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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 VeriFone Systems, Inc. (PAY)
* Buy prices shown are net after commissions and fees. Today, Thursday, August 26, 2010, I bought PAY, for both client and my personal accounts. VeriFone Systems, Inc. provides point of sale electronic payment solutions for a range of industries. This stock is a component of the IBD 100 and the IBD New America Indices. ("IBD" = "Investor's Business Daily") Here's why I bought this stock: + Earnings surprise: Two days ago, Tuesday, after the close, the company announced results for the quarter ended July 31. Earnings came in at 36c per diluted share (vs 26c last year and analysts' consensus 30c). Revenue was up 24% to $261.5 million (analysts' consensus $248.8 million). + A "true surprise"*: For some four weeks prior to the news, the stock was trading basically sideways. Then, yesterday, the stock jumped +8.5% 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). + Breakout: The price movement yesterday represents a breakout from a 5-month trading range to a new two-and-a-half year high. + Volume spike, mostly on the buy side: Yesterday's volume was almost 6 times average, and was an 11-month record. + Mostly excellent and accelerating recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: -11%, +4%, +19%, and, most recently, as cited above, +24%. + Excellent recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters:
Oct 09 vs Oct 08: 26c vs 19c Jan 10 vs Jan 09: 26c vs 17c Apr 10 vs Apr 09: 29c vs 17c Jul 10 vs Jul 09: 36c vs 26c + Strong and rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for FY 10 (ends Oct 31) is $1.24, revised upward from $1.15 90 days ago (and up from FY 09 actual earnings of $0.85); and the consensus estimate for FY 11 is $1.54, revised upward from $1.37 90 days ago. + Valuation: At 16 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 20%, 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 a penny above estimates in each of the past seven quarters, including the just-reported quarter cited above, which "beat the Street" by 6c. + 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 ("Finance - Credit Card / Payment Processing") is ranked #130 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, Thursday, August 26, 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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