Amcon Distributing (NYSE AMEX:DIT)

On November 2, 2009 the GeoTeam® highlighted Amcon Distributing as a company giving us "clues," indicating that future quarters would show continued EPS growth.

The Clues were:

1. Insider buying- Management has been buying stock rather routinely over the past year, even as the stock attains new 52-week highs. We view this as a strong signal from management about near term growth prospects.

2. The company announced that it will acquire a wholesale distribution firm boasting $60 million in revenues and over 300 customers. We don’t have any details on the growth trend or margins of the firm to be acquired. Using Amcon's current margins, $60 million in revenues would equate to additional $0.74 EPS. Also, keep in mind that the Company can now push its own products through this new customer base.

3. On October 29, 2009, Amcon announced that it increased its quarterly dividend by 80%.

4. Amcon recently paid down $8.6 million in debt.

5. The third and fourth quarters are Amcon's strongest periods.

6. The Company has just seven retail operations, leaving room for expansion.

At least for today, DIT delivered by capping off its fiscal 2009 year with a stellar fourth quarter.

Amcon still faces a challenging economic environment and has performed so far. This bodes well for the Company as the economy continues it recovery.

At $64.33 per share the stock has a modest P/E of 5.9 with trailing EPS of $10.87, an appealing situation for value investors.

Hidden Clues Yield Opportunities

The GeoTeam® continually scours press releases and SEC filings to uncover clues on which companies will outperform expectations. Two companies that may fit this bill are Amcon Distributing (NYSE AMEX:DIT) and Hong Kong Highpower Technology (NYSE AMEX:HPJ)

The first company is Amcon Distributing, a leading wholesale distributor of consumer products including beverages, candy, tobacco, groceries, food service, frozen and chilled foods, and health and beauty care products. The Company also operates health and natural product retail stores.

Amcon has posted nine straight quarters of solid quarterly EPS gains, a large reason why we have owned the Company's stock for a some time. Annual EPS has grown from $1.33 in 2006 to $6.56 in 2008. For the 2009 nine month period, EPS has grown 67% to $7.47. Revenue gains have not been as strong, which may be part of the reason why the stock sells at a modest trailing P/E of 6.6.

Can this EPS trend continue? We haven’t had success scheduling an interview with management so we need to search for clues that will guide us.

1. Insider buying- Management has been buying stock rather routinely over the past year, even as the stock attains new 52-week highs. We view this as a strong signal from management about near term growth prospects.

2. Today, the company announced that it will acquire a wholesale distribution firm boasting $60 million in revenues and over 300 customers. We don’t have any details on the growth trend or margins of the firm to be acquired. Using Amcon's current margins, $60 million in revenues would equate to additional $0.74 EPS. Also, keep in mind that the Company can now push its own products through this new customer base.

3. On October 29, 2009, Amcon announced that it increased its quarterly dividend by 80%.

4. Amcon recently paid down $8.6 million in debt.

5. The third and fourth quarters are Amcon's strongest periods.

6. The Company has just seven retail operations, leaving room for expansion.

Of course, these are only clues and we need to be aware of certain risks:

• At $60.00 DIT has performed extraordinarily with a 52-week low of $13.43.
• DIT has a tiny float of about 400 thousand shares.
• Not being able to interview the Company also adds an element of risk.
• Amcon is a $1 billion company which could make top line growth challenging.
• The wholesale distribution business is in a mature, highly competitive industry
• While Amcon does have some recession resistant product categories such as food and tobacco, its customers are highly susceptible to a weak economy.
• Although Amcon has reduced its long-term debt, it still stands at $5.2 million on the books, with a debt to equity ratio over 20% (higher than we prefer). This combined with razor thin margins will likely place a cap on P/E expansion.

The Second company Hong Kong Highpower Technology Inc (HPJ), a manufacturer of rechargeable Nickel Metal Hydride (Ni-MH) and Lithium-ion (Li-ion) batteries.

The GeoTeam® is pondering the Company's ability to meet or exceed analyst 2009 third quarter estimates.

The stock has recently  fallen hard along with most of U.S listed China stocks. Astute investors may see this as buying opportunity, especially as analysts expect Highpower's 2010 EPS to grow over 40% to $0.40 equating to a PEG ratio of 0.49.

Note: We have not interviewed HPJ management.