Cheap Stocks, 11/21/2008 Update

It seems to never end. The markets backed off from double digit losses for the week on Friday, but still ended up with substantial losses. Mutual Fund liquidation, hedge fund, personal fund liquidations, margin calls, tax selling, Q4 earnings warnings.

The DOW was down 5.%, NASDAQ 8.7 and and S+P 500 8.4%. For the year the DOW is now down 39%, NASDAQ 48% and the S+P 500 is down 46%. The Russell 3000 and the Wilshire 5000 are also down about 47% this year.

We had a 6.7% loss last week and are down 50% for the year. Even good earnings and a special dividend barely moved NED last week.

There are a ton of values out there, that, if you assume that our economy will not implode, are once in a lifetime values.

Last week we went 6 stocks up, and 16 down. Since inception we are now 21 stocks up, 23 down and 1 even.

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 $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Up $.23 to $2.49.
They are still predicting at least $107 million in sales for the year, which means Q4will be over $27 million in sales. At the current $72 million market-cap, SPNC is trading at a little over 25% of sales, net of $44 million in cash. Cash includes $16 million of auction-rate securities. Based on what we have been reading, these “investments” will likely turn out OK.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too. Now the CEO has resigned. Perfect storm.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
Some insider buying popping up here. Maybe things are not as bad as the stock price reflects?
The company has $44 million in cash ($1.30 per share), no debt and is trading at about 25% of 2008 revenues (net of cash)and is growing about 25% a year.
Now down 72%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $10,000, averaged down from $3.66),
NEW Valuation $8.12 (was $8.64, $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.36, up $.36.
Earnings last week. So the stock jumped a whopping 36% to a disheartening $1.36
Sales fell from $6.9 million to $5.3 million, but they maintained profitability of $.05 a share versus $.14 last year. Cash moved up to $.82 per share, but our valuation fell to $8.12 from $8.64.
Trading at a measly 17% of our valuation.
Now down 58%. BUY

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up)
Valuation $11.48 (was $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.87 at $3.98.
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 November 14th, Constellation filed a 13D/A. One of their subsidiary officers bought over 300,000 MEDW shares in October, bringing their combined owership in MEDW to 17.9%
MEDW announced a small acquisition in the hospital pharmacy software market last week. Cost about $3.5 million upfront. No revenue details provided.
Looks like something is going to happen here–but when?
Down 37%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $5.88 (was $8.63, $9.90, $8.69, $11.51)
Up $.07 to $.46
Earnings out in mid September. Sales down 24% and they lost $7 million pre-tax. Still have $1.29 per share in cash, but burning through it. New valuation is $5.88 per share. They hired an investment banker to sell the company. We’ll see. Maybe Palomar will buy it to cut both there legal fees ($3.2 million this quarter for CLZR).
Looks like Palomar’s lawsuit against CLZR was “stayed” by the courts last week. Legal expense should drop for maybe a couple of years.
Down 88%. HOLD, we may get lucky and this thing will be sold for North of $1.

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)
Down $.02 to $.25.
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.
MIVA issued a press release in early October. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Last week Blinkx came back with a $.55 offer to buy MIVA. The stock jumped a bit–but settled back DOWN $.02! Not much can make a stock go up these days–even a 100% premium take-over offer.
Trading at 5% of our latest valuation
Down 85%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),
Valuation $4.66 (Was $6.00, $5.96)
Down $.23 at $.74.
Earnings out in October, not great. Sales down 9% and they had an operating loss of $3.5 million compared to an operating profit of $1.6 million last year. Basically they failed to cut expenses as the $5 million decline in sales, dropped directly to the bottom line. This is likely why they hired a new CEO and pledged to cut expenses.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just a few months ago, or just over 14% of the company.
Trading at 18% of our valuation.
Down 59%. 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 $4.99 (was $4.30, $4.09)
Down $.06 to $1.54.
Earnings out in early November. Not bad. Sales were flat (dial-up revenues dropped only $600,00 and they had a non-GAAP profit of $500,000–down from $700,000 last year. They still have $1.10 per share in cash. They also announced that they were no longer considering selling the company–rats! New CEO announced also. On the conference call, the old CEO was very curt to Foxhill’s pointed questions. Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.1% of IPASS.
With $1.10 per share in cash (75% of market cap), we feel that this has little additional downside.
Down 19%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.62 (Was $4.42)
Down $.38 at $2.37.
Company buying back shares, insiders buying shares (steadily)–what’s up here.
No news
Down 1%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$5.51 (was $6.14 before $10,000 added, $6.66 before $10,000 added, $7.00 before $10,000 added) (10.8% dividend yield)
Valuation $17.23 (Was $18.36)
Down $.23 to $3.82.
No news.
Down 31%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
Buy Price-$1.93 (was $2.08 before another $10,000 added, $2.00 before $10,000 added at $2.16)
Valuation $4.18 (was $4.15)
Closed down $.32 at $1.28
Earnings out in November. Revenues up 8% to $15.8 million, non-GAAP EPS of $.06 per share. $1.02 in cash also. Our valuation moved up slightly to $4.18 per share.
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. 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.
Down 34%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.03
Closed down $1.00 at $2.50
Has $1.80 per share in cash.
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.
No news to account for the plunge–just the relentless selling going on in all sectors.
Down 35%. HOLD

