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

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