Please read carefully our disclaimers at the end of this newsletter. Market Stance: BULLISH (since October 31, 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 American Science & Engineering Inc. (ASEI)
* 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, November 9, 2005, I bought ASEI, first for client accounts, then for my personal accounts. American Science and Engineering, Inc. provides X-ray detection and imaging products used for the detection of illegal drugs, terrorist explosives, and smuggled goods. The Company's equipment, purchased by government and commercial clients, utilizes transmission and backscatter X-ray detection to provide differentiation of bombs, drugs, and contraband in camouflaged environments. Here's why I bought this stock: + Huge Earnings Surprise: This morning, before the open, the company announced results for the quarter ended Sep 30. Earnings came in at 93c per diluted share (vs 5c last year and First Call 61c). Revenue was up 133% to $49.1 million (First Call $32.8 million). + A "true surprise"*: Prior to the news, the stock was in the middle of an eight-week trading range. Then, this morning, the stock is soaring on extremely heavy volume. At the time I decided to buy, about a half hour after the open, the stock was up some 11% on volume already 3x 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). + Breakout: This morning's price movement represents a breakout from a eight-week trading range. + Today, the stock is on track to meet the stringent technical buy criteria outlined in my Research Update of June 26, 2004: http://www.deencapital.com/newslett/2004/040626.129.html#3 . + Excellent and accelerating recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +44%, +10%, +109%, and, most recently, as cited above, +133%. + Excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Dec 04 vs Dec 03: $0.23 vs ($0.06) Mar 05 vs Mar 04: $1.04 vs $0.24 Jun 05 vs Jun 04: $0.89 vs ($0.07) Sep 05 vs Sep 04: $0.93 vs $0.05 + Rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for FY 06 (Mar) is $2.58, revised upward from $1.99 90 days ago (and up from FY 05 actual earnings of $1.31); and the consensus estimate for FY 07 is $2.29, revised upward from $1.90 90 days ago. + Valuation: At 31 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 25%, the stock is moderately priced. + History of earnings surprises: This company has reported earnings at least 5c ahead of estimates in each of the past five quarters, including the just-reported quarter cited above, which was 32c ahead. + 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 ("Comml Svcs - Security / Safety") is ranked #47 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. - Next year's earnings estimate of $2.29 is less than this year's estimate of $2.58. -KD, November 9, 2005
* The net buy (sell) price is the total net cost (proceeds) after commissions for all managed accounts divided by the total number of shares. I sold Biovail today in order to avoid "earnings news risk". Earnings for the quarter ended Sep 30 should be announced any day now. Earnings news day is likely to be volatile. In my view, the potential reward of a jump in stock price on earnings news day is not worth the risk of a selloff. We have a solid gain; I'm locking it in. -KD, November 9, 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. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||