Noah Educational. (NED-Recommended 10/5/2008)
Buy Price-$3.03 (was $3.00 before $10,000 added)
NEW Valuation $7.98 (Was $7.18)
Closed up $.24 at $2.40
Earnings out last week. Not bad.Sales were $29.8 million, down 18%. They made $.14 per share. Next quarter guidance was a bit weak, but they still expect to be profitable. Cash grew to $3.93 per share and our valuation rose to $7.98 (sorry previous valuation of $13.03 was a misprint). NED also announced a special one-time dividend of $.56 per share (this needs shareholder approval–so I approve)
Down 21%. BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $10.26
Closed down $.40 at $2.54
Cash is $2.08 per share–80% of the current market cap.
Down 14%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed down $.52 at $2.48
Current dividend yield–39%
Earnings 2 weeks ago were fine. Fleet utilization is still 98%. Their average ship charter life is around 10 years and the closest-in renewal is at the end of 2012. By then, you will have collected more than the current share price in dividends.
Down 33%. BUY

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed down $.10 at $1.16
“Earnings” out in mid November. $2 million in sales and $12 million loss and $83 million of cash left. They expect 2009 sales to be about $40 million and will lose money. Some possibility of profits in 2010 and they think they have enough cash to last until then. Again, this is a speculation. Increased sales in 2009 will drive this stock.
New management and capital investment at $3.90 a share.
Even. HOLD

SonicWALL. (SNWL-Recommended 10/20/2008)
Buy Price-$4.50
Valuation-$11.09(Was $10.44)
Closed down $.09 at $3.37
$3.02 cash per share.
No news.
Down 25%. HOLD

Cynosure. (SNWL-Recommended 10/29/2008)
Buy Price-$9.10
Valuation-$29.49
Closed down $.81 at $7.59
CYNO has $7.33 per share in cash–95% of its market-cap. Cheap.
Down 17%. HOLD

Cutera. (CUTR-Recommended 10/29/2008)
Buy Price-$7.88
Valuation-$ 18.88 (Was $21.07)
Closed down $1.16 at $7.55
Earnings out in early November. Not good. Sales down 32% to $19.1 million. They actually had positive operating earnings of just over $100,000 (adding back $1.3 million of stock compensation BS). Pretty amazing operating performance considering the sales drop.
Cash per share rose to $8.56 per share. Our valuation fell to $18.88 per share.
We think that given the low valuations in this sector, that consolidation is just around the corner. Too much cash, high margins and a declining economy.
Trading at $1 below cash value.
Down 4%. HOLD

