L = Leader or Laggard

In this part of CANSLIM analysis, distinguishing between market leaders and market laggards is of key importance. In each industry, there are always those that lead, providing great gains to shareholders, and those that lag behind, providing returns that are mediocre at best. The idea is to separate the contenders from the pretenders.

Relative Price Strength

The relative price strength of a stock can range from 1 to 99, where a rank of 75 means the company, over a given period of time, has outperformed 75% of the stocks in its market group. CANSLIM requires a stock to have a relative price strength of at least 70. However, O’Neil states that stocks with relative price strength in the 80–90 range are more likely to be the major gainers.

Sympathy and Laggards

Do not let your emotions pick stocks. A company may seem to have the same product and business model as others in its industry, but do not invest in that company simply because it appears cheap or evokes your sympathy. Cheap stocks are cheap for a reason, usually because they are market laggards. You may pay more now for a market leader, but it will be worth it in the end.