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The Aggressive Trader Vol. 2, No. 67
Ken Deen's THE AGGRESSIVE TRADER(tm)
"Seeking double-digit profits in one to four months"
Vol. 2, No. 67 April 19, 1993 10:30am New York Time
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Market Stance: Cauiously Bullish
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ALERT ITEMS:
Marginable Account (editor's personal account):
* SELL 60 Intel Corp. (NASDAQ: INTC)
Today I sold all 60 shares at 100 1/2. I had bought these shares Apr.
12 at 117 1/4 (Vol.1 #63).
After this trade, the account value is $37,224. Of that, $30,232 is
long stocks and $6,992 is cash.
IRA Account (editor's personal account):
* SELL 60 Intel Corp. (NASDAQ: INTC)
Today I sold all 60 shares at 100 1/2. I had bought these shares Apr.
12 at 117 1/4 (Vol.1 #63).
After this trade, the account value is $40,897. Of that, $34,508 is
long stocks and $6,389 is cash.
DESI(tm) Account (a computer-simulated hypothetical account): No trades
DESI(tm) Buy/Sell Signals (computer-generated): None
Other Strong Recommendations:
* BUY Elmwood Bancorp Inc. (NASDAQ: EFSB, $13.50)
EPS:90, RS:81, GR:19->14, PE:13, Finance-Savings & Loan
Note: This is a DESI(tm) buy candidate today, but not a DESI(tm) buy
signal. (See p.3 of Monthly Status Report for explanation.)
**********
TRADING IDEA ITEMS:
(These are NOT buy recommendations. They are merely suggestions for your
further research.)
Breakouts (The following stock(s) have excellent sales and earnings growth,
and have just broken out from a six-week or longer base.):
* Life USA Holdings Inc. (NASDAQ: LUSA, $12.38)
EPS:99, RS:91, GR:40->36, PE:, Insurance-Life
* SPS Transaction Services (NYSE: PAY, $57.50)
EPS:98, RS:92, GR:53->59, PE:33, Computer-Services (Vol.1 #31)
**********
Intel Corp.
Just one week ago, I declared that Intel was an "enthusiastic
recommendation". I bought at 117 1/4, on the heels of a blowout earnings
report. At the time I bought, the stock was up over 4 points in response
to the earnings.
The stock has sold off almost every day since I bought it. Many analysts
have downgraded the stock, claiming that the company cannot maintain current
profit margins going forward. None of this is cause for me to sell. Please
see the article below on my sell discipline. The reason I am selling is
that, Friday after the close, an item of factual bad news on the company
crossed the wires. It is important in my discipline to distinguish between
fact and opinion. When analysts downgrade a stock, that's opinion; I ignore
it. When a stock sells off in the absence of factual bad news, I will ride
out the selloff. However, I may throw in the towel on factual bad news.
The factual bad news late Friday was that a federal judge granted Advanced
Micro Devices a new trial in its litigation with Intel. In the wake of this
decision, AMD has said it will re-examine its timetable for a rollout of its
486 chip. Translation: AMD may start shipping 486 clones sooner than expected.
It is highly debatable how important this news is. I personally think
it's not such a big deal. However, it is factual bad news, and the market
is reacting strongly (Intel stock opened down over ten points this morning).
That's enough to prompt me to advise selling.
This, then, is a losing trade. I remind you that occasional losing trades
are unavoidable. However, if you look at my track record, you will see that
for every stock I sell at a loss, I sell two or more at a profit.
**********
*** To all who download this newsletter ***
On May 1, 1993, this newsletter will be available only for a subscription
fee. There will be no further uploads on or after that date.
From now through April 30, 1993, I am offering at-cost subscriptions (very
very inexpensive) by e-mail, fax, and postal mail. These are alternatives to
downloading. E-mail via Internet is free during this trial period.
Monthly Status Reports (available in printed form only) are an essential
adjunct to these timely bulletins. Among other things, they review the stock
holdings and historical performance of each newsletter account. To receive a
free sample Monthly Status Report plus an at-cost subscription form, just
send your paper mail address.
-Ken Deen
**********
The Aggressive Trader's Sell Discipline
It is very important, when buying a stock, to have a discipline regarding
when to sell. I feel strongly that discipline is key to successful investing.
My sell discipline is as follows: Normally, I will sell on a short-term
peak after holding at least three months. If no short-term peak comes along,
I will normally sell anyway after three-and-a-half to four months, regardless.
I will sell prematurely (before holding three months) only in certain specific
situations:
* I may sell early if my market stance becomes more bearish.
* I may sell early if there is factual bad news on the company. (Analysts'
opinions are ignored.)
* I may take a profit if I have a 20% or better gain in a short period of
time.
Note that there is no provision in this discipline for "cutting losses"
per se. I will not sell a stock simply because it is falling in price. This
is contrary to popular wisdom. Most people have some sort of "stop loss"
provision in their sell discipline. My experience with "stop loss" selling is
that it all too often forces me to sell at the worst possible time. When a
growth stock with strong earnings and sales sells off in the absence of bad
news and in the context of a bull market, the stock usually bounces back.
Will I hold a stock which is falling like a rock all the way down to zero?
In theory, yes. In practice, however, stocks do not fall to zero without some
factual bad news.
**********
Elmwood Bancorp Inc.
The story here is a technical breakout on high volume from an eleven-week
base, fueled by strong earnings news, in a group that continues to gain favor
on the Street. On Friday, the stock was up 2 points on 68,700 shares, far
above the average daily volume of 4,000 shares.
Here are the last four quarters of earnings. The last line represents
the earnings news:
QtrEnd Earnings-per-share
----- ------------------
Jun92 0.19 vs 0.10 +.09
Sep92 0.24 vs 0.11 +.13
Dec92 0.26 vs 0.17 +.09
Mar93 0.38 vs 0.18 +.20
The P/E fell only slightly, from 13.2 to 12.6, as the jump in trailing
earnings ("E") exceeded only slightly the jump in price ("P"). However,
the combination of a technical breakout, a positive earnings surprise, and
a group gaining favor is very bullish.
Also, the company announced on Friday that its board is exploring methods
of enhancing shareholder value, including the possible sale of the company.
This is a thinly traded stock, but we may possibly see average trading volume
begin to pick up in the wake of this news.
Elmwood Bancorp, located in Media, PA (215-565-8200) is a holding company
for Elmwood Federal Savings Bank of Pennsylvania, operating through nine
offices.
As with all specific stock buy Alerts, I will publish a sell Alert when
I recommend selling.
All rankings in today's Alert (earnings-per-share, relative strength, and
group) are from Investor's Business Daily.
<Stock chart appears here in printed version.>
**********
Previous Alert: Vol.2 #63 (April 12, 1993)
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The Aggressive Trader is edited and published at irregular intervals, but
at least monthly, by Deen Capital Management, Inc., P.O. Box 4791, Santa
Barbara, California 93140, (805) 565-2039.
CompuServe: 72020,2050 Internet: 72020.2050@compuserve.com
Deen Capital Management, Inc., its principals, employees, affiliates,
and/or clients may have positions in securities recommended herein and may
make additional purchases and/or sales in these securities.
Recommendations made in this publication involve a high degree of risk and
may result in losses. Readers should not assume that recommendations will be
profitable or will equal past performance. The information in this
publication is collected from sources believed to be reliable, but neither the
accuracy nor the completeness of this information is guaranteed.
The Aggressive Trader, Deen Earnings Surprise Index, DESI, and DESI-3 are
all trademarks of Deen Capital Management, Inc.
Copyright (c) 1993 Deen Capital Management, Inc.
-END-
