist on more proof. The way to do that is by reviewing the company’s annual growth rate. • The annual growth rate of earnings growth for companies you pick should be 25%, 50%, or even 100% or more. • In a few cases, you might accept one down year in five as long as the following year’s earnings move back to new high ground.

23. Look for Big Return on Equity • You should also be aware of two other measurements of profitability and growth: return on equity and cash flow per share. Many growth stocks will have annual cash flow of 20% or more above EPS. • Return on Equity, or ROE, is calculated by dividing net income by share holder’s equity. This shows how efficiently a company uses its money, thereby helping to separate well-managed firms from those that are poorly managed. Our studies show that nearly all the greatest growth stocks of the past 50 years had ROEs of at least 17%. (The really superior growth situations will sport 25% to 50% ROEs.) • If ROE is too low, pre-tax profit margin must be strong.

24. Annual Cash Flow (HLF)Total annual cash divided by shares outstanding772M/102M=7.56 >20% Annual EPS=$5.37

25. Analysts’ Revisions of Estimates

26. Analysts’ Revisions of Estimates

27. www.zacks.com Estimates, Detailed Estimates

28. www.yahoo.com

29. Analysts’ Revisions of Estimates • Studies have shown that when estimates are revised upwards by 5 percent or more, stocks tend to show better than average performance. • Other valuable ways to track a stock’s earnings include determining how many times in recent months have analysts raised their estimates for the company plus the percentage by which several previous quarterly earnings reports have actually beaten their consensus estimates. • Buy growth stocks where each of the last three year’s annual earnings per share have been up at least 25% and the next year’s consensus earnings estimate is up 25% or more. • The consensus among analysts on what earnings will be for the next year should also be up—the more, the better. But remember: estimates are personal opinions, and opinions are wrong (too high or too low). Actual reported earnings are facts.

30. Kevin Marder from Marketwatch pays close attention to annual EPS growth 1-2 yrs out. IBD growth strategy.

34. Plug in data from MSN.com 10-Year Summary page and any other reference sources, to an excel spreadsheet.

35. Forecasted Qrtly change. Positive

36. Top 5 IBD 50 (Follow the Leaders) • FB • QIHU • UBNT • JAZZ • ALXN

37. High Comp Rating, EPS Rating, RS Rating, Increasing Fund Ownership, Great earnings Qtrly & Annually, Great Sales Qtrly & Annually, Earnings/Sales Acceleration, Expected Acceleration, Earnings Surprises, High pre-tax Margin (>15%)… Future Estimates revised higher.

42. What do these winners have in common? • Double - Triple digit % EPS Qtrly/Annually • Double - Triple digit % Sales Qtrly/Annually • Earning Surprises • High Net Profit Margins and ROE (Profits) • High EPS forecasts • Accumulation/Distribution Rating (A-B) (ALXN has a C) • High Composite/EPS/RS Rating(s)

43. Create a Master Excel Template

44. Step 1 Step 2, Copy & Paste data to an excel spreadsheet. Step 3, Transfer data from one sheet to another.

45. Microsoft Excel 2010 or Microsoft Excel 2003

46. Recommended sites • www.zacks.com ROE/Pre-Tax Margin Qtrly • www.yahoo.com Analyst Estimates/Total Cash Flow from Operating Activities • www.cnbc.com Earnings Current/forecast • www.fool.com Sales/Ownership Qtrly • www.finviz.com Shares Outstanding • www.msn.com 10 yr EPS/Sales • www.investors.com IBD Ratings

47. Bonus: Calculate P/E expansion Goal Price Excel Formula • P/E at first stage break-out • X 2.3 • X Expected 1-2 yr Est. Change • = P/E expansion Goal Price www.fool.com (Rates & Ratios, Earnings/Growth Rates)