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Please read carefully our disclaimers at the end of this newsletter. Market Stance: BULLISH (since November 16, 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.
* Buy prices shown are net after commissions and fees. Today, Monday, November 16, 2009, I bought HEAT, for both client and my personal accounts. SmartHeat, Inc. manufactures and sells plate heat exchangers (PHEs) and packages, thermometer testing devices, and heat usage calculators in China. Its PHE and PHE units reduce energy waste and enhance temperature and pressure controls and cooling equipment. Here's why I bought this stock: + News: This morning, before the open`, the company announced results for the quarter ended Sep 30. Earnings came in at 36c per diluted share (vs 18c last year and analysts' consensus 28c). Revenue was up 83% to $37.8 million (analysts' consensus $35.1 million). + A "true surprise"*: Prior to the news, the stock was trading near the low end of its 9-week range. Then, today, 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). + Volume spike: As I write this, about a half hour before the close, volume is about three-and-a-half times the daily average. This will be the second heaviest volume day of the past 52 weeks. + Excellent recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: -57%, +102%, +125%, and, most recently, as cited above, +83%. + Excellent recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters:
Dec 08 vs Dec 07: 4c vs 9c Mar 09 vs Mar 08: 5c vs 3c Jun 09 vs Jun 08: 11c vs 3c Sep 09 vs Sep 08: 36c vs 18c + Valuation: At 15 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 30%, the stock is still, even after today's big gain, very attractively priced. + History of earnings surprises: This company has reported earnings-per-share at least 3c above estimates in each of the past four quarters, including the just-reported quarter cited above, which "beat the Street" by 8c. + 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: - Strong and rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2009 is 59c, revised downward from 60c 90 days ago (but up from 2008 actual earnings of 29c); and the consensus estimate for 2010 is 75c, revised downward from 84c 90 days ago. - The company's industry group ("Pollution Control Equipment") is ranked #154 for relative strength out of 197 industry groups tracked by Investor's Business Daily. This ranking changes daily, and it has been generally falling slightly over recent weeks and months. -KD, Monday, November 16, 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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