Please read carefully our disclaimers at the end of this newsletter. Market Stance: BULLISH (since July 28, 2006)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.
* 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 18, 2006, I bought ILMN, first for client accounts, then for my personal accounts. Illumina, Inc. develops tools for the large-scale analysis of genetic variation and function. The Company's BeadArray technology uses fiber optics to achieve a level of array miniaturization that allows for a new scale of experimentation. Illumina is developing disposable BeadArray cassettes, reagent kits, and instruments. Here's why I bought this stock: + Blowout earnings news: Yesterday, Tue Oct 17, after the close, the company announced results for the quarter ended Oct 1. Non-GAAP earnings came in at 39c per diluted share (GAAP earnings 32c, vs a loss of 3c last year and First Call 16c). Revenue was up 174% to $53.5 million (First Call $46.7 million). This is huge! + Guidance: The company now expects to earn $1.00 per diluted share for all of 2006 (non-GAAP), more than twice the First Call estimate of 48c. + A "true surprise"*: Aside from an intraday jump yesterday that fizzled, the stock has been trading in a sideways pattern for 10 weeks. Then, this morning, the stock is soaring on extremely heavy volume. At one minute after the opening bell, the stock had already surpassed its average volume for an entire day. * "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: The price movement this morning represents a breakout from an 11-week trading range. + Excellent and accelerating recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +56%, +92%, +163%, and, most recently, as cited above, +174%. + Dramatically accelerating recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters: Sep 05 vs Sep 04: 1c vs (1c) Dec 05 vs Dec 04: 7c vs (3c) Mar 06 vs Mar 05: 21c vs (7c) Jun 06 vs Jun 05: 39c vs (3c) + Rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2006 is 48c, revised upward from 13c 90 days ago (and up from a loss in 2005 of 14c); and the consensus estimate for 2007 is 80c, revised upward from 47c 90 days ago. + Valuation: At 54 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 25%, the stock valuation may at first seem excessive. However, in view of the staggering magnitude of yesterday's earnings surprise, there's a very good chance that the earnings and growth-rate estimates are low, perhaps quite low. + History of earnings surprises: This company has reported earnings at least a penny above estimates in four of the past five quarters, including the just-reported quarter cited above, which was 23c above. + The company's industry group ("Medical - Genetics") is ranked #107 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. -KD, October 18, 2006
* 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 © 2006 Deen Capital Management, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||