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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. Bought Ensign Group Inc. (ENSG)
* Buy prices shown are net after commissions and fees. Today, Monday, November 3, 2008, I bought ENSG, first for client accounts, then for my personal accounts. Ensign Group, Inc. operates facilities offering nursing and rehabilitative care services in multiple states. The Company provides a broad spectrum of nursing and assisted living services, physical, occupational and speech therapies, and other rehabilitative and healthcare services, for both long-term residents and short-stay rehabilitation patients. This stock is a component of the IBD 100 Index. ("IBD" = "Investor's Business Daily") Here's why I bought this stock: + Earnings news: On Friday, after the close, the company announced results for the quarter ended September 30. Earnings came in at 33c per diluted share (vs 22c last year and analysts' consensus 34c). Revenue was up 12% to $116.3 million (analysts' consensus $118.9 million). + Market reaction: The stock is up sharply on very heavy volume today. + Breakout attempt: A close above $18.37 would be a breakout from an 11-week trading range to a new all-time high. The stock was as high as $19.25 earlier today. + Volume spike: As I write this, about a half hour before the close, volume is approaching 5 times average. + Excellent recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +12%, +15%, +15%, and, most recently, as cited above, +12%. + Excellent recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters:
Dec 07 vs Dec 06: 30c vs 26c Mar 08 vs Mar 07: 31c vs 20c Jun 08 vs Jun 07: 32c vs 28c Sep 08 vs Sep 07: 33c vs 22c + Strong and rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2008 is $1.32, revised upward from $1.31 90 days ago (and up from 2007 actual earnings of $1.00); and the consensus estimate for 2009 is $1.59, revised upward from $1.55 90 days ago. + Valuation: At 11 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 15%, the stock is very attractively priced. + History of earnings surprises: This company has reported earnings-per-share at least a penny above estimates in each of the past four quarters. (But read on...) + 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 factors: - For this most recent quarter, earnings came in a penny shy of estimates. So why is the market reaction so positive? Because of a delay in the California budget. The company expects an increase in the bed reimbursement rate to be finalized soon by the state, and to recognize revenue in the fourth quarter for services rendered in the third quarter, based on an expected retroactive bed reimbursement rate increase. - The company's industry group ("Medical - Nursing Homes") is ranked #53 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. -KD, Monday, November 3, 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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