The Deen's List(TM) A service of Deen Capital Management, Inc. (www.deencapital.com) Vol.1 #81 Friday December 12 2003 6:22pm ET Please read carefully our disclaimers at the end of this newsletter. Market stance: BULLISH (since Dec 12 2003) ******************************* Contents ******************************* Bought ACGL Bought ADAT Bought ADIC **************** Bought Arch Capital Group Ltd. (ACGL) ***************** Net buy price in managed accounts(*)... $39.21 Yesterday's close (Dec 11)............. $38.96 Net change (based on net buy price).... +$0.25 Today's volume as of 3:32pm ET ........ 24,988 ($1.0 million) Average daily volume................... 88,800 ($3.5 million) This year's earnings-per-share......... $3.67 (est) Next year's earnings-per-share......... $4.41 (est) P/E using next year's earnings......... 8.9 (est) Earnings growth rate, next 5 years..... 15.0% 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. Arch Capital (www.archcapgroup.com) is a Bermuda-based insurance holding company. They provide property and casualty, reinsurance and underwriting products and services. Here's why I bought this stock: + Breakout: I bought as the stock was attempting to break out of 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: +1,484%, +453%, +311%, and, most recently, for the quarter ended Sep 30, +222% to $646.9 million. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Dec 02 vs Dec 01: 61c vs 15c Mar 03 vs Mar 02: 70c vs 10c Jun 03 vs Jun 02: 86c vs 19c Sep 03 vs Sep 02: $1.05 vs (12c) + Rising estimates: According to recent data from First Call, the consensus earnings estimate for 2003 is $3.67, up from $3.38 90 days ago; and the consensus estimate for 2004 is $4.41, up from $4.05 90 days ago. + Valuation: At 9 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 15%, the stock is attractively priced. + History of earnings surprises: This company has reported earnings at least 16c ahead of estimates in each of the past four quarters. *************** Bought Authentidate Holding Corp. (ADAT) *************** Net buy price in managed accounts(*)... $11.42 Yesterday's close (Dec 11)............. $11.48 Net change (based on net buy price).... -$0.06 Today's volume as of 3:17pm ET ........ 2.0 million ($23.4 million) Average daily volume................... 1.2 million ($13.3 million) This year's earnings-per-share......... -$0.22 (est) Next year's earnings-per-share......... $0.57 (est) P/E using next year's earnings......... 20.2 (est) Earnings growth rate, next 5 years..... 50.0% 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. Authentidate (www.authentidate.com) is a holding company for subsidiaries which provide systems integration, imaging/authentication software, and computer systems. Here's why I bought this stock: + Technical: The stock appears to have completed a 33% correction from $14.95 on Nov 14 to $9.95 on Dec 10. Even so, the longer-term trend on this stock is still strongly up. It began the year at $3.04. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Dec 02 vs Dec 01: (10c) vs (16c) Mar 03 vs Mar 02: (15c) vs (18c) Jun 03 vs Jun 02: (14c) vs (16c) Sep 03 vs Sep 02: (9c) vs (10c) + The First Call consensus earnings estimate for FY 04 (Jun) is 57c. This represents spectacular growth versus the FY 03 estimate of (22c). I do not have 90-days-ago estimate data. + Valuation: At 20 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 50%, the stock is attractively priced. + History of earnings surprises: This company's most recent quarterly earnings (Sep 03) came in at (9c), which was 5c better than the First Call estimate. I do not have data on prior quarters. + A favorable article appears on the Inside Wall Street page of the Dec 22 edition of Business Week. + The company's industry group ("Computer - Tech Services") has been gaining in relative strength versus other groups, according to today's issue of Investor's Business Daily. I chose to buy the stock in spite of the following negative factors: - Sales growth over the past four quarters leaves something to be desired: +43%, +126%, +2%, and, most recently, for the quarter ended Sep 30, -40% to $3.3 million. The growth is in FY 05. FY 05 sales are projected at $58 million, up 142% from the FY 04 projection of $24 million. ***************** Bought Advanced Digital Info (ADIC) ****************** Net buy price in managed accounts(*)... $13.68 Yesterday's close (Dec 11)............. $13.16 Net change (based on net buy price).... +$0.52 Today's volume as of 3:17pm ET ........ 2.6 million ($35.7 million) Average daily volume................... 746,600 ($10.2 million) This year's earnings-per-share......... $0.38 (est) Next year's earnings-per-share......... $0.57 (est) P/E using next year's earnings......... 24.1 (est) Earnings growth rate, next 5 years..... 30.0% 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. ADIC (www.adic.com) provides storage solutions that capture, protect and manage mission-critical data. Here's why I bought this stock: + News: On Thu Dec 11 after the close, the company announced results for the quarter ended Oct 31. Earnings came in at 9c per diluted share (vs last year (2c) and First Call 7c). Revenue was up 40.2% to $118 million (First Call estimate $118 million). + A "true surprise"(*): Prior to the news, the stock was trading near a 4-month low. Then, on Friday, the stock was up on heavy volume. (*) "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). + Accelerating recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: 0%, +25%, +42%, and, as cited above, +40%. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Jan 03 vs Jan 02: 3c vs 4c Apr 03 vs Apr 02: 4c vs 2c Jul 03 vs Jul 02: 4c vs (3c) Oct 03 vs Oct 02: 9c vs (2c) + Rising estimates: According to recent data from First Call, the consensus earnings estimate for FY 04 (Oct) is 38c, up from 37c 90 days ago. + Valuation: We bought this stock at 36 times next year's estimated earnings. Given that the 5-year annualized earnings growth rate is 30%, the valuation is within reason. + History of earnings surprises: This company has reported earnings at least a penny ahead of estimates in each of the past five quarters (including the just-reported quarter cited above). *********************** 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.