Please read carefully our disclaimers at the end of this newsletter. Market Stance: BULLISH (since August 18, 2004) Contents
Year-To-Date Performance
* An average of managed accounts, net after commissions and fees. Individual account results may vary. See also www.deencapital.com/perform.htm. For information on managed accounts, see www.deencapital.com/mgdaccts.htm. Bought Ditech Communications Corp. (DITC)
* The "Net buy price" is the total net purchase cost after commissions for all managed accounts divided by the total number of shares. Today, Wednesday, November 3, 2004, I bought DITC, first for client accounts, then for my personal accounts. Ditech Communications Corp. is a global telecommunications equipment supplier for voice networks. Here's why I bought this stock (again): + Better entry point: Yes, we recently sold this stock at a loss. We sold on October 25 after a failed breakout. Today, we are buying back at an even lower price. A brief but sharp downdraft brought the stock price from $26.74 on Oct 21 down to $21.36 at yesterday's close. The stock is up today, and my guess is that that downdraft ended yesterday. Assuming the company's outstanding growth story remains intact, I expect it may not be long before the stock successfully breaks out of its now 11-month-old trading range. + The stock's long-term uptrend is very much intact. One year ago, the stock price was $10.85. * "True surprise" is my term to describe a company news item that ignites heavy buying and that was not preceded by a short-term run-up in the stock price (i.e. not preceded by rumor). + Back on May 28, the stock met my stringent technical buy criteria, as outlined in my Research Update of June 26, 2004: http://www.deencapital.com/newslett/2004/040626.129.html#3 . The May 28 closing price was $20.59. The stock price has advanced modestly since then, while earnings and sales have grown far more (read on). + Explosive and accelerating recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +74%, +133%, +130%, and, most recently, for the quarter ended Jul 31, +1318% to $25.5 million. + Explosive recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Oct 03 vs Oct 02: 9c vs (6c) Jan 04 vs Jan 03: 20c vs (1c) Apr 04 vs Apr 03: 24c vs 1c Jul 04 vs Jul 03: 28c vs (2c) + Valuation: At 22 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 25%, the stock is attractively priced. + History of earnings surprises: This company has reported earnings at least 2c ahead of estimates in each of the past four quarters (and 6c ahead in the most recently reported quarter ended Jul 31). + The company's industry group ("Telecommunications Equipment") has risen dramatically in relative strength over the past six months, according to data from Investor's Business Daily. I chose to buy the stock in spite of the following negative factor: - Falling estimates for next year: According to recent data from First Call, the consensus earnings estimate for FY 05 (Apr) is $1.18, up from 93c 90 days ago; and the consensus estimate for FY 06 is $1.03, down from $1.04 90 days ago. (Note, however, that analysts have consistently under-estimated this company's earnings potential.) -KD, November 3, 2004
* Net buy prices shown are the total net purchase cost after commissions for all managed accounts divided by the total number of shares. ** Current prices are at least 20 minutes old. Welcome to The Deen's ListTM, an 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. Your personal information, including your e-mail address, will be held in strict confidence by Deen Capital Management, Inc. We will not share it with or sell it to others. All stocks discussed in The Deen's ListTM involve a high degree of risk. It should not be assumed that any stock discussed in The Deen's ListTM 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 Copyright © 2004 Deen Capital Management, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||