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Please read carefully our disclaimers at the end of this newsletter. Market Stance: BEARISH (since October 23, 2009) 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 Rehabcare Group Inc. (RHB)
* Buy prices shown are net after commissions and fees. Today, Thursday, November 5, 2009, I bought RHB, first for both client and personal accounts. RehabCare Group, Inc. provides rehabilitation program management services in hospitals, skilled nursing facilities, outpatient facilities, and other long-term care facilities in the United States. The company owns and operates five long-term acute care hospitals and six rehabilitation hospitals. RehabCare Group was founded in 1982. Here's why I bought this stock: + News: Two days ago, Tuesday November 3, after the close, the company announced results for the quarter ended Sep 30. Earnings came in at 44c per diluted share (vs 24c last year and analysts' consensus 38c). 2revenue was up 15% to $208.0 million (analysts' consensus $204.3 million [as of Oct 16]). + A "true surprise"*: For six weeks prior to the news, the stock had been trending lower. Tuesday, it closed very near a 5-month low. Then, yesterday, the stock price soared 28% on extremely 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). + Getting close to a Breakout: The stock is now near the high end of its trading range, and is close to breaking out to a new 4-year high. I think this is likely to happen soon. + Volume spike: Yesterday's volume was more than 9 times average, and a 12-month record. + Excellent and accelerating recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +13%, +12%, +13%, and, most recently, as cited above, +15%. + Excellent recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters:
Dec 08 vs Dec 07: 42c vs 29c Mar 09 vs Mar 08: 48c vs 26c Jun 09 vs Jun 08: 43c vs 26c Sep 09 vs Sep 08: 44c vs 24c + Strong and rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2009 is $1.70, revised upward from $1.61 90 days ago (and up from 2008 actual earnings of $1.17); and the consensus estimate for 2010 is $1.87, revised upward from $1.79 90 days ago. + Valuation: At 13 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 13%, the stock is still, even after yesterday's big gain, attractively priced. + History of earnings surprises: This company has reported earnings-per-share at least 5c above estimates in each of the past four quarters, including the just-reported quarter cited above, which "beat the Street" by 6c. + The company's industry group ("Medical - Outpatient / Home Care") is ranked #107 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. -KD, Thursday, November 5, 2009 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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