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Please read carefully our disclaimers at the end of this newsletter. Market Stance: BEARISH (since September 24, 2008) Contents
Performance
* An average of managed accounts, net after all commissions and fees. Click here for more performance data. Click here for information on managed accounts.
* Buy prices shown are net after commissions and fees. Today, Thursday, October 30, 2008, I bought LHCG, first for client accounts, then for my personal accounts. LHC Group Inc. provides post-acute healthcare services primarily to Medicare beneficiaries in rural markets in the southern United States. They provide home-based services through home nursing agencies and hospices and facility-based services through long-term acute care hospitals and outpatient rehabilitation clinics. Here's why I bought this stock: + Market Timing: I'm still bearish, but my indicators are starting to improve just slightly, and perhaps 100% cash is no longer the optimum position. We still have an exceedingly low-risk 92% cash portfolio. + Earnings surprise: Yesterday, after the close, the company announced results for the quarter ended Sep 30. Earnings came in at 45c per diluted share (vs 35c last year and analysts' consensus 37c). Revenue was up 27% to $98.2 million (analysts' consensus $93.1 million). + This quarter, ended Sep 30, was the best quarter in the company's history. + A "true surprise"*: Prior to the news, the stock was trading near a 3-month low. Then, this morning, the stock is soaring on very heavy volume. * "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). + Attempting breakout: We'll need a close above $31.16 to call this a breakout from a 3-month trading range to a new 19-month high. It was trading above that level earlier this morning. We bought slightly below that mark. + Volume spike: Less than half-way through the regular trading session, volume is already 2.4 times the full-day average. + Excellent recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +26%, +21%, +28%, and, most recently, as cited above, +27% to $98.2 million. + Turnaround in recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters:
Sep 07 vs Sep 06: 37c vs 43c Dec 07 vs Dec 06: 32c vs 34c Mar 08 vs Mar 07: 35c vs 35c Jun 08 vs Jun 07: 45c vs 35c + Strong and rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2008 is $1.42, revised upward from $1.40 90 days ago (and up from FY 07 actual earnings of $1.41); and the consensus estimate for FY 09 is $1.70, revised upward from $1.69 90 days ago. + Valuation: At 18 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 17%, the stock is attractively priced. + History of earnings surprises: This company has reported earnings-per-share at least 2c above estimates in each of the past four quarters, including the just-reported quarter cited above, which "beat the Street" by 8c. + The company's industry group ("Medical - Outpatient / Home Care") is ranked #3 for relative strength out of 197 industry groups tracked by Investor's Business Daily. This ranking changes daily, and it has been generally rising just slightly over recent weeks and months. + The stock's 200-day moving average is rising, indicating a long-term uptrend. -KD, Thursday, October 30, 2008 Model Portfolio
* Buy prices shown are net after commissions and fees. ** 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.
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