Cheap Stocks, 2/9/2008 Update

Sorry everyone. Hard to stand up to a tsunami. The third (or was it the fourth) wave hit last week. Even good earnings reports are being throw overboard (see DTLK and PARL updates) and less than good ones are being trashed (see MEDW update).

All of the major averages have lost all their 2007 gains and then some from 12/31/2006. This third wave caught up with us also.

We were down 11% last week, bringing our YTD 2008 loss to 25.4%. NASDAQ was down 4.5%, the DOW was down 4.4% and the S+P 500 was down 4.6%.

Last week we went 3 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 -11%,-25.4 and +9.1% respectively. Since inception we are now 19 stocks up and 12 down and 1 even.

So far in 2008 the DOW is down 8.2%, NASDAQ is down 13.1% and the S+P 500 is down 9.3%

The Russell 3000 and the Wilshire 5000 are both down just under 9% 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
Down $.90 to $12.30.
No news. Just waiting for earnings and 2008 guidance.
Things continue to look just fine here.
Now up 16%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.21 (averaged down from $3.66), Valuation $9.03 (was $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $3.54, down $.47.
The swoon continued. Probably fueled by some margin selling and the market in general.
DWCH is now trading at 39% of our valuation.
Now up 13%. 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), NEW Valuation $11.24 (Was $10.80 $9.20, $8.63, $13.77)
PARL closed at $3.58, down $.23.
Earnings last week were very good. So the stock only went down a little!
Sales were up about 3% to $44.5 million, they made $.01 per share and ended the quarter with net cash off about $10 million.
Operating earnings were $494,000 compared to a loss of $8,218,000 last year.
Our valuation rose to $11.24.
Now trading at 32% 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 25%. 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 $24.67 (was $20.51, $23.22, $20.99, $20.52)
Closed at $9.04 down $1.16.
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 25%. 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 $.55 to $5.41.
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 $25 million of market cap for a $138,000 decline in operating income. Cash was $18.7 million or $2.34 per share–43% of the market cap.
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 35%. BUY.

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.52, (was $6.67 ($10,000 added), $6.98 after double up) NEW Valuation $10.28 (was $13.32, $12.89, $13.40)
Down $1.37 to $5.67.
Earnings out last week.
Another dissappointment.
Sales down 23%, and they lost $.04 a share.
Cash was $21 million or $2.48 a share. 44% of market cap.
A $4 million share buyback was announced by the Company last week which seemed to stop the bleeding a bit.
Our valuation fell to $10.28.
Down 13%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $7.26, Valuation $8.69 (was $11.51)
Down $.06 to $3.51
No much going on here.
Down 51%. 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 $.40 to $1.98.
Euphoria from Yahoo deal (which looks like it will be rejected by Yahoo) seems to have worn off.
Down 17%. Hold

PDL Biopharma. (PDLI-Recommended 10/21/2007)
Buy Price $16.53 (was $20.04 before double-up), Valuation $24.00 to $30.00
Down $.71 to $14.49.
PDLI announced the sale of of their remaining cardiovascular products–back to the guys they bought them from for a less than robust $85 million, future royalties on yet to be developed products and some possible future milestone payments.
So total cash deals are $285 million (about $2.40 per share). They are still trying to sell their royalty stream and R+D and manufacturing assets.
We guess their royalty stream just based on the current marketed products is worth $1.5 billion, so this, plus the sales above, are more that the current market cap. Their pipeline, know-how, and remaining commercial assets just add to this.
No matter, they are still trying to sell the company.
Down 12%. HOLD

Datalink. (DTLK-Recommended 10/31/2007)
Buy Price $4.28, NEW Valuation $10.66 (Was, $9.39)
Down $.26 to $3.91.
Earnings last week were terrific. So fortunately we only FELL $.26.
Sales were up 31% to $50.7 million. EPS was $.11 (GAAP and fully taxed).
Cash (no debt)was $25 million or $2.03 per share (more than 50% of market cap.)
Margins stayed steady at 26%.
Our valuation moved up to $10.66 per share.
Apparently the excuse for the stock not soaring was weak guidance-they only expect sales to be up 10-20% over last year and only inpoved EPS by $.06 to $.10 per share.
There really is nothing to do in this market but to close your eyes, hold on and wait for the irrational selling to stop.
Trading at only 37% of our valuation.
Down 9%. 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 $1.74, up $.01.
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 8%. 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 $1.25, up $.05.
OPTIO has cash of $.41 per share–33% of the market cap.
In June 2007, OPTIO announced they had hired an investment banker to help them review the “Strategic Alternatives” related to their Healthcare software division.
It has been over 8 months now since their announcement–with no announcement. We have to assume there will be no deal here. Management is derelict in making no announcement.
Still hoping we will see north of $2.00–but may not happen now unless next quarter rebounds with some decent profit numbers.

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 $.82, down $.08.
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.
Earnings due out Thursday, Feb. 14th before the market opens.
Now down 12%. 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 $.24.
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, up $.04.
LTUS announced the hiring of a PR firm in January.
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


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s