Cheap Stocks, 8/30/2008 Update

We had a great week last week–up 11.2%, despite a down market.

The DOW was down .7%, NASDAQ was down 1.9% and the S+P 500 was down .2%.

We went 11 stocks up, 2 down and 2 even.

We recommended ANGN last week and finished even for the week on this one.

We are doubling up on CAW this week. The 6.7% yield is just too enticing.

Also adding $10,000 of SPNC. Just too cheap, we think.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is +11.2%,-17.8 and +17.7% respectively. Since inception we are now 24 stocks up and 12 down and 2 even, with 3 of the losers being down 10% or less.

So far in 2008 the DOW is down 13.0%, NASDAQ is down 10.7% and the S+P 500 is down 12.6%. The NASDAQ is still down a 17.2% since October 31, 2007.

The Russell 3000 and the Wilshire 5000 are both down just about 11.5% 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)
2008-BDAY -39% (long overdue takeover offer-or “take-under”)
2008-DTLK +40% (third trip on this one)
2008-ILOG +26% (Buy-out offer from IBM)
2008-PARL +56%

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 23 stocks that we closed out in 2006, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $9.40 (was $10.65 before double up), Valuation $20-$22
Down $.61 to $8.04.
Add another $10,000 here. Just too Cheap. New buy price will be $8.90.
The company has $44.4 million in cash ($1.33 per share), no debt and is trading at about 2.3 times 2008 revenues (net of cash)and is growing about 30% a year.
Now down 15%. BUY.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.02 (was $3.21 added $10,000, averaged down from $3.66), Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.89, up $.05.
They have $.75 a share in cash and are profitable.
Trading at a measly 22% of our valuation.
Now down 37%. BUY

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 $.14 at $5.91.
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%.
Looks like something is going to happen here–but when?
Down 7%. BUY

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), NEW Valuation $8.63 (was $9.90, $8.69, $11.51)
Up $.16 to $3.06
Candela reported Q4 results on 8/20. More of the same. Sales down 3% and lost $2.7 million. Also reported that they are having “product reliability issues”. Great.
On the other hand, they still have $1.46 per share in cash and Q4 included $3.7 million in legal expenses related to their lawsuits with Palomar. They are predicting these expenses will decline (trial is scheduled in September) and that they will return to profitability in calendar Q1 2009. If they can do what they say, this stock should double from here. Our new valuation fell to $8.63 from $9.90.
Down 18%. HOLD

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up), Valuation $5.61 (was $6.42, $6.84, $7.58, $7.59)
Up $.05 to $1.03.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
Even though MIVA is a money losing mess, they are at such a low price to valuation that we will hold for another quarter. Hopefully we get a better take-over offer above our cost basis.
Trading at 18% of our latest valuation
Down 37%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.82 (was $2.02 before $10,000 added and $2.15 before double up), NEW Valuation $6.00 (Was $5.96)
Up $.04 to $1.69.
Finaciere De Sainte Marine, continues to buy HPOL. They now own 6,962,000 shares up from 6,640,381 shares just over 2 weeks ago. or just over 13% of the company.
Trading at 28% of our valuation.
Down 7%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), Valuation $4.30 (was $4.09)
Up $.07 to $2.27.
With $1.12 per share in cash (49% of market cap), we feel that this has little additional downside.
Up 19%. HOLD

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.42
Up $.05 to $2.87.
Got up to $3.09 last week. Appears to be some steady buying here.
No news.
Up 20%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$7.00 (6.4% dividend)
Valuation $18.36
Down $.18 to $6.35.
Dividend yield up to 6.7%. Time to double up on this one. New Avg. Buy price will be $6.66.
No news.
Down 9%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
Buy Price-$2.00.
Valuation $4.15
Closed up $.25 at $2.35
No news.
Up 18%. HOLD

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$5.15
Valuation $13.03
Closed unchanged at $5.15
In addition to all the reasons we think ANGN is a good buy noted in our recommendation last week, we forgot to mention that Blueline Partners filed a 13D on ANGN on June 23. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
Even. BUY

OB-abies (Bulletin Board Listed Stocks)

