Cheap Stocks, 5/25/2008 Update

The markets gave back last weeks gains–and more, with all the major indices down 3.3-3.9%. We would have been up slightly if it were not for investor disappointment with the earnings reports from LTUS.ob. So we ended down 3.1% for the week.

Mediware has interesting “no news” last week.

NASDAQ was down 3.3% last week, the DOW was down 3.9% and the S+P 500 was down 3.5%.

Last week we went 4 stocks up, 7 down and 2 even.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is -3.1%,-31.5 and +4.0% respectively. Since inception we are now 21 stocks up and 11 down.

So far in 2008 the DOW is down 5.9%, NASDAQ is down 7.8% and the S+P 500 is down 6.3%. The NASDAQ is still down a 14.5% since October 31, 2007.

The Russell 3000 and the Wilshire 5000 are both down just about 7.5% 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 $.01 to $10.56.
SPNC announced a new product in early May and a small acquisition ($5 million in annual revenue). Hopefully these small “add-ons” will not distract management from the great opportunity they already have in front of them.
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 12%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.02 (was $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 $2.60, down $.08.
Our valuation is $8.47, so we are trading at 31% of our valuation.
No news.
Now down 14%. 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 $3.50, up $.10.
Latest earnings were very good. Stock is down.
Now trading at 31% 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 15%. 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 $8.80 up $.02.
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 (44% of market cap).
ILOG is trading at 34% of our valuation.
A buy-out is a decent possibility here.
Down 27%. 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 $.01 to $3.29.
BDAY pulled their earnings announcement six 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 42% 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 47%. 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 $.35 at $6.20.
Earnings out in early May. 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. 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.
On May 21 Constellation purchased another 586,000 shares of MEDW at prices from $5.43 to $5.70 (most at $5.70). So Constellation now owns 1,056,000 shares–13.9%.
Looks like something is going to happen here.
Down 2%. 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)
Down $.10 to $2.65
No news.
Down 29%. 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), NEW Valuation $6.42 (was $6.84, $7.58, $7.59)
Down $.06 to $1.55.
Earnings out in early May. Nothing exciting unfortunately.
Sales were down to $33 million from $42.7 million last year and $34.6 million last quarter. They lost $5.1 million compared to $5.3 million last year.
For 2008 they lowered their outlook slightly and are projecting revenue of $140-$150 million and EBITDA breakeven to an EBITDA loss of $3 million. 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.
Our valuation fell again to $6.42.
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 35%. HOLD

Datalink. (DTLK-Recommended 10/31/2007)
Buy Price $4.28, Valuation $9.97 (Was, $10.66, $9.39)
Up $.11 to $4.74.
No news.
Trading at 48% of our valuation.
Up 11%. 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 5.5% 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 $1.45, unchanged.
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 10%. 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), NEW Valuation $4.00 (was $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.83, down $.02.
Earnings out in early May. Sales weak, but earning were great.
Sales dropped from $14.6 million to $12.8 million. But, net income was $1.005 million compared to a $224,000 loss last year. EPS was $.05 versus a loss of $.02 last year. For the 9 months ended March 31, earnings per share were $.12 (untaxed).
Our valuation rose to $4.00 from $3.41.
Now down 11%. 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 $.25.
CTI announced earnings in early May. Sales were good, but they had another loss. Sales were up to $5.339 million from $5.054 million. They managed to reduce their loss to $180,000 from $587,000 last year. Their VOIP business continues to struggle and lose money–$729,000 in the current quarter. Gross margin % rose to 75% from 72%. Still an “undercover” company and stock.
Our valuation rose slightly to $1.38 from $1.31.
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 $.87, down $.26.
Ah, those Chinese stocks. LTUS announced luke-warm results last week. Well at least everyone took them that way. Sales only up 41% to $11.7 million, and net income up only 19% to $996,000 or $.02 per share (same as last year–but more shares ourstanding this year.). Q1 is the slowest quarter for many Chinese companies due to the New Year and also some weather issues this year. We have seen this in other Chinese companies. The sticky point for us is the $21 million of receivables on the books. We hope they are good. Receivables went up from 12/31/2007–despite sales dropping from $19 million to $11.7. We are guessing that maybe they collected a bunch after the quarter since they made an initial payment for an asthma drug of almost $3 million, with another $4 million due in the future. This is a 2012 planned launch for this drug–it could be big–but it is far away.
Up 4%. HOLD


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