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 $5.66 (was $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.99, up $.34.
Earnings announced late October. Sales up 5% and they made $.05 per share. Pre-tax loss was $204,000 versus $180,000 last year. Even so, our valuation moved up to $5.66from $5.63 per share. This is still way too cheap.
Wake up management–you have a great little company here worth 3X what it is selling for.
Now down 39%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
NEW Valuation $3.30 (was $3.76, $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.35, down $.10.
Earnings out in mid-November. Sales down 13%, but they remained profitable. Made $.01 versus $.02 last year. Our valuation fell to “only” $3.30 a share. Stock fell 39% last week. Illiquid, tax-loss selling we think.
Some insider buying lately.
Trading at only 10% of our valuation.
Down 56%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.40 (Was $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price up $.01 at $.10. Closed at $.07.
Earnings out mid-November. Nobody cared.
Their VOIP business continues to struggle and lose money–$604,000 in the last quarter–but they did have some revenues–$38,000!
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
Including a $2.85 million patent settlement gain, CTI earned $.05 in the quarter and $.03 for the nine months.
Even excluding the net patent gain, they had positive operating income for the quarter–despite the VOIP loss. Our valuation rose to $1.40
Still an “undercover” company and stock.
This is still trading at only 7% of our latest valuation.
Down 63%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up)
Valuation-$2.22 (Was $1.61, $2.28, $2.08)
Closed at $.28, down $.07
As noted last week, earnings were announced.
Sales were up marginally to $16.7 million from $16.6 million LY and they made $.07 per share versus $.05 last year. For the 9 months, EPS is $.13 per share. So looks like we are selling at a bit over 2X earnings. Our valuation spiked back up to $2.22. Hmmm. Unusual legal structure, $70 million factory plan, $17 million land deposit all hang over this company. Stock market stinks, Chinese stocks maybe even worse than most.
Down 67%. HOLD

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Cheap Stocks, 11/14/2008 Update

More of the same. Pretty discouraging for sure. Mutual Fund liquidation, hedge fund, personal fund liquidations, margin calls, tax selling, Q4 earnings warnings.

The DOW was down 5.0%, NASDAQ 7.9% and and S+P 500 6.2%. For the year the DOW is now down 36%, NASDAQ 43% and the S+P 500 is down 41%. The Russell 3000 and the Wilshire 5000 are also down about 41% this year.

We had a 9.3% loss last week and are down 46% for the year. 2/3’s of the loss came from AVSO.ob and ARIS.ob taking 30% hits and MIVA getting whacked 40%— on decent earnings in the case of AVSO and no news in the cases of ARIS and MIVA.

There are a ton of values out there, that, if you assume that our economy will not implode, are once in a lifetime values.

Last week we went 4 stocks up, and 16 down and 2 even. Since inception we are now 23 stocks up, 21 down and 1 even.

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 $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Down $.37 to $2.26.
They are still predicting at least $107 million in sales for the year, which means Q4will be over $27 million in sales. At the current $72 million market-cap, SPNC is trading at a little over 25% of sales, net of $44 million in cash. Cash includes $16 million of auction-rate securities. Based on what we have been reading, these “investments” will likely turn out OK.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too. Now the CEO has resigned. Perfect storm.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44 million in cash ($1.30 per share), no debt and is trading at about 25% of 2008 revenues (net of cash)and is growing about 25% a year.
Now down 75%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $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 $1.00, down $.15.
They have $.75 a share in cash and are profitable.
Earnings out Thursday, Nov. 20, before the open
Trading at a measly 12% of our valuation.
Now down 58%. BUY

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up)
Valuation $11.48 (was $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Up $.07 at $4.85.
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 November 14th, Constellation filed a 13D/A. One of their subsidiary officers bought over 300,000 MEDW shares in October, bringing their combined owership in MEDW to 17.9%
Looks like something is going to happen here–but when?
Down 23%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $5.88 (was $8.63, $9.90, $8.69, $11.51)
Down $.02 to $.39
Earnings out in mid September. Sales down 24% and they lost $7 million pre-tax. Still have $1.29 per share in cash, but burning through it. New valuation is $5.88 per share. They hired an investment banker to sell the company. We’ll see. Maybe Palomar will buy it to cut both there legal fees ($3.2 million this quarter for CLZR).
Down 89%. HOLD, we may get lucky and this thing will be sold for North of $1.