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 $5.63 (was $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.35, up $.10.
Earnings announced in June were impressive. $.06 per share in earnings (untaxed)for the quarter and $.14 per share for the first three quarters. Our valuation moved up to $5.63 per share. This is still way too cheap.
They announced a small aquisition in early July. Will add $1 million in revenue and be profitable. This is the stuff that will help get some attention for ARI.
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 16%. 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 $1.01, up $.14.
“Preliminary” earnings out last week. Revenues were flat year-over-year, but again they blew out earnings. They made $741,000 ($.03 per share) compared to a loss of $873,000 in the prior year ($.05 per share). For the year ended June 30, they made $.15 per share on $49.6 million in sales. Full financials were not reported, so we will have to wait to update our valuation.
UP 9%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.29 (Was $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price up $.09 at $.27. Closed at $.27.
Q2 earnings announced in August. Sales were ok, but they had another loss. Sales were $5.035 million compared to $6.1 million last year. Last year included about $900,000 of legal settlement income. They lost $553,000, which included $247,000 of patent enforcement costs. They indicated that there might be a litigation settlement before the end of the year. Their VOIP business continues to struggle and lose money–$707,000 in the current quarter. Gross margin % held steady at about 75%.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
Our valuation moved down to $1.29 from $1.38.
Still an “undercover” company and stock.
This is still trading at only 22% of our latest valuation.
EVEN. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up) Valuation-$1.61 (Was $2.28, $2.08)
Closed at $.50, unchanged.
Earnings out in early August. Sales were up 51% over last year to $19.4 million. They earned $2.2 million or $.05 per share. For the 6 months, sales were up 47% to $31.1 million and they reported $.07 per share in earnings.
So why is the stock down? It looks like it is trading at at less than 4 times EPS.
Well, their legal structure, apparently uncollectible $13 million of receivables from their Chinese affiliated company and their committment to build a manufacturing plant for about $70 million with no disclosable means of financing it, are giving all investors pause. Also their “Selling Expenses” went from $800,000 last year to $5.9 million in the current quarter as they paid $3 million more commissions to sell product and $2.4 million in “bonuses” to accelerate collections. Pretty odd, almost sounds desperate.
Our valuation fell to $1.61 from $2.28.
We listened to the conference call. It actually made us feel a little bit better, although all the Chinese and subsequent translations were trying. They reaffirmed their 2008 guidance. They are shooting for the moon here. If it works, we will have another AOB. It seems that if their land deal and $70 million building don’t pan out, their back-up plan is to sell the land (or parts of it). Sensible.
Keep your finger on the SELL trigger on this one.
Down 40%. HOLD

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Angeion Corporation (NASDAQ–ANGN)-BUY Recommendation

Angeion Corporation (NASDAQ–ANGN)
Valuation-$13.03
Closing price August 27, 2008-$5.15

We are revisiting Angeion. At around $5 a share (we sold it last time at $9.51), we think the risk/reward is favorable.

Earnings released yesterday were not great—but they made money. Sales were $7.6 million down from $8.9 last year. They lost a clinical trial customer last year that was the entire sales difference. But they actually were more profitable than last year making $.06 per share versus $0 per share. They announced that they had a new clinical customer signed up for Q3—so this should help the sales comparisons going forward. Read their press release, they have a lot of growth incentives in the works. They just need one or more to hit and earnings will be propelled. Gross margins were just over 50% and they have $7.5 million in cash (no debt).

Trading at 40% of our valuation, with $1.80 per share in cash (35% of market cap), good gross margins, the ability to be profitable despite the sales decline—we think this is a good time to buy.
The 52 week low has been $4.70 and the high–$9.77.

ANGN trades about 9,000 shares a day, so be careful buying. Limit buys up to $5.25.

There are only about 4.2 million fully diluted shares outstanding.
About Angeion
Founded in 1986, Angeion Corporation acquired Medical Graphics Corporation in December 1999. Medical Graphics develops, manufactures and markets non-invasive cardiorespiratory diagnostic systems that are sold under the MedGraphics and New Leaf and trade names. These cardiorespiratory diagnostic systems have a wide range of applications in healthcare as well as health and fitness. The Company’s products are sold internationally through distributors and in the United States through a direct sales force that targets heart and lung specialists located in hospitals, university-based medical centers, medical clinics and physicians’ offices, pharmaceutical companies, medical device manufacturers, clinical research organizations, health and fitness clubs, personal training studios, and other exercise facilities.

