Cheap Stocks, 5/10/2008 Update

The markets fell last week, with all the major indices down 1.3-2.3%. We managed to book a tiny .1% gain for the week.

MEDW earnings out last week. Not great, but better than last quarter and our valuation moved up to $10.99.

NASDAQ was down 2.3% last week, the DOW was down 1.3% and the S+P 500 was down 1.8%.

Last week we went 6 stocks up, 6 down and 1 even.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is +.1%,-27.2 and +8.3% respectively. Since inception we are now 21 stocks up and 11 down.

So far in 2008 the DOW is down 3.9%, NASDAQ is down 7.8% and the S+P 500 is down 5.5%. The NASDAQ is still down a 14.5% since October 31, 2007.

The Russell 3000 and the Wilshire 5000 are both down just 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%
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
Down $.47 to $10.16.
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.
Crappy market–and short hackers at work again.
Now up 8%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.21 (added $10,000, averaged down from $3.66), Valuation $8.47 (was $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $2.95, down $.20.
Our valuation is $8.47, so we are trading at 37% of our valuation.
No news last week.
Now down 6%. BUY

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 $3.27, down $.12.
Latest earnings were very good. Stock is down.
Now trading at 29% 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 21%. 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 $24.06 (was $24.67, $20.51, $23.22, $20.99, $20.52)
Closed at $7.94 down $.30.
ILOG revised their 2008 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.
Cash is $3.84 a share (48% of market cap).
ILOG is trading at 33% of our valuation.
A buy-out is a decent possibility here.
Down 34%. 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)
Up $.04 to $3.14.
BDAY pulled their earnings announcement four 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 $7 a share looks like the most they could get.
Down 49%. HOLD.

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up) NEW Valuation $10.99 (was $10.28, $13.32, $12.89, $13.40)
Up $.57 at $6.07.
Earnings out last week. Sales dropped by 11%, but they still managed to make $.04 per share. Not “barnburing” results by any definition, but still a lot better than last quarter. Accordingly, our valuation rose to $10.99 from $10.28. With all the ruckus noted below–we still like this stock.
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.
In early May 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 4%. 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 $.06 to $2.96
No news.
Down 21%. 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 $.07 to $1.62.
Earnings out this Monday after the market close.
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 32%. HOLD

Datalink. (DTLK-Recommended 10/31/2007)
Buy Price $4.28, Valuation $9.97 (Was, $10.66, $9.39)
Up $.01 to $4.55.
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 1.8% 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 $1.53, up $.03.
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 5%. 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 $.82, down $.03.
Earnings due out this coming Wednesday before the market opens.
Last 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.
Now down 12%. 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 unchanged at $.29. Closed at $.29.
CTI issued a press release last week! Looks like they are starting up a SAAS offering(software as a service). Good idea, (Netsuite offers this as well as most ERP vendors today–rent-a-software-package). Hopefully they are doing this to estblish a recurring revenue stream to enhance shareholder value, and not because they are having trouble selling the software. Still an “undercover” company and stock.
Earnings were 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.
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 $1.16, up $.12.
The stock got up to $1.24 last week before getting hit a bit on Friday. Looking good.
Up 39%.


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