Cheap Stocks 2/2/2008 Update

Well the markets had a good week last week. “Pigs get slaughtered”. I guess we were piggy on DWCH. It got slaughtered last week and slaughtered us. Down 37% last week.

All of the major averages have lost all their 2007 gains and then some except for the Dow which is now up 2.2% from 12/31/2006. While our year has stunk up the place–we are still holding on to about 5% of our 2007 gain. Really doesn’t make us feel too much better.

We were down 2.7% last week, (we would have been up 8% without DWCH) bringing our YTD 2008 loss to 14.5%. NASDAQ was up 3.75%, the DOW was up 4.4% and the S+P 500 was up 4.9%.

Selling ANGN at $9.51 turned out to be good move as it closed at $7.91 and our “double-up” on PDLI worked also as it rose from $14.07 to $15.20

Last week we went 8 stocks up, 5 down and 2 even.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is -2.7%,-14.5% and +21.7% respectively. Since inception we are now 20 stocks up and 11( 5 of which are down less than 10%)and 1 even.

So far in 2008 the DOW is down 3.9%, NASDAQ is down 9.0% and the S+P 500 is down 5.0%

The Russell 3000 and the Wilshire 5000 are both down just under 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.
2008-ANGN +26%

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, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $10.65, Valuation $20-$22
Up $.30 to $13.20.
Short interest rose again as the hackers are hard at work.
Things continue to look just fine here.
Now up 24%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.21 (averaged down from $3.66), NEW Valuation $9.03 (was $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $4.01, down $2.32.
Earnings last week. Sales rose only 5% and earnings came in at $.04. The 1 analyst that puts out estimates had expected $.10. We were happy sales rose, they made money and have $.65 a share in cash! Obviously other shareholders were not happy and dumped DWCH. There may have been some margin call selling too. Our valuation dropped–but to $9.03, about where it was before the previous quarterly report.
We bought a bit more on Friday at $3.97 for a small trade. But since we rarely average up, we are not recommending adding to this position officially.
DWCH is now trading at 44% of our valuation.
Now up 27%. 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 $3.81, down $.13.
Lets see, last quarter sales were 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 35% of our valuation.
The new management has 2.0 million reasons to make this stock go up. Glenn Nussdorf paid $6 for his shares.
Earnings out Monday–early.
Down 20%. 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), NEW Valuation $24.67 (was $20.51, $23.22, $20.99, $20.52)
Closed at $10.20 up $.21.
Earnings last week. Sales up 22%, EPS up 200%.
Our valuation moved back up to over $24 per share.
No one cares in this market. ANY negative comment, or lack of positive comment weighs on share pricing these days.
For FY2008 (this year) they are STILL projecting another 20% increase in sales but revised their earnings projections down. They still have $3.39 a share in cash.
A buy-out is a decent possibility here.
Down 16%. 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 $.13 to $5.96.
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.
Down 29%. 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 $7.04.
Earnings out Tuesday, before the open.
UP 8%. BUY

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $7.26, New Valuation $8.69 (was $11.51)
Down $.72 to $3.57.
Hmm–earnings were out last week, not next week.
Not good for sure.
Sales down 3.5%, and they lost $4.5 million or $.20 per share.
Our valuation fell to $8.69. Still at 41% of our valuation, we are going to hold on for a while. This would probably be a “double-up” if it were not for the uncertainty of the Palomar patent litigation, ($3.9 million of legal expenses in this last quarter).
Down 51%. HOLD

Angeion Corp. (ANGN-Recommended 10/14/2007)
Buy Price $7.55, Valuation $13.67
SOLD at $9.51 for a 26% gain.

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 $.60 to $2.38.
Yahoo takeover offer by Microsoft helped a bit.
EVEN. Hold

PDL Biopharma. (PDLI-Recommended 10/21/2007)
Buy Price $16.53 (was $20.04 before double-up), Valuation $24.00 to $30.00
Up $1.13 to $15.20.
PDLI announced the sale of a $30 million a year in sales drug–for $200 million.
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 8%. HOLD

Datalink. (DTLK-Recommended 10/31/2007)
Buy Price $4.28, Valuation $9.39
Up $.24 to $4.17.
There is value here.
Trading at only 44% of our valuation.
Earnings out Wednesday, February 6th after the close.
Down 3%. 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 $1.73, up $.11.
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 7%. 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 $1.20, up $.05.
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 4%. 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, unchanged.
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 $.86, down $.04.
LTUS announced the hiring of a PR firm in January. 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 20%. BUY


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