Magic Software (NASDAQ-MGIC) Buy Recommendation

Magic Software Enterprises Ltd. (NASDAQ–MGIC)
Valuation-$4.15
Price August 15, 2008-$2.00

Our valuation for MGIC is $4.15 per share. It also $.95 per share in cash, 58% gross margins and is making money.

Q2 results (June 30, 2008) showed a 12% increase in sales to $16,030,000 and $.05 per share in EPS versus $.03 last year (most of which was from discontinued operations). MGIC seems to have broken into the growth mode after several years of treading water and losing money. For the 6 months ended June 30, revenues were $31.1 million up 11% over the prior year and EPS was $.05.

Formula Systems owns about 17 million MGIC shares or 54% of the company. Formula trades on NASDAQ under the symbol FORTY. Formula is an Israeli investment company that buys and sells investments. We think that MGIC will continue to improve its performance and ultimately will be sold as Formula liquefies its investment.

MGIC is based in Israel.

The 52 week low has been $1.12 and the high $2.27.

MGIC trades about 70,000 shares a day.

There are about 32 million fully diluted shares outstanding.
About Magic Software
Magic Software Enterprises Ltd. is a leading provider of multiple-mode application platform solutions – including Full Client, Rich Internet Applications (RIA) or Software-as-a-Service (SaaS) modes – and business and process integration solutions. Magic Software has offices in 10 countries and a presence in over 50, as well as a global network of ISV’s, system integrators, value-added distributors and resellers, and consulting and OEM partners. The company’s award-winning code-free solutions give partners and customers the power to leverage existing IT resources, enhance business agility and focus on core business priorities. Magic Software’s technological approach, product roadmap and corporate strategy are recognized by leading industry analysts. Magic Software has partnerships with global IT leaders including SAP AG, salesforce.com, IBM and Oracle. For more information about Magic Software Enterprises and its products and services, visit

Cheap Stocks, 8/15/2008 Update

We had a good week last week, despite Lotus. We were up 6.05% on the strenght of Parlux, IPass and Healthstream.

The DOW was down .6%, NASDAQ was up 1.6% and the S+P 500 was up .2%.

We went 8 stocks up, 5 down and 1 even.

We sold Parlux last week for a 56% gain. After their last quarter mess, we figured it was time to take a profit.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is +6.1%,-26.7 and +8.8% respectively. Since inception we are now 23 stocks up and 13 down, with 3 of them being down 10% or less.

So far in 2008 the DOW is down 12.1%, NASDAQ is down 7.5% and the S+P 500 is down 10.5%. The NASDAQ is still down a 14.2% since October 31, 2007.

The Russell 3000 and the Wilshire 5000 are both down just about 11% 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)
2008-BDAY -39% (long overdue takeover offer-or “take-under”)
2008-DTLK +40%
2008-ILOG +26% (Buy-out offer from IBM)
2008-PARL +56%

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 23 stocks that we closed out in 2006, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $9.40 (was $10.65 before double up), Valuation $20-$22
Up $.21 to $9.17.
The company has $44.4 million in cash ($1.33 per share), no debt and is trading at about 2.3 times 2008 revenues (net of cash)and is growing about 30% a year.
Now down 3%. BUY.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.02 (was $3.21 added $10,000, averaged down from $3.66), Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.84, down $.07.
They have $.75 a share in cash and are profitable.
Trading at a measly 21% of our valuation.
Now down 39%. 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 $12.40 (Was $11.24, $10.80 $9.20, $8.63, $13.77)
SOLD on 8/15 for $6.45–56% gain.

