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Please read carefully our disclaimers at the end of this newsletter. Market Stance: BEARISH (since November 6, 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 American Science & Engineering (ASEI)
* Buy prices shown are net after commissions and fees. Today, Thursday, November 20, 2008, I bought ASEI, first for client accounts, then for my personal accounts. American Science and Engineering, Inc. sells equipment to detect illegal drugs, terrorist explosives, and smuggled goods. Their customers include government and commercial clients. Their products utilize transmission and backscatter X-ray detection to provide differentiation of bombs, drugs, and contraband in camouflaged environments. This stock is a component of the IBD 100 Index. ("IBD" = "Investor's Business Daily") Here's why I bought this stock: + Earnings surprise: On Nov 10, after the close, the company announced results for the quarter ended Sep 30. Earnings came in at 83c per diluted share (vs 48c last year and analysts' consensus 70c). Revenue was up 50% to $56.3 million (analysts' consensus $54.5 million). + A "true surprise"*: The stock traded mostly lower for three of the four days Prior to the news. Then, on Nov 11, the stock shot up 15% on more than 6 times average 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). + Near breakout: The stock is very near its 52-week high. + I think the stock is a buy today in particular because I think today could be the end of a post-breakout dip. The stock did break out to a 52-week high on Nov 14, but has pulled back on light volume since then. Earlier this morning, the stock hit a post-breakout low and then turned around. It's now up a bit on the day. + Turnaround in recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: -11%, -8%, -11%, and, most recently, as cited above, +50%. + Turnaround in recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters:
Dec 07 vs Dec 06: 55c vs 86c Mar 08 vs Mar 07: 30c vs 60c Jun 08 vs Jun 07: 30c vs 66c Sep 08 vs Sep 07: 83c vs 48c + Strong and rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for FY 09 is $3.10, revised upward from $2.94 90 days ago (and up from FY 08 actual earnings of $1.99); and the consensus estimate for FY 10 is $3.55, revised upward from $3.21 90 days ago. + Valuation: At 20 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 15%, the stock is moderately priced. + The company's industry group ("Commercial Services - Security / Safety") is ranked #7 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: - No history of earnings surprises: Earnings came in shy of estimates for four quarters prior to the positive surprise cited above. -KD, Thursday, November 20, 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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