We were doing well last week in the face of plunging markets, until SPNC got raided by “ICE” and the FDA right after we added to our position last week. The 30% drop pushed us down 7.2% for the week. See SPNC update below.
The DOW was down 2.8%, NASDAQ was down 4.7% and the S+P 500 was down 3.2%.
Let’s see, banks, mortgage lenders/guarantors, home builders, medical device companies, hi-techs, and now even oils and commodity stocks are being hammered. There seems to be no safe haven in this market and the only way to make any money is to have your stock bought out by someone. We have had 3 buy-outs this year, but even this was not enough to offset the carnage in the rest of our portfolio.
We went 2 stocks up, 10 down and 3 even last week.
For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is -7.2%,-25% and +10.5% respectively. Since inception we are now 25 stocks up and 13 down, with 4 of the losers being down 10% or less.
So far in 2008 the DOW is down 15.4%, NASDAQ is down 15% and the S+P 500 is down 15.4%. The NASDAQ is still down a 21.1% since October 31, 2007.
The Russell 3000 and the Wilshire 5000 are both down just about 14.5% this year.
Since inception we have closed out the following positions:
2006-ONXS +11% (Buyout offer)
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-DTLK +25% (2 weeks)
2007-PDLI + 3%
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-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)
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 $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Down $2.41 to $5.63.
Right after we add $10,000 to this position–wham!
On Thursday, after millions of shares had traded and the stock price had plunged below $5, the company asked the exchange to halt trading in the stock. Then at about 9pm they finally issued a press release announcing that their Colorado Springs offices had been raided by the FDA and the Immigration and Customs division of the U.S. Please read the press release on this. It looks like a fishing expedition by the authorities, but obviously something led them to this action. We expect that this will take months to resolve and cost a few million in legal fees. From the recent insider buying, it looks like the Execs had no clue that this was going to happen. So hopefully they are innocent, or at least not-complicit in any wrongdoing. It may be a “whistle-blower” ex-employee or a competitor that initiated the authorities to look at SPNC, but whatever the reason, we have gotten screwed on this. Good company, good products, excellent sales growth–management just can’t keep from stepping on their own toes (or other soft parts). At least SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44.4 million in cash ($1.33 per share), no debt and is trading at about 1.2 times 2008 revenues (net of cash)and is growing about 30% a year.
Now down 37%. HOLD.
DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.02 (was $3.21 added $10,000, averaged down from $3.66), Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.75, down $.14.
They have $.75 a share in cash and are profitable.
Trading at a measly 20% of our valuation.
Now down 42%. 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 NEW Valuation $11.47 (was $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.11 at $5.80.
Earnings last week. Not bad. Our valuation moved up to $11.47 from $10.99. MEDW has $2.74 per share in cash, 68% gross margins and is making a little profit. And most interesting of all is:
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 8%. BUY
Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $8.63 (was $9.90, $8.69, $11.51)
Down $.04 to $3.02
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 19%. 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 $.04 to $1.07.
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 19% of our latest valuation
Down 35%. 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 $6.00 (Was $5.96)
Up $.22 to $1.91.
Finaciere De Sainte Marine, continues to buy HPOL. They now own 7,125,000 shares up from 6,640,381 shares just over 3 weeks ago, or just over 13% of the company.
Trading at 32% of our valuation.
Up 5%. 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)
Down $.12 to $2.15.
With $1.12 per share in cash (52% of market cap), we feel that this has little additional downside.
Up 13%. HOLD
Healthstream Inc. (HSTM-Recommended 8/4/2008)
Unchanged at $2.87.
Up 20%. HOLD
CCA Industries. (CAW-Recommended 8/4/2008)
NEW Buy Price-$6.66 (was $7.00 before $10,000 added) (6.9% dividend)
Down $.05 to $6.30.
Dividend yield up to 6.9%.
Down 5%. BUY
Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
Closed down $.10 at $2.25
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D last week. They added 569,000 shares to their position between May and August and now hold 17,605,000 shares of MGIC or 55.4%. FORTY is a long-term investor, but this is a good sign of course.
Up 13%. HOLD
Angeion Corporation. (ANGN-Recommended 8/28/2008)
Closed down $.15 at $5.00
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.
Down 3%. 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, unchanged.
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, unchanged.
“Preliminary” earnings out in late August. 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 have not been reported yet, 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 down $.02 at $.25. 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.
Still an “undercover” company and stock.
This is still trading at only 19% of our latest valuation.
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 $.49, down $.01
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 41%. HOLD