Cheap Stocks 1/12/2008 Update

More of the same dwonward draft in the markets again last week. Everything got hammered again last week.

The Russell, S+P 500 and the Wilshire 5000 have lost all their 2007 gains and then some, while the DOW and NASDAQ have managed to hang onto 1%. While our year has stunk up the place–we are still holding onto about 6% of our 2007 gain. Really doesn’t make us feel too much better.

We were down another 5.9% last week, bringing our 2008 loss to 14.2%. NASDAQ was down 1.5%, the DOW was down 2.6% and the S+P 500 was down .8%.

Last week we went 4 stocks up, 11 down and 1 even.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is -5.9%,-14.2% and +22.2% respectively. Since inception we are now 20 stocks up and 12 down( 4 of which are down less than 10%).

The DOW, NASDAQ and the S+P 500 were all down, with losses ranging from .8% (S+P) to 2.6% (DOW) last week. So far in 2008 the DOW is down 5%, NASDAQ is down 8% and the S+P 500 is down 4.6%.

The Russell 3000 and the Wilshire 5000 are both down about 5% this year.

Since inception we have closed out the following positions:

2006-NTCT +44%
2006-ONXS +11% (Buyout offer)
2006-DTLK +41%
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-RITT +62%
2007-MIVA +55%
2007-DTLK +25% (2 weeks)
2007-PDLI + 3% (Waited too long to sell)
2007-QADI +25%
2007-CIMT +50%
2007-BDR +19%
2007-LINN.ob -57% (mortgage business bust didn’t help here)
2007-TISA -39% (take some tax loss for 2007 due to disappointing results.

The model portfolio assumes $10,000 invested in each stock (unless we double-up–then it is $20,000), less $10 commission each way (TD Ameritrade rate).

For the 16 stocks that we closed out in 2006 and 2007 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $10.65, Valuation $20-$22
Down $.38 to $14.32.
The market just stinks, hackers are at work (even though short interest dropped a bit)
Things continue to look just fine here.
Now up 35%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.21 (averaged down from $3.66), Valuation $10.30 (was $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $5.40, down $.24.
The ex-CEO keeps cashing in options and selling–another 20,000 shares sold last week. His SEC filings show he has about 20,000 shares left, but we are unable to determine if he has more options to exercise. So maybe he is done next week–maybe not. He is indiscriminate in his selling.
Earnings out January 31, before the market opens.
We added a few more shares at $5.15 and tried unsuccessfully to buy more at $5.00.
DWCH is now trading at 52% of our valuation.
Now up 72%. BUY

Parlux Fragrances (PARL-Recommended 11/30/2006)
Buy price $4.78 (was $6.12 before another $10,000 added, $6.65 before double up), Valuation $10.80 (Was $9.20, $8.63, $13.77)
PARL closed at $4.02, down $.04.
Lets see, sales up 38%, made $.10 a share fully taxed and paid down $8 million of debt over the past 6 months.
ECOM Ventures announced that it will merge with Model Reorg. Inc. ECOM will pay for it with shares, so that Nussdorf and family will end up owning 70% of ECOM. So maybe this was why he has been selling some PARL shares–lots of expenses and maybe some taxes to pay?
If they can get this deal done, can one with PARL be far behind?
Now trading at 37% of our valuation.
The new management has 2.0 million reasons to make this stock go up. Glenn Nussdorf paid $6 for his shares.
Down 16%. BUY.

ILOG SA (ILOG-recommended 3/26/2007)
Buy price $12.08 (was $12.92 before another $10,000 added, $13.60 before double-up), Valuation $20.51 (was $23.22, $20.99, $20.52)
Closed at $10.50 down $.45.
No one cares about this stock right now.
It is a quality company–just French.
For FY2008 (this year) they are STILL projecting another 20% increase in sales and a tripling of operating income. They still have $3.35 a share in cash.
A buy-out is a decent possibility here.
Down 13%. HOLD

Celebrate Express (BDAY-recommended 4/17/2007)
Buy Price $8.38 (was $8.82 before double-up), NEW Valuation $15.51 (Was $17.85 $18.18)
Down $.93 to $6.00.
BDAY announced earnings in early January. We thought they were pretty good. Apparently the market did not agree. Sales were up 10%, gross margin was up to 53%, but operating income was down from $568,000 to $430,000. So we have lost $20 million of market cap for a $138,000 decline in operating income. Cash was $18.7 million or $2.34 per share.
From their conference call, it sounds like 2008 will be a year of continued investment in systems and the business. So maybe no great earnings to propel the stock for a while.
The “turnaround” is not yet done.
We like the recent insider buying again and are content to wait for this one.
Down 28%. BUY.

