The Deen's List(TM) A service of Deen Capital Management, Inc. (www.deencapital.com) Vol.1 #89 Friday December 19 2003 4:26pm ET Please read carefully our disclaimers at the end of this newsletter. Market stance: BULLISH (since Dec 12 2003) ******************************* Contents ******************************* Bought MESA Bought ZQK *************** Bought Mesa Air Group Inc. (Nev) (MESA) **************** Net buy price in managed accounts(*)... $13.00 Yesterday's close (Dec 18)............. $12.12 Net change (based on net buy price).... +$0.88 Today's volume as of 3:04pm ET ........ 5.0 million ($64.6 million) Average daily volume................... 1.2 million ($15.0 million) This year's earnings-per-share......... $1.04 (est) Next year's earnings-per-share......... $1.47 (est) P/E using next year's earnings......... 8.8 (est) Earnings growth rate, next 5 years..... 20.0% 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 Fri Dec 19, I bought MESA. Mesa Air (www.mesa-air.com) is a holding company for regional airlines serving 147 cities in 37 states, the District of Columbia, Canada and Mexico. Here's why I bought this stock: + News: A U.S. district court issued a ruling relating Mesa's takeover bid for rival Atlantic Coast Airlines. Atlantic Coast's earnings are projected to be down next year, while Mesa's are expected to be up sharply. In the wake of the court ruling, which temporarily blocks Mesa's effort to solicit shareholder support to replace Antlantic Coast's board with its own nominees, The important point, in my view, is that, according to briefing.com, Mesa may sell its Atlantic Coast shares as a result of the court ruling. I presume this means Mesa may drop its takeover bid. Mesa stock looks quite undervalued on its own merit, and, if the takeover of a less profitable airline is scrapped, perhaps Mesa's stock value need no longer be held back. This is my theory to explain the big pop in Mesa's stock price on Friday. + Near-Breakout: The price movement on Fri Dec 19 represents a near- breakout from a three-month trading range. A close above $13.20 (the Sep 8, 2003 close) would be a true breakout. Except for Sep 8, 2003, Friday's is the highest closing price in over two years. + Excellent recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +20%, +15%, +15%, and, most recently, for the quarter ended Sep 30, +33% to $175.5 million. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Dec 02 vs Dec 01: 2c vs 11c Mar 03 vs Mar 02: 13c vs 15c Jun 03 vs Jun 02: 26c vs 13c Sep 03 vs Sep 02: 27c vs (4c) + Rising estimates: According to recent data from First Call, the consensus earnings estimate for 2003 is $1.04, up from $1.02 90 days ago; and the consensus estimate for 2004 is $1.47, up from $1.27 90 days ago. + Valuation: At 9 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 20%, the stock is very attractively priced. + History of earnings surprises: This company has reported earnings at least 5c ahead of estimates in each of the past three quarters. I chose to buy the stock in spite of the following negative factor: - The company's industry group ("Transportation - Airline") has fallen in relative strength over the past three months, according to Investor's Business Daily. ********************* Bought Quiksilver Inc. (ZQK) ********************* Net buy price in managed accounts(*)... $17.00 Yesterday's close (Dec 18)............. $15.65 Net change (based on net buy price).... +$1.35 Today's volume as of 2:04pm ET ........ 2.8 million ($47.6 million) Average daily volume................... 557,000 ($9.5 million) This year's earnings-per-share......... $1.01 (est) Next year's earnings-per-share......... $1.18 (est) P/E using next year's earnings......... 14.4 (est) Earnings growth rate, next 5 years..... 18.8% 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 Fri Dec 19, I bought ZQK. Quiksilver (www.quiksilver.com) designs, produces and distributes clothing, accessories and related products representing a casual lifestyle. I bought a relatively small position int this stock, with the idea that if the price falls, I may buy more. Here's why I bought this stock: + News: On Thu Dec 18 after the close, the company announced results for the quarter ended Oct 31. Earnings came in at 30c per diluted share (vs last year 25c and First Call 28c). Revenue was up 37% to $269.2 million (First Call estimate $248.6 million). + A "true surprise"(*): Prior to the news, the stock was trading near a 9-month low. Then, on Fri Dec 19, the day I bought, the stock soared on very heavy volume. As I write this, about a half hour before the close, volume has already set an all-time one-day record for this stock. (*) "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). + Excellent recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +31%, +40%, +44%, and most recently, as cited above, +37%. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Jan 03 vs Jan 02: 12c vs 7c Apr 03 vs Apr 02: 40c vs 28c Jul 03 vs Jul 02: 21c vs 18c Oct 03 vs Oct 02: 30c vs 25c + Strong estimates: According to recent data from First Call, the consensus earnings estimate for this year (FY 04 [Oct]) is $1.18, unchanged from 90 days ago. I did not find any estimates for next year. + Valuation: At 14 times this year's estimated earnings and a projected 5-year annualized earnings growth rate of 18.8%, the stock is attractively priced. + History of earnings surprises: This company has reported earnings ahead of estimates in each of the past four quarters (including the just-reported quarter cited above). I chose to buy the stock in spite of the following negative factor: - The company's industry group ("Apparel - Clothing Mfg") has fallen in relative strength over the past three 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.