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 $.30 at $5.71.
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%.
Looks like something is going to happen here–but when?
Down 9.9%. 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 $.01 to $2.80
No news
Down 25%. HOLD

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up), NEW Valuation $5.61 (was $6.42, $6.84, $7.58, $7.59)
Up $.02 to $1.04.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
Earnings last week were another downer. Sales down from Q1 and last year and they lost $6.5 million. Cash was down to $17.2 million ($.53 per share).
Our valuation continued downward to $5.61 per share from $6.42.
Now they are saying they will reach profitability in 2009.
Even though MIVA is a money losing mess, they are at such a low price to valuation that we will hold for another quarter. Hopefully we get a better take-over offer above our cost basis.
Trading at 19% of our latest valuation
Down 36%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.82 (was $2.02 before $10,000 added and $2.15 before double up), Valuation $5.96
Up $.06 to $1.45.
On 8/13 Finaciere De Sainte Marine bought 25,103 shares at $1.40 bringing their holdings to 6,640,381 shares or just over 12% of the company.
Earnings due out Friday, 8/22 before the open.
Trading at 24% of our valuation.
Down 20%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), NEW Valuation $4.30 (was $4.09)
Up $.19 to $2.18.
No news.
With $1.12 per share in cash (51% of market cap), we feel that this has little additional downside.
No news.
Up 15%. HOLD

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.42
Up $.21 to $2.60.
No news.
Up 8%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$7.00 (6.4% dividend)
Valuation $18.36
Down $.57 to $6.58.
Dividend yield up to 6.5%.
No news.
Down 6%. BUY

OB-abies (Bulletin Board Listed Stocks)

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 $5.63 (was $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.35, down $.05.
Earnings announced in June were impressive. $.06 per share in earnings (untaxed)for the quarter and $.14 per share for the first three quarters. Our valuation moved up to $5.63 per share. This is still way too cheap.
They announced a small aquisition in early July. Will add $1 million in revenue and be profitable. This is the stuff that will help get some attention for ARI.
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 16%. 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 $.81, up $.01.
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 13%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, NEW Valuation $1.29 (Was $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price unchanged at $.28. Closed at $.18.
Q2 earnings announced last week. Sales were ok, but they had another loss. Sales were $5.035 million compared to $6.1 million last year. Last year included about $900,000 of legal settlement income. They lost $553,000, which included $247,000 of patent enforcement costs. They indicated that there might be a litigation settlement before the end of the year. Their VOIP business continues to struggle and lose money–$707,000 in the current quarter. Gross margin % held steady at about 75%.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
Our valuation moved down to $1.29 from $1.38.
Still an “undercover” company and stock.
This is still trading at only 22% 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) NEW Valuation-$1.61 (Was $2.28, $2.08)
Closed at $.56, down $.10.
Without Lotus we would have been up 8.5% for the week.
Earnings our last week. Sales were up 51% over last year to $19.4 million. They earned $2.2 million or $.05 per share. For the 6 months, sales were up 47% to $31.1 million and they reported $.07 per share in earnings.
So why is the stock down? It looks like it is trading at at less than 4 times EPS.
Well, their legal structure, apparently uncollectible $13 million of receivables from their Chinese affiliated company and their committment to build a manufacturing plant for about $70 million with no disclosable means of financing it, are giving all investors pause. Also their “Selling Expenses” went from $800,000 last year to $5.9 million in the current quarter as they paid $3 million more commissions to sell product and $2.4 million in “bonuses” to accelerate collections. Pretty odd, almost sounds desperate.
Our valuation fell to $1.61 from $2.28.
Hopefully they will illuminate us all on their conference call on Monday. Either they have a plan that this will all work out, or they are just plain stupid.
Keep your finger on the SELL trigger on this one.
Down 33%. HOLD (weak)

Cheap Stocks, 8/8/2008 Update

Markets soared last week, we only had a small gain.

The DOW was up 3.6%, NASDAQ was up 4.4% and the S+P 500 was up 2.5%.

We went 7 stocks up, 4 down and 3 even.

MIVA received an unsolicited take-over offer last week for $1.20 a share and promptly rejected it. At least it got the stock moving in the right direction, up 24%last week. This gain got pretty much wiped out by a 22% decline in DWCH–for no reason that we can figure. IPASS, and Parlux announced earnings last week.

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is +.7%,-32.8 and +2.7% respectively. Since inception we are now 23 stocks up and 13 down, with 3 of them being down 10% or less.

So far in 2008 the DOW is down 11.5%, NASDAQ is down 9% and the S+P 500 is down 11.7%. The NASDAQ is still down a 15.6% since October 31, 2007.