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.52, (was $6.67 ($10,000 added), $6.98 after double up) NEW Valuation $13.32 (was $12.89, $13.40)
Down $.13 to $7.05.
Penninsula Capital owns 1.67 million shares or over 20% of MEDW. Not sure how they liguidate there stake profitably without a takeover

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $7.26, Valuation $11.51
Down $.52 to $4.55.
Healthinvest fund filed a 13G/a in December. Looks like they have reduced their position from 1,435,000 shares (6.2%) to 1,106,000 shares (4.8%). Looks like they are the ones that have been driving the price down.
JP Morgan added 95,000 shares from 11/28-11/30, at $6.12 to $6.21. They now own 3,354,000 shares or about 10%.
They also filed an 8K in December. Seems they are sprucing up their senior officer change-of-control agreeemtnts. Wonder why? Meanwhile the stock just continues to sink and is now our biggest DOG.
Down 37%. HOLD

Angeion Corp. (ANGN-Recommended 10/14/2007)
Buy Price $7.55, Valuation $13.67
UP $.38 to $9.05.
13D filed last week. Don’t know the investor (Pessin) but they have accumulated 206,600 shares or just over 5%.
UP 20%. HOLD

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $2.38 (Was $2.62 before another $10,000 and was $3.00 before double up), Valuation $7.58 (was $7.59)
Down $.12 to $1.52.
13G/A filed last week by William Blair–looks like they added a few shares and now own 10.22% of MIVA.
Down 36%. BUY

PDL Biopharma. (PDLI-Recommended 10/21/2007)
Buy Price $20.04, Valuation $24.00 to $30.00
UP $.03 to $16.27.
PDLI announced the sale of a $30 million a year in sales drug–for $200 million.
Looks like our 3X product revenue valuation may be a tad low (below). The stock sank on this news. Makes no sense to us–other than tax loss selling.
At 7X the royalty revenue and 3X the product sales, you get $2.1 billion in value comapared to the current market cap of $2.1 billion. Their pipeline, and know-how has to be worth something.
No matter, they are still trying to sell the company.
So we are just waiting for them to announce the sale of the company and for how much.
Down 19%. BUY

Datalink. (DTLK-Recommended 10/31/2007)
Buy Price $4.28, Valuation $9.39
Down $.14 to $3.86.
There is value here.
Got a nice plug in Barron’s, and they presented at Needham last week also.
Not enough to keep the price from falling in this bad market.
Trading at only 41% of our valuation.
Down 9.8%. BUY

OB-abies (Bulletin Board Listed Stocks)

ARI Networks (ARIS.ob-Recommended 8/19/2006)
Buy price $1.61 (Was $1.78 before another $10,000 added, was $2.06 before double up), Valuation $5.71 (was $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.65, up $.05.
Earnings announced last month were great. Sales up 21% and they made money. This market just stinks for mini/micro caps, and ARI does little to get any investor attention. Wake up management–you have a great little company here worth 3X what it is selling for.
Now up 2%. BUY. Still a Huge valuation gap here.

OPTIO Software Inc. (OPTO.ob-Recommended 3/22/2006)
Buy price $1.25, Valuation $2.74 (was $2.34, $2.28, $2.89, $2.89, $2.54 and 2.88)
Closed at $1.21, down $.11.
OPTIO has cash of $.41 per share–34% of the market cap.
In late June, OPTIO announced they had hired an investment banker to help them review the “Strategic Alternatives” related to their Healthcare software division. In other words, a “for sale” sign has gone up. Having been through their SEC filings, there appears to be no disclosure on the sales or operating results for this “division”, so there is no way for us to determine what this could mean from a valuation standpoint.
It has been over 6 months now since their announcement–We would expect to hear an update SOON. They said in their latest earnings release that their healthcare business exceeded their goals. They better get a good price for this.
Still hoping we will see north of $2.00–but may not happen now unless next quarter rebounds with some decent profit numbers, or they get a good deal on the Healthcare “division”.
Down 3%. HOLD.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.93 (Was $.99 and $1.19 before adding $10,000-twice), Valuation $3.05 (was $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.89, up $.04.
Nice presentation filed in their 8K in December. Couple of nice mentions–including in Smart Money of the CEO interview with the Wall Street Reporter. Sigma Opportunity Fund has been buying more shares.
We are guessing $55 million of revenue this year and being profitable–which should yield a valuation of over $3.50 a share, and hopefully a share price of at least $2.00–up 100% from here.
Now down 4%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.17 (Was $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price unchanged at $.34. Closed at $.28.
Maybe these guys will wake up and create some shareholder value in 2008.
This is still trading at only 30% of our latest valuation.
Up 26% based on the ASK price. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $1.08 Valuation $2.08
Closed at $.99, down $.15.
LTUS, filed an impressive investor presentation on Form 8K in early December.
As noted, China stocks are risky, but based on their published information we just cannot figure out why this stock is trading so low.
LTUS is on track to make $.18 a share this year. Even if these earnings were taxed at U.S. tax rates, that would be about $.12 a share. That is a PE of less than 10, for a company growing revenues at 50% year-over-year. We may continue to buy more if the price stays in this range.
Down 8%. BUY


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