Speculative Buy-PDL BioPharma (PDLI)

I originally bought PDLI at around the $7 level in 2003. I sold 3/4 of my position at around $21. I am holding the remaining and am planning to buy more at this sub-$20 level. This bio-tech company has everything going for it. A lucrative royalty stream from some of the biggest names of bio-tech (Genentech-Avastin, Xolair, Raptiva/MedImmune-Synagis, etc.), product sales from an acquisition made last year and some potential block-busters in the R+D pipeline. Balance sheet is not bad either with $346 million in cash. This stock was recently $32+, then they missed analysts estimates by $10 million last quarter, the market tanked, and bio-tech fell out of favor a bit. It is losing money on a GAAP basis (although they were profitable on a non-GAAP basis last quarter–slightly). This is not a valuation play, but a growth play. Biggest mistake I made on this one was not buying more when it was down to $15 after I sold some at $21. This could be a $50-$100 stock, 3 years from now. Trading at 5.5 times current year projected sales–so not for the faint of heart. But them DNA (Genentech) trades at 11 times. Expect volitility! BUY.

Advertisements

5/19/2006 Update

Market continued to slide last week and we were not immune, although we did have a couple stocks move up. IYXI, CTIG and AVSO announced earnings last week also:

MIVA–(Buy price $3.80, Valuation $9.10). MIVA actually went up $.19 last week to close at $3.98 from $3.79 last week. Up 5%. Couple of insider buys reported (26,000 shares). BUY

Datawatch-(Buy price $3.66, Valuation $9.31). Closed at $3.48 from $3.76 last week. Now down 5%. I bought more at $3.59. BUY.

Inforte-(Buy price $4.11, Valuation $7.32). Closed up $.02 (!) at $4.97 in a bad market. Up 21%. HOLD for $6.00

OB-abies

LINN.ob-(Buy Price $.36, Valuation $.79). Dropped back down to $.305 from $.36 last week. Now down 20%. Still a BUY

OPTO.ob-(Buy Price $1.25, Valuation $3.09). Closed at $1.41, down $.04 from last week and up 13% so far. Another press release last week, but not enough to keep it from going down with the markets. HOLD

AVSO.ob-(Buy price $1.19, Valuation–Moved up to $3.81! from $3.14). Released earnings last week and they were very good, but the stock dropped like a stone to $2.15. Now up only 81%. Sales were $11 million, up 5.5%, Net Income was $1.277 million or $.07 a share (un-taxed), but down from $.18 last year when they had a big one-time software sale. Nine-month earnings were $.14 a share (un-taxed also). HOLD/BUY a little if you don’t have any.

CTIG.ob-(Buy Price $.27 ask, Valuation $.82 down from $1.10). Up $.04 last to $.36 ask, up 33%. Earnings released last week, sales came in at $3.1 million down 3% from last year and they had a loss of $785,000. Cash was still $.28 per share, so it is still too cheap. HOLD

IYXI.ob–(Buy Price $1.91, Valuation–over $3.00). IYXI released earnings last week. Sales were $21.4 million and the loss was reduced to $2.6 million ($.06 a share). EBITDA was positive $1.6 million which is a good sign. They are still projecting huge numbers going forward–2006 sales of $150 million, 2007 sales of $250 million and net margins of 3% and 10% respectively. If they even look like they will get close to the 2007 targets–this should be a $5 stock. Still risky because of debt load and acquisition plans. Closed at $2.35, down $.08. Up 23%. HOLD

Update

Market was looking good until Thursday, then WHAM. Have to wait until next week to see which way the market will go. Not a great week for our stocks either (although we actually had a couple that were up a bit):

MIVA–(Buy price $3.80, Valuation $9.10). Got hammered last week down to $3.79 after their earnings release–which was what they pre-announced a few weeks back. So no surprizes, and they announced a $10 million share buy back. So down it goes. Nothing has changed from when we bought it. Back even on this one now. BUY

Datawatch-(Buy price $3.66, Valuation $9.31). Closed at $3.76 from $3.83 last week. Up 3%. BUY. Like watching grass grow.

Inforte-(Buy price $4.11, Valuation $7.32). Closed up a nickel (!) at $4.95 in a bad market. Up 20%. HOLD for $6.00

OB-abies

LINN.ob-(Buy Price $.36, Valuation $.79). Dropped back down to $.36 from $.42 last week. Back to even on this one too. BUY

OPTO.ob-(Buy Price $1.25, Valuation $3.09). We got to new high territory by Wednesday last week and it looked like it was finally going to make a run at $2.00. BUT, then the market tanked. Closed at $1.45, up $.02 from last week and up 16% so far. They keep announcing new customers, so we just need patience on this one. HOLD

AVSO.ob-(Buy price $1.19, Valuation $3.14). Snuck over $2.50 last week, up a penny. Now up 111%. Looks like we could start moving towards $3.00 hopefully. HOLD

CTIG.ob-(Buy Price $.27 ask, Valuation $1.10). Dropped back $.02 last to $.32, still up 19%, but barely trading. Hopefully we will get some news soon and hopefully it will bring some deserved attention here. HOLD

