Cheap Stocks, 6/6/2008 Update–Good week +9.7%

Up and down, up and down go the markets. This week the markets plunged on unemployment news and record oil prices. We on the other hand were up 9.7% on great earnings from Parlux (stock up 45%) and strenght in ILOG (+14%). The DOW was down 3.4%, NASDAQ was down 1.9% and the S+P 500 was down 2.8%.

Last week we went 6 stocks up, 8 down and 1 even.

IPAS, our latest recommendation was up 6.5% last week and had been up as much as 17% until Friday. HPOL came back last week also and is now down less than 1%.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is +9.7%,-19.7 and +15.8% respectively. Since inception we are now 22 stocks up and 12 down, with 4 of them being down less than 5%.

So far in 2008 the DOW is down 8%, NASDAQ is down 6.7% and the S+P 500 is down 6.2%. The NASDAQ is still down a 13.4% since October 31, 2007.

The Russell 3000 and the Wilshire 5000 are both down just about 6% 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 $.08 to $10.98.
SPNC presents at a Goldman coference next week (Tuesday June 10th) and at Jeffries later this month (June 25th).
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 17%. 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 $2.61, down $.02.
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), NEW Valuation $12.40 (Was $11.24, $10.80 $9.20, $8.63, $13.77)
PARL closed at $4.90, up $1.53 (+45%).
Parl announced FY 2008 earnings on Thursday. Sales were $154 million, gross margin was 50%, they have $1 per share in cash and made $.24 a share for the year-fully taxed. Q4 EPS was like $.13. Our valuation moved up to $12.40 per share.
Now trading at 40% of our valuation—still cheap.
The new management has 2.0 million reasons to make this stock go up. Glenn Nussdorf paid $6 for his shares.
Up 19%. HOLD.

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 $10.60 up $1.33.
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 44% of our valuation.
A buy-out is a decent possibility here.
Down 12%. HOLD

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 $.17 to $2.82.
BDAY pulled their earnings announcement eight 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 36% 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 54%. 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)
Down $.08 at $5.93.
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 $5.43to $5.70 (most at $5.70). So Constellation now owns 1,056,000 shares–13.9%.
Last week Constellation announced 3 more acquisitions of what we believe are small software companies. So they are still on the acquisition trail for sure.
Looks like something is going to happen here.
Down 6%. 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 $.19 to $2.30
No news (SOMETHING must be happening here–but nothing of substance for weeks now).
Down 39%. 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 $6.42 (was $6.84, $7.58, $7.59)
Down $.01 to $1.72.
No news.
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 28%. HOLD

Datalink. (DTLK-Recommended 10/31/2007)
Buy Price $4.28, Valuation $9.97 (Was, $10.66, $9.39)
Down $.68 to $4.08.
No news.
CEO dumped his usual 30,000 shares last week, so he is done for the month.
Trading at 41% of our valuation.
Down 5%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $2.02 (was $2.15 before double up), Valuation $5.96
Up $.10 to $2.00.
No news.
Trading at 34% of our valuation.
Down 1%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price $2.15, Valuation $4.09
Up $.14 to $2.29.
IPAS got up as high as $2.52 on Friday but then tailed off with the markets.
Trading at 56% of our valuation.
Up 7%. 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 4.2% on average, compared to 16.8% 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 $1.55, unchanged.
Earnings due out Monday June 16th, after the close.
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 4%. 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 $.915, up $.005.
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).
Now down 2%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.38 (Was $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price down 1.5 cents at $.28. Closed at $.23.
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 20% of our latest valuation.
UP 4%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up) Valuation-$2.28 (Was $2.08)
Closed at $.94, down $.05.
Ah, those Chinese stocks. After announcing earnings in mid-May, it took LTUS another week or so to come out and reaffirm that they expect to make at least $13.1 million in earnings this year. On approximately 50 million shares outstanding this is $.26 per share earnings. So we are trading at a little less than 4 times 2008 EPS. 3 new drugs expected to be introduced this year also.
Up 12%. HOLD


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 )

Twitter picture

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

Facebook photo

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

Connecting to %s