Please read carefully our disclaimers at the end of this newsletter. Market Stance: BEARISH (since October 7, 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 ICU Medical Inc. (ICUI)
* 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, October 19, 2005, I bought ICUI, first for client accounts, then for my personal accounts. ICU Medical, Inc. develops, manufactures, and sells disposable medical connection systems for use in intravenous (IV) therapy applications. The Company's products are designed to prevent accidental disconnection of IV lines and to protect healthcare workers and their patients from the spread of infectious disease such as Hepatitis B and Human Immunodeficiency Virus (HIV). This stock is a component of the S&P 600 SmallCap Index. Here's why I bought this stock: + My indicators are very bearish, but this is an exceptionally strong buy candidate. + News: Yesterday after the close, the company announced results for the quarter ended Sep 30. Earnings came in at 38c per diluted share (vs a loss of 8c last year and First Call 19c). Revenue was up 182% to $46.5 million (First Call $37.3 million). This was a huge surprise, with earnings-per-share coming in at double the consensus. + A "true surprise"*: Prior to the news, the stock was in a 6-month downtrend, and yesterday's close was very close to an 8-month low. Today, the stock is soaring on huge volume. At the time I bought, in the final hour of the regular trading session volume was already more than 9 time the daily average. * "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). + Sharply accelerating recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: -49%, +22%, +88%, and, most recently, as cited above, +182%. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Dec 04 vs Dec 03: (11c) vs 48c Mar 05 vs Mar 04: 30c vs 28c Jun 05 vs Jun 04: 31c vs 23c Sep 05 vs Sep 04: 38c vs (8c) + Strong forward earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2005 is $1.07, unchanged from 90 days ago (and up from 2004 actual earnings of 33c); and the consensus estimate for 2006 is $1.30, revised downward from $1.32 90 days ago. + Valuation: At 25 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 16%, the stock is moderately priced. + History of earnings surprises: This company has reported earnings at least 4c ahead of estimates in each of the past four quarters (including the just-reported quarter cited above, which was 19c ahead). + The company's industry group ("Medical Products") is ranked #38 for relative strength out of 197 industry groups tracked by Investor's Business Daily. This ranking changes daily, and it has been generally rising over recent weeks and months. + The stock's 200-day moving average is rising, indicating a long-term uptrend. I chose to buy the stock in spite of the following negative factor: - As mentioned above, the consensus earnings-per-share estimate for 2006 has slipped by 2c over the past 90 days. However, in view of the staggering magnitude of yesterday's earnings surprise, I would suggest that analysts may be out of touch with this company's growth trajectory. This disconnect between analyst estimates and reality, in my view, creates a buying opportunity. -KD, October 19, 2005
* 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 © 2005 Deen Capital Management, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||