The Deen's List(TM) A service of Deen Capital Management, Inc. (www.deencapital.com) Vol.1 #39 Monday October 27 2003 11:14am ET Please read carefully our disclaimers at the end of this newsletter. Market stance: BULLISH (since Oct 3 2003) ******************************* Contents ******************************* Bought FRX Bought HDWR ****************************** Bought FRX ****************************** Forest Laboratories Inc (FRX) Net buy price in managed accounts(*)... $50.66 Yesterday's close (Oct 24)............. $50.84 Net change (based on net buy price).... -$0.18 Today's volume as of 10:52am ET........ 523,600 ($26.5 million) Average daily volume................... 3.7 million ($189.7 million) This year's earnings-per-share......... $1.86 (est) Next year's earnings-per-share......... $2.33 (est) P/E using next year's earnings......... 21.8 (est) Earnings growth rate, next 5 years..... 21.0% per year (est) (*) The "Net buy price" is the total net purchase cost after commissions for all managed accounts divided by the total number of shares. On Mon Oct 27, I bought FRX. Forest Labs (www.frx.com) develops and sells both branded and generic pharmaceuticals. Here's why I bought this stock: + Technical: The stock is trading near the high end of a six-week trading range, and all the heavy volume recently has been on the buy side. This suggests the stock may be poised for an upside breakout. + News: The company recently (on Fri Oct 17) announced FDA approval for Namenda, the company's new drug for treatment of late-stage Alzheimer's disease. The drug has been shown to slow the decline in awareness, reasoning and daily function. The drug should be available in January. + Excellent recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +42%, +44%, +41%, and, most recently, for the quarter ended Jun 30, +28% to $614.4 million. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Dec 02 vs Dec 01: 47c vs 24c Mar 03 vs Mar 02: 48c vs 26c Jun 03 vs Jun 02: 48c vs 33c Sep 03 vs Sep 02: 49c vs 38c + Strong earnings growth projections: According to recent data from First Call, the consensus earnings estimate for FY 04 (Sep) is $1.86, down from $1.99 90 days ago; and the consensus estimate for FY 05 is $2.33, unchanged from 90 days ago. The reduction in the earnings projection for FY 04 is due to increased spending on a marketing campaign for the new Alzheimer's drug. This in turn is due to the recent FDA approval. + Valuation: At 22 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 21%, the stock is moderately priced. The above items were so compelling that I chose to buy the stock in spite of the following negative factor: - The company's industry group ("Medical - Ethical Drugs") has fallen in relative strength over the past six months, according to Investor's Business Daily. ***************************** Bought HDWR ****************************** Headwaters Inc (HDWR) Net buy price in managed accounts(*)... $17.36 Yesterday's close (Oct 24)............. $17.05 Net change (based on net buy price).... +$0.31 Today's volume as of 10:57am ET........ 189,555 ($3.3 million) Average daily volume................... 356,300 ($6.2 million) This year's earnings-per-share......... $1.30 (est) Next year's earnings-per-share......... $1.58 (est) P/E using next year's earnings......... 11.0 (est) Earnings growth rate, next 5 years..... 21.5% per year (est) (*) The "Net buy price" is the total net purchase cost after commissions for all managed accounts divided by the total number of shares. Headwaters Inc. (www.hdwtrs.com) markets technology for recycling the waste by-products from coal, steel and other industries into fuel sources. Here's why I bought this stock: + Technical: The stock soared +12% on Tue Oct 22 on 3-month-record volume. We bought at a price that was within that day's trading range. There was no particular news that day; however, there is an exceptional and probably under-appreciated growth story here. + Explosive recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +244%, +382%, +241%, and, most recently, for the quarter ended Jun 30, +233% to $106.4 million. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Sep 02 vs Sep 01: 28c vs 26c Dec 02 vs Dec 01: 29c vs 19c Mar 03 vs Mar 02: 24c vs 21c Jun 03 vs Jun 02: 37c vs 26c + Strong earnings growth projections: According to recent data from First Call, the consensus earnings estimate for FY 03 (Sep) is $1.30, unchanged from 90 days ago; and the consensus estimate for FY 04 is $1.58, also unchanged from 90 days ago. + Valuation: At 11 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 21.5%, the stock is very attractively priced. + History of earnings surprises: This company has reported earnings at least 2c ahead of estimates in each of the past four quarters. + The company's industry group ("Energy - Other") has risen in relative strength over the past six months, according to Investor's Business Daily. *********************** Subscription Information *********************** Welcome to The Deen's List(TM), a new e-mail stock newsletter from Deen Capital Management, Inc. My intention is to inform you as quickly as is practical regarding my stock market moves. When I buy or sell a stock, first I take care of client accounts, then I buy/sell for my personal account(s), and then, third, I send out this newsletter. Your feedback is welcome. Send e-mail to deenslist@deencapital.com. To subscribe or unsubscribe, include the word "subscribe" or "unsubscribe" in the Subject line. This newsletter is free to managed account clients. For a limited time, it is also free to all interested parties. **************************** Privacy Policy **************************** Your personal information, including your e-mail address, will be held in confidence by Deen Capital Management, Inc. We will not share it with or sell it to others. ************************ IMPORTANT DISCLAIMERS ************************* * All stocks discussed in The Deen's List(TM) involve a high degree of risk. It should not be assumed that any stock discussed in The Deen's List(TM) or purchased by Deen Capital Management, Inc. will be profitable. * Past performance is not necessarily indicative of future results. * The information contained herein has been compiled from sources deemed to be reliable; however, we are not responsible for its accuracy or completeness. ************************************************************************ Ken Deen Deen Capital Management, Inc. PO Box 30925 Santa Barbara, CA 93130 (805) 682-1870 deenslist@deencapital.com Copyright (C) 2003 Deen Capital Management, Inc.