Cheap Stocks 1/26/2008 Update

Well at least the markets seem a little more stable last week than the rest of 2008. MIVA was our star last week–up 27%, followed by PARL up 19%. They had been beaten down so much that they had nowhere to go but up.

All of the major averages have lost all their 2007 gains and then some. While our year has stunk up the place–we are still holding onto about 8% of our 2007 gain. Really doesn’t make us feel too much better.

We were up 5.4% last week, cutting our YTD 2008 loss to 11.7%. NASDAQ was down .6%, the DOW was up .9% and the S+P 500 was up .4%.

This weeks advice–SELL ANGN at $9.51 for a 26% gain and double up on PDL.

Last week we went 7 stocks up, 8 down and 1 even.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is +5.4%,-11.7% and +24.9% respectively. Since inception we are now 20 stocks up and 12 down( 3 of which are down less than 10%).

So far in 2008 the DOW is down 8.0%, NASDAQ is down 12.3% and the S+P 500 is down 9.4%.

The Russell 3000 and the Wilshire 5000 are both down about 9.5% 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 $.40 to $12.90.
The market just stinks, hackers are at work (even though short interest dropped a bit)
Things continue to look just fine here.
Now up 21%. 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 $6.33, down $.24.
The ex-CEO keeps cashing in options and selling–another 20,000 shares sold last week. Well, only 106,000 CEO shares to go!
Earnings out January 31, before the market opens.
DWCH is now trading at 61% of our valuation.
Now up 101%. HOLD

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 $3.94, up $.63.
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 36% 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 18%. 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 $9.99 up $.04.
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 17%. HOLD

Celebrate Express (BDAY-recommended 4/17/2007)
Buy Price $8.38 (was $8.82 before double-up), Valuation $15.51 (Was $17.85 $18.18)
Down $.26 to $6.09.
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 27%. 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)
Up $.16 to $6.86.
UP 6%. BUY

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $7.26, Valuation $11.51
Down $.16 to $4.29.
Earnings out Tuesday February 6th after the close.
Down 41%. HOLD

Angeion Corp. (ANGN-Recommended 10/14/2007)
Buy Price $7.55, Valuation $13.67
UP $.41 to $9.51.
13D filed in January. Don’t know the investor (Pessin) but they have accumulated 206,600 shares or just over 5%.
In this crazy market we are taking our profit in ANGN–just not enough visability on what is going on here. At 70% of our valuation, we will cash out now.
UP 26%. SELL.

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)
Up $.38 to $1.78.
Settled some litigation last week–good news. Take-over rumours around too.
Down 25%. BUY

PDL Biopharma. (PDLI-Recommended 10/21/2007)
Buy Price $20.04, Valuation $24.00 to $30.00
Down $1.41 to $14.07.
Time to double-up here. This is stupid in our opinion. New average buy price will be $16.53.
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 30%. BUY

Datalink. (DTLK-Recommended 10/31/2007)
Buy Price $4.28, Valuation $9.39
Up $.21 to $3.93.
There is value here.
Trading at only 42% of our valuation.
Earnings out Wednesday, February 6th after the close.
Down 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 $1.62, down $.03.
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 1%. 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 $1.15, down $.07.
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 8%. 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 $.90, up $.06.
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.
No news.
Now down 3%. 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 $.90, down $.06.
LTUS announced the hiring of a PR firm last week. They need to get to work!
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 17%. BUY

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