IYXI.ob–(Buy Price $1.91, Valuation–over $3.00). We forgot this one last week. Not much new other than they will be doing an investor conference (Rodman and Renshaw–in Monte Carlo!) next week–15th and 16th. Closed at $2.43, up a penny. Up 27%. HOLD

Cheap Stock Investor-Our Methodology

This Blog is the result of being an active investor for the last 20 year. I had “played” the stock market literally since I was 14 years old and made a little and lost a little. In 1986 I borrowed $700 on my credit line and turned it into $30,000 in less than a year. Then came the crash of 1987. I got out with around $5,000. But it was devastating. Just after that I got a sizable distribution (under $50,000) from a 401k plan. What to do? I sat there and calculated the compound value of my distribution at 5%,6%,7%. Not too exciting. At 15% it did start to get exciting. I thought “how do I make 15% a year?”. The only way was the stock market. But to get this kind of consistent return I figured I would have to work at it–pretty hard–no playing anymore. So I put my distribution in the market and started doing research reading every thing I could and talking to brokers, companies etc. My backgound is financial and I have been the CFO of several companies both public and private, so this helps deciper company financials–and the words in press releases (since I used to write them).

So over the last 15 year ending 2005, my portfolio has grown at a compound 25% a year and is solidly in the low 7 figures. I have taken out more cash that I ever put in. I have 3 IRA accounts, and 5 non-IRA accounts. I have 2 live brokers and I manage small portfolios for several friends and relatives which have done better than the 25% a year on these (it is easier to get bigger % gains on small portfolios of course).

So, how do we do it? By working at it every day. For tech companies we have a valuation formula that works great. By using financial metrics we can come up with very accurate valuations of these companies (it works on smaller medical companies also–but with some filtering). We read their financial reports and get the flavor for where we think the company is going, plans etc. If there are no big “gottcha’s” (like losing big customers, hemmoraging cash, big lawsuits, bad guidance, etc) and the current stock price is less than 60% of our valuation–and generally they have to have a lot of cash–we buy. Once a stock gets to 80% of our valuation we start to think about selling, depending on the stock price action, new earnings reports, guidance, etc.
It works. NTCT and DTLK are examples so far in 2006 as is AVSO.ob. Others are noted in our Profile. We find a lot of very cheap Bulletin Board stocks these days. American Oriental Biosciences was one of our buys back when it was below $2.00 and they moved to the AMEX. At around $5 today–we don’t think it is cheap anymore. These OB-abies are usually thinly traded, but have great potential and are good for small portfolios.

Some rules we consider when investing:

Don’t buy on margin. EVER

Plan on holding a stock for 2 years (but sell it if it hits the target price–even in 2 days).

Stay away from commodities. The past year or so has been great and I have even bought a steel company and an oil and gas company and done well, but only a little. Too risky and unpredictable.

Only buy stocks that you don’t lose sleep over. We generally stay away from companies with a lot of debt. We like cash laden companies with good margins–even if they are losing a LITTLE money.

Try to NOT lose money. Even if you only make a little, losers kill your performance over the long term. We try to get it right at least 80% of the time. Unlike Venture Capital where they are doing good if they get 1 out of 10 right.

Some other stocks that I own (not saying to buy them!) are: SPNC, SCR.a, CPD, EASY, EGY, CTE, IHR, MECA, OTIV, TMR, VERA.ob, RDCM, ARIS.ob.

Good luck to all

Update–May 7, 2006

Pretty boring week for our stocks here.

MIVA–(Buy price $3.80, Valuation $9.10) closed at $4.41 up a penny from last week. Up 16%. Still buyable here if you don’t have any. BUY
DWCH–(Buy price $3.66, Valuation $9.31) closed up $.06 from last week at $3.83. Up 4%. Still buying at this level. BUY
INFT–(Buy price $4.11, Valuation $7.32) closed up $.15 from last week at $4.90. Up 19%. Buy a little here if you don’t have any. BUY
ONXS–(Buy price $4.10, Valuation $7.12) closed up $.03 from last week at $4.57. Up 11%. Hold for word on investment banker activity and CDC buy-out offer. HOLD

OB-abies:
LINN.ob–(Buy price-$.36 ask, Valuation $.79) closed down $.06 from last week at $.42 ask. Up 17%. Linn announced earnings last week. Sales were down and they lost a little money, but they keep signing new customers, even though their mortgage activity business dropped off as expected. Expect improvement next quarter based on new customer announcements. HOLD
OPTO.ob–(Buy price $1.25, Valuation $3.09) closed even with last week at $1.43. Up 14%. Still have orders in to buy at $1.35–just having trouble filling them!
AVSO–(Buy price $1.19, Valuation $3.14) closed up $.11 from last week at $2.50. Up 110%. Announced a huge stock offering on Friday, $20 million of preferred stock. Deal is not closed of course but this is big. Looks like they are committed to growing. Only negative is that the preferred is convertible to common at $1.85. Not an unreasonable discount given the size of the offering. I plan of selling 1/2 my position at $2.50 or so and holding to see what happens with the rest. Sell 1/2, Hold the rest.
CTIG.ob–(Buy price $.27 ask, Valuation $1.10) closed down a penny to $.34. Up 26%. Very quiet. HOLD