Please read carefully our disclaimers at the end of this newsletter. Market Stance: BULLISH (since November 8, 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. Bought Dolby Laboratories (DLB)
* The "Net buy price" is the total net purchase cost after commissions for all managed accounts divided by the total number of shares. Today, Friday, November 10, 2006, I bought DLB, first for client accounts, then for my personal accounts. Dolby Laboratories Inc. develops audio signal processing systems for the motion picture, broadcasting, and music recording industries, as well as the consumer market. Here's why I bought this stock: + News: Yesterday, after the close, the company announced results for the quarter ended Sep 30. Earnings came in at 22c per diluted share (vs 15c last year and First Call 11c). Revenue was up 29% to $102.1 million. + A "true surprise"*: Prior to the news, the stock had been trading in a generally sideways to down pattern since late July. Then, today, the stock is soaring on HUGE volume. At the time I decided to buy, about an hour and a half before the closing bell, volume was already more than 26x the daily average, with the price up about 34%. The magnitude of the volume spike is one of my primary indicators regarding the likelihood if price follow-through in the coming weeks, and this is one of the biggest earnings-driven volume spikes I've ever seen. * "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). + The company is poised to profit from the transition to high-definition DVD players. Toshiba, Panasonic and Sony Corp. have each recently announced new high-definition products which will include premium Dolby technologies. + Breakout: The price movement today is a breakout from an all-time high. It will be the stock's first all-time high since it came public in early 2005. + 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 recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +8%, +23%, +18%, and, most recently, as cited above, +29%. + Excellent recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters: Dec 05 vs Dec 04: 16c vs 11c Mar 06 vs Mar 05: 25c vs 10c Jun 06 vs Jun 05: 17c vs 13c Sep 06 vs Sep 05: 22c vs 11c + Rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for FY 07 (Sep) is 75c, revised upward from 74c 90 days ago (but up from FY 05 actual earnings of 80c); and the consensus estimate for FY 08 is 88c, revised upward from 82c 90 days ago. + History of earnings surprises: This company has reported earnings at least 4c above estimates in each of the past four quarters, including the just-reported quarter cited above, which was 11c. + The company's industry group ("Retail - Consumer Elec") is ranked #78 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 following negative factor: - Valuation: At 30 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 20%, the stock is a little bit pricey. -KD, November 10, 2006
* 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. The Deen's List Copyright © 2006 Deen Capital Management, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||