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 Encore Wire Corp. (WIRE)
* The "Net buy price" is the total net purchase cost after commissions for all managed accounts divided by the total number of shares. Today, Tuesday, October 25, 2005, I bought WIRE, first for client accounts, then for my personal accounts. Encore Wire Corp. manufactures copper electrical building wire and cable. The Company supplies residential wire for interior wiring in homes, apartments, and manufactured housing. Encore also manufactures wire for commercial and industrial buildings. The Company's customers are wholesale electrical distributors that serve both the residential and commercial wire markets. Here's why I bought this stock: + Stunning earnings news: Yesterday, after the close, the company announced results for the quarter ended Sep 30. Earnings came in at 48c per diluted share (vs 27c last year and First Call 18c). Revenue was up 31% to $207.5 million (First Call $176.0 million). This is a huge disconnect between expectations and reality. Analysts were expecting that earnings-per-share would be down for the quarter; instead, they were up by 78%! + Enthusiastic market reaction: At the time I decided to buy, about 50 minutes after the opening bell, the stock was up about 15%. The really startling thing was the volume -- and this was a key factor in this buy decision. At 50 minutes after the open, volume was already more than nine times the daily average! + Mostly excellent recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +20%, -14%, +23%, and, most recently, as cited above, +31%. + Surprising turnaround in recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Dec 04 vs Dec 03: 27c vs 30c Mar 05 vs Mar 04: 4c vs 56c Jun 05 vs Jun 04: 10c vs 31c Sep 05 vs Sep 04: 48c vs 27c + Rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2005 is 49c, revised upward from 44c 90 days ago (but down from 2004 actual earnings of $1.42); and the consensus estimate for 2006 is $1.05, revised upward from 94c 90 days ago. + Valuation: At 21 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 20%, the stock is attractively priced. + History of earnings surprises: This company has reported earnings at least 2c ahead of estimates in three of the past four quarters (including the just-reported quarter cited above, which was 30c ahead). + The company's industry group ("Electrical Equipment") is ranked #90 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 fact that it does not meet my definition of a "true surprise", because the stock price had been on the rise during the days and weeks preceding the news. -KD, October 25, 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||