Cheap Stocks, 5/3/2008 Update

The markets were strong last week, with all the major indices up 1-2%. We got hit as BDAY and DWCH got pummelled.

DWCH and ILOG earnings out last week. Neither was bad, neither was good. Adding another $10,000 to DWCH this week.

NASDAQ was up 2.2% last week, the DOW was up 1.3% and the S+P 500 was up 1.2%.

Last week we went 7 stocks up, 5 down and 1 even.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is -5.2%,-27.3 and +8.1% respectively. Since inception we are now 22 stocks up and 10 down.

So far in 2008 the DOW is down 1.6%, NASDAQ is down 6.6% and the S+P 500 is down 3.7%. The NASDAQ is still down a 13.4% since October 31, 2007.

The Russell 3000 and the Wilshire 5000 are both down just about 4% 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%
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%
2008-OPTO.ob +40% (Buy-out offer)
2008-PDLI +9% (company split, and special dividend)

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 19 stocks that we closed out in 2006, 2007 and 2008 the average gain was 23%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $9.40 (was $10.65 before double up), Valuation $20-$22
Up $.12 to $10.63.
The company has $53.4 million in cash ($1.69 per share), and is trading at about 2.5 times 2008 revenues (net of cash)and is growing about 30% a year.
Now up 13%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.21 (added $10,000, averaged down from $3.66), NEW Valuation $8.47 (was $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $3.15, down $.66.
Earnings last week were OK. Sales were down a bit from $6.1 million to $5.9 million. Earnings were $83,000 versus $424,000. Our valuation fell to $8.47, so we are trading at 37% of our valuation.
Add another $10,000 here. Average buy-price stays at $3.15.
Now up .1%. HOLD

Parlux Fragrances (PARL-Recommended 11/30/2006)
Buy price $4.14 (was $4.78 before $10,000 adder, $6.12 before another $10,000 added, $6.65 before double up), Valuation $11.24 (Was $10.80 $9.20, $8.63, $13.77)
PARL closed at $3.39, up $.17.
Latest earnings were very good. Stock is down.
Now trading at 30% 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), NEW Valuation $24.06 (was $24.67, $20.51, $23.22, $20.99, $20.52)
Closed at $8.24 down $.21.
Earnings out last week. Sales were up from $40 million to $46 million. They made $.01per share versus $.04 last year.
They revised their guidance down from 20% sales growth and $1-6 million in operating income to double digit sales growth and breakeven operating income. ILOG’s market cap, minus cash is $80 million. This is less than 50% of annual sales, for a software company with 70%+ gross margins.
Our valuation fell a tiny bit to $24.06 from $24.67.
Cash rose to $3.84 a share (47% of market cap).
ILOG is trading at 34% of our valuation.
A buy-out is a decent possibility here.
Down 32%. BUY

Celebrate Express (BDAY-recommended 4/17/2007)
Buy Price $6.15 (was $8.38 before $10,000 adder and $8.82 before double-up), Valuation $7.82 (Was 415.51, $17.85 $18.18)
Down $1.00 to $3.10.
BDAY pulled their earnings announcement three weeks ago as they apparently received interest from someone on a buy-out. Were it not for this, we would pack up the truck and sell this one as their struggles are more than we thought (and they thought too).
Trading at 40% of our valuation.
Hold for a while until this “take-over” thing flushes out. We are hoping it happens, but $9 a share looks like the most they could get.
Down 50%. HOLD.

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up) Valuation $10.28 (was $13.32, $12.89, $13.40)
Down $.62 at $5.50.
Cannell Capital filed a 13D on February 19th, disclosing a 12.9% ownership stake. Most of this was purchased from Penninsula Capital at $7.03 a share. Cannell is pushing MEDW management to sell the company. Meanwhile, Constellation Software, a Canadian public company that has been on an acquisition binge filed a 13D in April, disclosing a 6.1% ownership in MEDW (499,000 shares). Constellation has $243 million in revenues and is profitable.
Last week Constellation increased its bank credit line to $105 million from $50 million. Looks like just about enough to swallow MEDW.
Looks like something is going to happen here.
Down 13%. BUY

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $9.90 (was $8.69, $11.51)
Up $.38 to $2.90
No news.
Down 23%. 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 $6.84 (was $7.58, $7.59)
Down $.02 to $1.69.
For 2008 they are projecting revenue of $145-$150 million and EBITDA breakeven. But it sounds like this will not happen until the second half of 2008. If they can turn this around-a double or triple from here is possible.
If they can do what they say in 2008, a valuation of close to $8 is possible.
Trading at 25% of our latest valuation
Down 29%. BUY

Datalink. (DTLK-Recommended 10/31/2007)
Buy Price $4.28, Valuation $9.97 (Was, $10.66, $9.39)
Up $.02 to $4.54.
No news.
Trading at 46% of our valuation.
Up 6%. BUY

OB-abies (Bulletin Board Listed Stocks)

Interestingly, our OB-abies have held up better than the “higher-quality” stocks so far this year. They are down about 2.7% on average, compared to 23% for the stocks above. At least so far. As proven by OPTIO, patience is necessary with these 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 $5.61 (was $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.50, up $.06.
Earnings were great, stock goes down. 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 down 7%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.93 (Was $.99 and $1.19 before adding $10,000-twice), Valuation $3.41 (was $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.85, unchanged.
Earnings were out in early February. Sales up only 4%, but earnings up 69%!. EPS was $.04 compared to $.02 last year. Pre-tax earnings were up over 100%. Our valuation rose to $3.41.
No immediate impact in the stock price from their “investor presentation” last week. Hopefully some will be coming soon.
Now down 9%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.31 (Was $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price up $.01 at $.29. Closed at $.28.
Earnings out at the end of March. Not bad at all. Q4 revenues were $4.8 million, gross margin was 72%, and excluding a $200,000 impairment charge, CTI actually made about $77k of income. Net cash (net of debt) grew by $350,000.
Our valuation went up to $1.31 per share.
Maybe these guys will wake up and create some shareholder value in 2008.
This is still trading at only 21% of our latest valuation.
UP 7%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up) New Valuation-$2.28 (Was $2.08)
Closed at $1.02, down $.05.
This is still a BUY.
Up 21%.

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