Please read carefully our disclaimers at the end of this newsletter. Market Stance: BEARISH (since January 4, 2005)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 Apple Computer Inc. (AAPL)
* The "Net buy price" is the total net purchase cost after commissions for all managed accounts divided by the total number of shares. Today, Thursday, January 13, 2005, I bought AAPL, first for client accounts, then for my personal accounts. Apple Computer, Inc. is best known for the Macintosh line of personal computers, the iPod digital music player, and the online iTunes Music Store. Here's why I bought this stock: + Unlike many of the stocks I buy, this is a well-known large-cap stock. Apple Computer is a component of the S&P 500, the S&P 100, the NASDAQ 100, and the Investor's Business Daily 100 indices. Big-cap stocks are often the first out of the gate when the market turns around. + Extremely tight stop-loss: We bought at $70 and change. My hard stop-loss price will be $68.44. If the stock closes below this price, that will be a sell signal. On the other hand, I could see this stock climbing to $90, $100, or higher over the next three to four months. So the risk/reward profile is compelling. This tight stop-loss is a big reason I decided to risk buying anything at all under current bearish market conditions. (Note: I do not promise to sell if the stock closes below my hard stop-loss price. I do not want to tie my hands with promises. However, I would be strongly inclined to sell under that circumstance.) + News: Yesterday, after the close, the company announced blowout earnings for the quarter ended Dec 25, 2004. Earnings came in at 70c per diluted share (vs 17c last year and First Call 48c). Revenue was up 74% to $3.49 billion (First Call $3.15 billion). + A "true surprise"*: Prior to the news, the stock had been in a sideways trading pattern for six weeks. Then, this morning, the stock was up sharply on extremely heavy volume. Today's volume, at over 56 million shares, will be a 4-year record. * "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). + Breakout: The price movement today represents a breakout from a six-week trading range. Also, the stock price is within easy striking distance of its all-time (split-adjusted) high of $72.09, set in March 2000. + Relative strength: This stock has handily outperformed the market during recent rallies, and also has held up quite well during recent selloffs. + New products: A number of exciting new products at attractive price points, including a new smaller $99 iPod and a $499 Macintosh, were introduced this week at the MacWorld convention. + Apple is at the center of the digital music revolution. + Excellent and accelerating recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +29%, +30%, +37%, and, most recently, as cited above, +74%. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Mar 04 vs Mar 03: 14c vs 4c Jun 04 vs Jun 03: 17c vs 5c Sep 04 vs Sep 03: 27c vs 8c Dec 03 vs Dec 02: 70c vs 16c + Strongly rising estimates: According to recent data from First Call, the consensus earnings estimate for FY 05 (Sep) is $1.53, up from 94c 90 days ago (and up from FY 04 actual earnings of 75c); and the consensus estimate for FY 06 is $1.89, up from $1.21 90 days ago. + History of earnings surprises: This company has reported earnings at least 2c ahead of estimates in each of the past four quarters (including the just-reported quarter cited above, which was 22c ahead). I chose to buy the stock in spite of the following negative factors: - My three primary market indicators are uniformly bearish. - The company's industry group ("Computer Manufacturers") is ranked #53 for relative strength out of 197 industry groups tracked by Investor's Business Daily. This ranking changes daily, and it has been generally falling over recent weeks and months. However, the group is up nicely today, on the strength of the stunning news from Apple. - Valuation: At 37 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 20%, the stock may be pricey. On the other hand, if yesterday's news is any indication, that 20% figure may be low. -KD, January 13, 2005
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 © 2005 Deen Capital Management, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||