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 ********** Market Stance: Cauiously Bullish ********** 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. ********** Previous Alert: Vol.2 #63 (April 12, 1993) ********** 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-