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Please read carefully our disclaimers at the end of this newsletter. Market Stance: BULLISH (since February 19, 2010) Contents
Typical Client 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, April 26, 2010, I bought LOCM, for both client and my personal accounts. Local.com Corp. provides local search services on the Internet. Here's why I bought this stock: + Earnings surprise: Last Thursday, Apr 22, after the close, the company announced results for the quarter ended March 31. Earnings came in at 16c per diluted share (vs a loss of (8c) last year and analysts' consensus 13c). Revenue was up 68% to $18.6 million (analysts' consensus $17.4 million). + A "true surprise"*: For two weeks prior to the news, the stock was trading in a tight range in the low 7's. Then, Friday, it jumped +9.9% on huge 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). + The stock broke out to marginal multi-year highs about a month ago. + Volume spike, mostly on the buy side: Friday's volume was about 23x average, and a 12-month record. + Excellent recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +42%, +48%, +71%, and, most recently, as cited above, +68%. + Emergence into profitability. Here are the quarterly EPS figures for the last eight quarters:
Jun 09 vs Jun 08: (8c) vs (14c) Sep 09 vs Sep 08: (10c) vs (12c) Dec 09 vs Dec 08: (3c) vs (15c) Mar 10 vs Mar 09: 16c vs (8c) + Strong and sharply rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2010 is 56c, revised upward from 2c 90 days ago (and up from 2009 actual loss of (40c)); and the consensus estimate for 2011 is 66c, revised upward from 5c 90 days ago. + Valuation: At 12 times next year's estimated earnings, the stock is attractively priced. (The 5-year earnings growth projection, which I usually cite here, is not available for this little-known stock.) + 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 3c. + 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: - The company's industry group ("Internet Content") is ranked #160 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, April 26, 2010 Bought Western Digital Corp. (WDC)
* Buy prices shown are net after commissions and fees. Today, Monday, April 26, 2010, I bought WDC, for both client and my personal accounts. Western Digital Corporation designs, develops, manufactures, and sells hard drives worldwide. This stock is a component of the IBD 100 and the S&P 500 Indices. ("IBD" = "Investor's Business Daily") Here's why I bought this stock: + Big earnings surprise: Last Thursday, Apr 22, after the close, the company announced results for the quarter ended March 31. Earnings came in at $1.71 per diluted share (vs $0.30 last year and analysts' consensus $1.55). Revenue was up 66% to $2.64 billion (analysts' consensus $2.54 billion). + A "true surprise"*: For five weeks prior to the news, the stock was trading in a sideways pattern near $40. Then, Friday, the stock jumped 9.9% on more than double average trading 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). + The price came down a bit this morning, and I used that small dip as a buying opportunity. + Dramatically accelerating recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: -3%, +5%, +44%, and, as cited above, +66%. + Dramatically improving recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters:
Jun 09 vs Jun 08: $0.76 vs $1.00 Sep 09 vs Sep 08: $1.25 vs $0.93 Dec 09 vs Dec 08: $1.85 vs $0.55 Mar 10 vs Mar 09: $1.71 vs $0.30 + Strong and rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for FY 10 (ends June 30) is $6.19, revised upward from $5.14 90 days ago (and up from FY 09 actual earnings of $2.54); and the consensus estimate for FY 11 is $6.24, revised upward from $5.26 90 days ago. + Valuation: At 7 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 9%, the stock is still, even after Friday's big gain, attractively priced. + History of earnings surprises: This company has reported earnings-per-share at least 16c above estimates in each of the past six quarters, including the just-reported quarter cited above, which "beat the Street" by 16c. + The company's industry group ("Computer - Data Storage") is ranked #101 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: - There could be resistance in the $45 to $47 range, corresponding to a topping range in January. (But I suspect the stock will break out to new highs within the next few days or weeks.) -KD, Monday, April 26, 2010 Sold S&P Depositary Receipt (SPY) +1.5%
* Buy and sell prices shown are net after commissions and fees. This means that the gain/loss shown is also net after transaction expenses. Today, Monday, April 26, 2010, I sold SPY, first for client accounts, then for my personal accounts. I sold just enough SPY to pay for WDC and LCOM. We remain fully invested. -KD, Monday, April 26, 2010
* 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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