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 Orckit Communication Ltd. (ORCT)
* The "Net buy price" is the total net purchase cost after commissions for all managed accounts divided by the total number of shares. Today, Monday, October 31, 2005, I bought ORCT, first for client accounts, then for my personal accounts. Orckit Communications Ltd. provides advanced telecommunications equipment targeting high capacity packetized broadband services. The Company is engaged in the development of new telecommunications products and technologies targeting packetized services offered in metro and access networks. Here's why I bought this stock: + News: This morning, before the open, the company announced results for the quarter ended Sep 30. Operating earnings came in at 30c per diluted share (vs a loss of (45c) last year and First Call 23c). Revenue was up 1,154% [sic] to $25.4 million (First Call $24.0 million). + A "true surprise"*: Prior to the news, and since a peak in mid-July, the stock was in a sharp downtrend. Last Thursday's close was a 9-month low. Then, today, the stock soared on huge volume. Volume was about 50x average when I decided to buy, about a half-hour before the close. * "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). + Explosive sales growth: Year-over-year revenue growth has now exceeded 1,000% for four quarters in a row. Revenue has also sharply growing on a sequential basis. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Dec 04 vs Dec 03: (22c) vs (42c) Mar 05 vs Mar 04: 20c vs (41c) Jun 05 vs Jun 04: 21c vs (45c) Sep 05 vs Sep 04: 30c vs (45c) + Rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2005 is 98c, revised upward from 96c 90 days ago (and up from the 2004 loss of $1.54); and the consensus estimate for 2006 is $1.24, a downward revision from $1.47 90 days ago. On the other hand, the company also announced in its press release this morning that it expects 2006 diluted operating earnings-per-share to increase by more than 35%. This suggests that the $1.24 number is low. + Valuation: At 17 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 30%, the stock is very attractively priced. I have earnings-surprise-history data on this company. For the quarter ended June 30, earnings were in-line with estimates. For the quarter ended September 30, earnings were 7c ahead, as mentioned above. + 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: - The company's industry group ("Telecom Equipment") is ranked #66 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. -KD, October 31, 2005
* Net buy prices shown are the total net purchase cost after commissions for all managed accounts divided by the total number of shares. 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||