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)
Down $.18 to $.27.
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.
MIVA issued a press release in early October. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Trading at 5% of our latest valuation
Down 84%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),
Valuation $4.66 (Was $6.00, $5.96)
No change at $.97.
Earnings out in October, not great. Sales down 9% and they had an operating loss of $3.5 million compared to an operating profit of $1.6 million last year. Basically they failed to cut expenses as the $5 million decline in sales, dropped directly to the bottom line. This is likely why they hired a new CEO and pledged to cut expenses.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just a few months ago, or just over 14% of the company.
Trading at 16% of our valuation.
Down 45%. 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 $4.99 (was $4.30, $4.09)
Down $.03 to $1.60.
Earnings out in early November. Not bad. Sales were flat (dial-up revenues dropped only $600,00 and they had a non-GAAP profit of $500,000–down from $700,000 last year. They still have $1.10 per share in cash. They also announced that they were no longer considering selling the company–rats! New CEO announced also. On the conference call, the old CEO was very curt to Foxhill’s pointed questions. Our valuation rose however to $4.99 a share from $4.30.
Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.1% of IPASS.
With $1.10 per share in cash (75% of market cap), we feel that this has little additional downside.
Down 16%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.62 (Was $4.42)
Up $.47 at $2.75.
Company buying back shares, insiders buying shares–what’s up here. Up 21% in a crap market. No news though
Up 15%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$5.51 (was $6.14 before $10,000 added, $6.66 before $10,000 added, $7.00 before $10,000 added) (10.8% dividend yield)
Valuation $17.23 (Was $18.36)
Down $.44 to $4.05.
No news.
Down 27%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
Buy Price-$1.93 (was $2.08 before another $10,000 added, $2.00 before $10,000 added at $2.16)
NEW Valuation $4.18 (was $4.15)
Closed up $.30 at $1.60
Earnings out last week. Not bad. Revenues up 8% to $15.8 million, non-GAAP EPS of $.06 per share. $1.02 in cash also. Our valuation moved up slightly to $4.18 per share.
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. 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.
Down 17%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.03
Closed down $.19 at $3.50
Has $1.80 per share in cash.
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.
No news.
Down 9%. HOLD

Noah Educational. (NED-Recommended 10/5/2008)
Buy Price-$3.03 (was $3.00 before $10,000 added)
Valuation $13.03
Closed down $.37 at $2.16
Still trading at below cash value of $3.62 and profitable. Current valuation is pretty stupid unless there is something that hasn’t been announced by the company.
Earnings out Nov. 20th before the open.
Down 29%. BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $10.26
Closed up $.05 at $2.94
Cash is $2.08 per share–70% of the current market cap.
Down 3%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed down $.31 at $3.00
Current dividend yield–31%
Earnings last week were fine. Fleet utilization is still 98%. Their average ship charter life is around 10 years and the closest-in renewal is at the end of 2012. By then, you will have collected more than the current share price in dividends.
Down 19%. BUY

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed down $.11 at $1.26
“Earnings” out last week. $2 million in sales and $12 million loss and $83 million of cash left. They expect 2009 sales to be about $40 million and will lose money. Some possibility of profits in 2010 and they think they have enough cash to last until then. Again, this is a speculation. Increased sales in 2009 will drive this stock.
New management and capital investment at $3.90 a share.
Up 9%. HOLD

SonicWALL. (SNWL-Recommended 10/20/2008)
Buy Price-$4.50
Valuation-$11.09(Was $10.44)
Closed down $.53 at $3.46
$3.02 cash per share.
No news.
Down 23%. HOLD

Cynosure. (SNWL-Recommended 10/29/2008)
Buy Price-$9.10
Valuation-$29.49
Closed down $.67 at $8.40
CYNO has $7.33 per share in cash–87% of its market-cap. Cheap.
Down 8%. HOLD

Cutera. (CUTR-Recommended 10/29/2008)
Buy Price-$7.88
Valuation-$ 18.88 (Was $21.07)
Closed up $.31 at $8.71
Earnings out in early November. Not good. Sales down 32% to $19.1 million. They actually had positive operating earnings of just over $100,000 (adding back $1.3 million of stock compensation BS). Pretty amazing operating performance considering the sales drop.
Cash per share rose to $8.56 per share. Our valuation fell to $18.88 per share.
We think that given the low valuations in this sector, that consolidation is just around the corner. Too much cash, high margins and a declining economy.
Up 11%. HOLD

