The Deen's List(TM) A service of Deen Capital Management, Inc. (www.deencapital.com) Vol.1 #43 Thursday October 30 2003 1:19pm ET Please read carefully our disclaimers at the end of this newsletter. Market stance: BULLISH (since Oct 3 2003) ******************************* Contents ******************************* Bought DITC Sold APH ***************************** Bought DITC ****************************** Ditech Communications Cp (DITC) Net buy price in managed accounts(*)... $11.11 Yesterday's close (Oct 29)............. $10.95 Net change (based on net buy price).... +$0.16 Today's volume as of 12:15pm ET........ 170,300 ($1.9 million) Average daily volume................... 389,200 ($4.3 million) This year's earnings-per-share......... $0.19 (est) Next year's earnings-per-share......... $0.38 (est) P/E using next year's earnings......... 29.2 (est) Earnings growth rate, next 5 years..... 45.0% 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. Ditech Communications (www.ditechcorp.com -- not to be confused with the more famous Ditech, the home mortgage company) designs and develops echo cancellation equipment and optical communications products. Here's why I bought this stock: + Note: Here's a case where I did not buy on the day of the news and big price/volume spike as I often do. The spike was Tuesday; I bought Thursday at a price that is slightly less than Thursday's close. + News: On Mon Oct 27 after the close, the company announced results for the current quarter ending Oct 31. They now expect revenue of $13.4 to $13.9 million, a gain of as much as 30%, compared with prior expectations of a 10% gain. They also expect a profit for the quarter of 6c to 8c per share. That's versus a loss last year and versus the First Call consensus of 5c. One analyst at Roth Capital Partners raised his FY 04 (Apr) estimate all the way to 22c from 12c, and his revenue estimate from $47.9 million to $56.4 million. + A "true surprise"(*): The stock, which is in a long-term uptrend, had been trading generally lower over the five weeks prior to the news. Then, on Tue Oct 28, the stock soared $2.48 to $11.30 on 2.9 million shares. That's extremely heavy volume -- the daily average is about 383,000. (*) "True surprise" is my term to describe a company news item that ignites heavy buying and that was not preceded by a short-term runup in the stock price (i.e. not preceded by rumor). + Breakout: The price movement on Oct 28 represents a breakout from a five-week trading range. + Excellent recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +52%, +46%, +24%, and, most recently, for the quarter ended Jul 31, +41% to $10.7 million. + Re-emergence into profitability after two years of losses. Here are the quarterly EPS figures for the last eight quarters: Oct 02 vs Oct 01: (26c) vs (25c) Jan 03 vs Jan 02: (11c) vs (25c) Apr 03 vs Apr 02: (10c) vs (23c) Jul 03 vs Jul 02: (2c) vs (8c) (The "re-emergence into profitability" is expected to start with the current quarter.) + Rising estimates: According to recent data from First Call, the consensus earnings estimate for FY 04 (Apr) is 19c, up from 5c 90 days ago; and the consensus estimate for FY 05 is 38c, up from 25c 90 days ago. + Valuation: At 29 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 45%, the stock is attractively priced. + The company's industry group ("Telecom - Equipment") has risen in relative strength over the past six months, according to Investor's Business Daily. It now ranks #8 out of 197 groups. ******************************* Sold APH ******************************* Amphenol Corp (APH) Net sell price in managed accounts(*).... $58.34 Date(s) bought........................... Oct 15 2003 Net buy price in managed accounts(*)..... $58.55 Holding period........................... 2.1 weeks Gain/loss in managed accounts............ -0.3% (after commissions) (*) The net buy (sell) price is the total net cost (proceeds) after commissions for all managed accounts divided by the total number of shares. I still like this stock, but I like DITC even better. I sold APH in order to raise cash to buy DITC. I felt that DITC was too good an opportunity to pass up. *********************** 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.