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Please read carefully our disclaimers at the end of this newsletter. Market Stance: BEARISH (since August 11, 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. Bought ZST Digital Networks, Inc. (ZSTN)
* Buy prices shown are net after commissions and fees. Today, Tuesday, August 17, 2010, I bought ZSTN, for both client and my personal accounts. ZST Digital Networks, Inc. is a Chinese provider of IP TV optical workstations and security and monitoring devices to cable system operators. Here's why I bought this stock: + Earnings surprise: One week ago, on August 10, before the open, the company announced results for the quarter ended June 30. Earnings came in at 45c per diluted share (vs 21c last year and analysts' consensus 34c). Revenue was up 40% to $33.0 million (analysts' consensus $30.7 million). + A "true surprise"*: Since peaking at $11.78 on March 11, the stock had been generally trending lower. Then, on August 10,the stock soared +30% 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). + Since then, volume has remained heavy, there has been little profit taking, but the stock has held on to most of that one-day gain. Today, the stock is up some 8% on the heaviest volume since that first market reaction day. We are buying today slightly above the August 10 closing price of $6.89, but below the August 10 intraday high of $7.24. + Volume spike, mostly on the buy side: That August 10 volume was more than 50 times average. Wow! + Mostly excellent recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +88%, +110%, -4%, and, most recently, as cited above, +40%. + Excellent recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters:
Sep 09 vs Sep 08: 28c vs 14c Dec 09 vs Dec 08: 26c vs 11c Mar 10 vs Mar 09: 17c vs 10c Jun 10 vs Jun 09: 45c vs 21c + Strong and rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2010 is $1.59, revised upward from $1.20 90 days ago (and up from 2009 actual earnings of 85c); and the consensus estimate for 2011 is $1.65, revised upward from $1.52 90 days ago. + Valuation: At 4 times next year's estimated earnings, the stock is still, even after yesterday's big gain, very attractively priced. (The projected 5-year earnings growth rate 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 three quarters, including the recently reported quarter cited above, which "beat the Street" by 11c. + The company's industry group ("Telecom - Infrastructure") 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, Tuesday, August 17, 2010
* Buy prices shown are net after commissions. ** 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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