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 $5.66 (was $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.65, down $.30.
One trade on Friday of 8,500 share took this down 32%. Tax loss/liquidity selling we think.
Earnings announced late October. Sales up 5% and they made $.05 per share. Pre-tax loss was $204,000 versus $180,000 last year. Even so, our valuation moved up to $5.66from $5.63 per share. This is still way too cheap.
Wake up management–you have a great little company here worth 3X what it is selling for.
Now down 60%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
NEW Valuation $3.30 (was $3.76, $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.45, down $.29.
Earnings out last week. Sales down 13%, but they remained profitable. Made $.01 versus $.02 last year. Our valuation fell to “only” $3.30 a share. Stock fell 39% last week. Illiquid, tax-loss selling we think.
Trading at only 13% of our valuation.
Down 43%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
NEW Valuation $1.40 (Was $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price unchanged at $.09. Closed at $.07.
Earnings out last week. Nobody cared.
Their VOIP business continues to struggle and lose money–$604,000 in the last quarter–but they did have some revenues–$38,000!
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
Including a $2.85 million patent settlement gain, CTI earned $.05 in the quarter and $.03 for the nine months.
Even excluding the net patent gain, they had positive operating income for the quarter–despite the VOIP loss. Our valuation rose to $1.40
Still an “undercover” company and stock.
This is still trading at only 6% of our latest valuation.
Down 67%. 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-$2.22 (Was $1.61, $2.28, $2.08)
Closed at $.35, down $.02
10Q filed on Friday (conference call not till this coming Tuesday though).
Sales were up marginally to $16.7 million from $16.6 million LY and they made $.07 per share versus $.05 last year. For the 9 months, EPS is $.13 per share. So looks like we are selling at a bit over 2X earnings. Our valuation spiked back up to $2.22. Hmmm. Unusual legal structure, $70 million factory plan, $17 million land deposit all hang over this company. Stock market stinks, Chinese stocks maybe even worse than most.
Down 58%. HOLD

Cheap Stocks, 11/7/2008 Update

Back to “normal” another down week. Mutual Fund liquidation, hedge fund, personal fund liquidations, margin calls, tax selling, Q4 earnings warnings.

The markets dived after election day giving up around 900 points in 2 days, before coming back 250 point on Friday.

The DOW was down 4.1%, NASDAQ 4.3% and and S+P 500 3.9%. For the year the DOW is now down 33%, NASDAQ 38% and the S+P 500 is down 37%. The Russell 3000 and the Wilshire 5000 are also down about 37% this year.

We had a 1.2% loss last week and are down 36% for the year.

There are a ton of values out there, that, if you assume that our economy will not implode, are once in a lifetime values.

Last week we went 8 stocks up, and 12 down and 2 even. Since inception we are now 23 stocks up, 21 down and 1 even.

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 $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Down $.37 to $2.63.
They are still predicting at least $107 million in sales for the year, which means Q4will be over $27 million in sales. At the current $85 million market-cap, SPNC is trading at a little over 50% of sales, net of $44 million in cash. Cash includes $16 million of auction-rate securities (shame on the CFO). Based on what we have been reading, these “investments” will likely turn out OK.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too. Now the CEO has resigned. Perfect storm.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44 million in cash ($1.30 per share), no debt and is trading at about 1/2 times 2008 revenues (net of cash)and is growing about 25% a year.
Now down 71%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $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 $1.15, down $.19.
They have $.75 a share in cash and are profitable.
Earnings out Thursday, Nov. 20, before the open
Trading at a measly 15% of our valuation.
Now down 52%. BUY

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up)
Valuation $11.48 (was $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Up $.80 at $4.78.
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%.
Cannell sold some MEDW (about 175,000 shares at about $5.60 to $5.80) but still holds 875,000 shares or 11.5%.
Looks like something is going to happen here–but when?
Down 25%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $5.88 (was $8.63, $9.90, $8.69, $11.51)
Down $.27 to $.41
Earnings out in mid September. Sales down 24% and they lost $7 million pre-tax. Still have $1.29 per share in cash, but burning through it. New valuation is $5.88 per share. They hired an investment banker to sell the company. We’ll see. Maybe Palomar will buy it to cut both there legal fees ($3.2 million this quarter for CLZR).
Down 89%. HOLD, we may get lucky and this thing will be sold for North of $1.