The Russell 3000 and the Wilshire 5000 are both down just about 11% 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)
2008-BDAY -39% (long overdue takeover offer-or “take-under”)
2008-DTLK +40%
2008-ILOG +26% (Buy-out offer from IBM)

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 22 stocks that we closed out in 2006, 2007 and 2008 the average gain was 21%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $9.40 (was $10.65 before double up), Valuation $20-$22
Up $.25 to $8.96.
SPNC is presenting at the Canaccord Adams conference this Wednesday.
The company has $44.4 million in cash ($1.33 per share), no debt and is trading at about 2.3 times 2008 revenues (net of cash)and is growing about 30% a year.
Now down 5%. BUY.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.02 (was $3.21 added $10,000, averaged down from $3.66), Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.91, down $.53.
They have $.75 a share in cash and are profitable.
Now down 37%. 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 $12.40 (Was $11.24, $10.80 $9.20, $8.63, $13.77)
PARL closed at $5.39, down $.40.
Earnings last week stunk up the place taking the stock down. They lost about $8 million in sales because of inventory shortages. This led to an $8 million operating loss. The CEO assured that demand was strong and that they would make up these sales in the upcoming quarter. We’ll see. We are not changing our valuation–yet. PARL’s business IS seasonal, so it is harder to value quarter to quarter. CEO says that sales and earnings will “significantly exceed those of the prior year”.
Now trading at 43% of our valuation.
The new management has 2.0 million reasons to make this stock go up. Glenn Nussdorf paid $6 for his shares.
Up 30%. 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 $.19 at $6.01.
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%.
Looks like something is going to happen here–but when?
Constellation announced earnings last week, but no mention of MEDW.
Down 5%. 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 $.30 to $2.79
CLZR got a favorable patent ruling in their litigation with Palomar causing a rise in the stock. This may work yet.
Down 25%. HOLD

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up), Valuation $6.42 (was $6.84, $7.58, $7.59)
Up $.24 to $1.02.
Blinkx, a U.K. company made an all cash offer to buy MIVA last week. MIVA rejected the offer on Friday saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
If they can do what they say in 2008, a valuation of close to $8 is possible.
Trading at 16% of our latest valuation
Down 38%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.82 (was $2.02 before $10,000 added and $2.15 before double up), Valuation $5.96
Down $.02 to $1.39.
Earnings due out Friday, 8/22 before the open.
Trading at 23% of our valuation.
Down 24%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), Valuation $4.09
Up $.10 to $1.99.
Earnings out last week. Sales were up 2% as dial-up revenues were down 49% to just $9.4 million while broadband and software/services were up 34% to $39.2 from $29.3 million. They made $.01 on a non-GAAP basis. They also bought back 229,000 shares during the quarter. Hopefully they can continue to grow their non-dial-up revenues as dial-up continues to evaporate.
Our valuation moved up to $4.30 from $4.09.
With $1.12 per share in cash (56% of market cap), we feel that this has little additional downside.
No news.
Up 5%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.42
Down $.01 to $2.39.
HSTM got up to $2.88 on Friday before sinking back down to just below our buy-price.
They are presenting at the Noble Financial Equity conference on Augsut 18th.
Down .4%. BUY

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$7.00 (6.4% dividend)
Valuation $18.36
Up $.15 to $7.15.
No news.
Up 2%. BUY

OB-abies (Bulletin Board Listed Stocks)

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 $5.63 (was $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.40, up $.05.
Earnings announced in June were impressive. $.06 per share in earnings (untaxed)for the quarter and $.14 per share for the first three quarters. Our valuation moved up to $5.63 per share. This is still way too cheap.
They announced a small aquisition in early July. Will add $1 million in revenue and be profitable. This is the stuff that will help get some attention for ARI.
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 13%. 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 $.80, even.
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 14%. 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 unchanged at $.28. Closed at $.18.
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.
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 $.66, even for the week.
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 3 times 2008 EPS. 3 new drugs expected to be introduced this year also.
Investors seem to have woken up to the unusual legal structure of Lotus. There is risk here, no doubt, but not until year 2016. PE here is 3–pretty big discount for something 7.5 years out.
Down 21%. BUY