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 Standard Microsystems Corp. (SMSC)
* 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, October 20, 2005, I bought SMSC, first for client accounts, then for my personal accounts. Standard Microsystems Corp. supplies metal-oxide-semiconductor/very-large scale-integrated circuits for the worldwide personal computer (PC) industry. The Company provides input/output integrated circuits, as well as integrated circuits for PC connectivity, local area networks, and embedded control systems. Standard Microsystems also produces microelectromechanical systems devices. This stock is a component of the IBD 100 Index and the S&P 600 SmallCap Index.. ("IBD" = "Investor's Business Daily") Here's why I bought this stock: + Although I'm still bearish, yesterday's rally was impressive, and I do see some tentative signs of a market bottom here. Managed accounts are very conservatively postured, so much so that I feel we can afford to nibble. Even after this buy, managed accounts are still statistically less volatile than the S&P 500. + Technical: Back on Sep 22, the stock had a very strong market reaction to a very strong earnings surprise. The stock broke out of a nine-week trading range that day on extremely heavy volume, about 10 times average. Since then, the stock has been trading sideways to mildly down along with the weak market. However, the breakout has held, and yesterday the stock price briefly dipped down to and then strongly bounced off of the top of its pre-Sep-22 trading range (around $26). I see this as an excellent entry point. Our buy price today is within the Sep 22 price range. + Earnings surprise: As announced on Sep 21, operating earnings came in at 25c per diluted share, versus 6c a year ago and versus the First Call consensus of 18c. Revenue was $79.1 million, up 58% from a year ago and nicely above the First Call consensus of $75.6 million. + Accelerating recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: -30%, +5%, +30%, and, most recently, as cited above, +58%. + Turnaround in recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Nov 04 vs Nov 03: 3c vs 77c Feb 05 vs Feb 04: 11c vs 17c May 05 vs May 04: 23c vs 16c Aug 05 vs Aug 04: 25c vs 6c + Rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for FY 06 (Feb) is $1.11, revised upward from 85c 90 days ago (and up from FY 05 actual earnings of 35c); and the consensus estimate for FY 07 is $1.36, revised upward from $1.04 90 days ago. + Valuation: At 21 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 18%, the stock is moderately priced. + History of earnings surprises: This company has reported earnings at least 2c ahead of estimates in each of the past three quarters. (The most recent quarter, cited above, was 7c ahead.) + The company's industry group ("Elec - Semiconductor Mfg") is ranked #17 for relative strength out of 197 industry groups tracked by Investor's Business Daily. This ranking changes daily, and it has been generally fairly stable over recent weeks and months. + The stock's 200-day moving average is rising, indicating a long-term uptrend. -KD, October 20, 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||