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.
* 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 22, 2006, I bought NCTY, first for client accounts, then for my personal accounts. The9 Limited is an online game operator and developer in China. The Company offers its self-developed online virtual community game and has exclusive licenses to localize and operate additional multi-player online role playing games. Here's why I bought this stock: + News: Last Wednesday, Nov 15, after the close, the company announced results for the quarter ended Sep 30. Earnings came in at 33c per diluted share (vs 19c last year and First Call 28c). Revenue was up 30% to $29.6 million. + A "true surprise"*: Prior to the news, the stock was trading in the lower half of an 8-month range. Wednesday, Nov 15, just before the news came out, the stock was down, closing at a 3-week low. Then, Thursday, Nov 16, the stock soared $4.92, or 21%, to $28.36, on huge volume, about 8x the daily average. We bought this morning at a price below the Nov 16 close, thanks to some mild profit-taking. * "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). + On Thu Nov 16, the stock met the stringent technical buy criteria outlined in my Research Update of June 26, 2004: Again, we bought at a price below the Nov 16 close. 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: +2500%, +1600%, +379%, and, most recently, as cited above, +30%. + Excellent recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters: Dec 05 vs Dec 04: 35c vs 4c Mar 06 vs Mar 05: 30c vs (5c) Jun 06 vs Jun 05: 43c vs (12c) Sep 06 vs Sep 05: 33c vs 19c + Valuation: At 15 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 26%, the stock is very attractively priced. + History of earnings surprises: This company has reported earnings at least 2c above estimates in each of the past four quarters, including the just-reported quarter cited above, which was 5c above. + The company's industry group ("Internet Content") is ranked #18 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: - Falling earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2006 is $1.41, revised downward from $1.45 90 days ago (but up from 2005 actual earnings of 37c); and the consensus estimate for 2007 is 81c, revised downward from $2.00 90 days ago. (I bought in spite of this because the strong earnings surprise cited above suggests a bullish disconnect between expectations and reality.) -KD, November 22, 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||