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 $.06 to $.45.
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.
MIVA issued a press release in early October. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Trading at 8% of our latest valuation
Down 73%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),
Valuation $4.66 (Was $6.00, $5.96)
Down $.19 to $.97.
Earnings out in October, not great. Sales down 9% and they had an operating loss of $3.5 million compared to an operating profit of $1.6 million last year. Basically they failed to cut expenses as the $5 million decline in sales, dropped directly to the bottom line. This is likely why they hired a new CEO and pledged to cut expenses.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just a few months ago, or just over 14% of the company.
Trading at 16% of our valuation.
Down 45%. 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 $4.99 (was $4.30, $4.09)
Down $.27 to $1.63.
Earnings out last week. Not bad. Sales were flat (dial-up revenues dropped only $600,00 and they had a non-GAAP profit of $500,000–down from $700,000 last year. They still have $1.10 per share in cash. They also announced that they were no longer considering selling the company–rats! New CEO announced also. On the conference call, the old CEO was very curt to Foxhills pointed questions. Our valuation rose however to $4.99 a share from $4.30.
Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.1% of IPASS.
With $1.10 per share in cash (75% of market cap), we feel that this has little additional downside.
Down 14%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.62 (Was $4.42)
Up $.03 at $2.28.
No news.
Down 5%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$5.51 (was $6.14 before $10,000 added, $6.66 before $10,000 added, $7.00 before $10,000 added) (9.8% dividend yield)
Valuation $17.23 (Was $18.36)
Down $.01 to $4.49.
Down 19%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
Buy Price-$1.93 (was $2.08 before another $10,000 added, $2.00 before $10,000 added at $2.16)
Valuation $4.15
Closed up $.26 at $1.90
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. 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.
Earnings out November 10th, before the market opens.
Down 1%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.03
Closed down $.16 at $3.69
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.
No news.
Down 4%. HOLD

Noah Educational. (NED-Recommended 10/5/2008)
Buy Price-$3.03 (was $3.00 before $10,000 added)
Valuation $13.03
Closed down $.07 at $2.53
Still trading at below cash value of $3.62 and profitable.
Earnings out Nov. 20th before the open.
Down 16%. BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $10.26
Closed down $.19 at $2.89
Cash is $2.08 per share–72% of the current market cap.
Down 4%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed up $.23 at $3.31
Current dividend yield–28%
Earnings out Thursday, November 13th, before the open.
Down 10%. BUY

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed up $.02 at $1.37
New management and capital investment at $3.90 a share.
Earnings out Thursday, November 13th, before the open
Up 16%. HOLD

SonicWALL. (SNWL-Recommended 10/20/2008)
Buy Price-$4.50
Valuation-$11.09(Was $10.44)
Closed down $.49 at $3.99
$3.02 cash per share.
No news.
Down 1%. HOLD

Cynosure. (SNWL-Recommended 10/29/2008)
Buy Price-$9.10
Valuation-$29.49
Closed up $.31 at $9.07
CYNO has $7.33 per share in cash–76% of its market-cap. Cheap.
Down less than 1%. HOLD

Cutera. (CUTR-Recommended 10/29/2008)
Buy Price-$7.88
NEW Valuation-$ 18.88 (Was $21.07)
Closed down $.11 at $8.40
Earnings last week. Not good. Sales down 32% to $19.1 million. They actually had positive operating earnings of just over $100,000 (adding back $1.3 million of stock compensation BS). Pretty amazing operating performance considering the sales drop.
Cash per share rose to $8.56 per share. Our valuation fell to $18.88 per share.
We think that given the low valuations in this sector, that consolidation is just around the corner. Too much cash, high margins and a declining economy.
Up 7%. 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 $5.66 (was $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.95, unchanged.
Earnings announced late October. Sales up 5% and they made $.05 per share. Pre-tax loss was $204,000 versus $180,000 last year. Even so, our valuation moved up to $5.66from $5.63 per share. This is still way too cheap.
Wake up management–you have a great little company here worth 3X what it is selling for.
Now down 41%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
Valuation $3.76 (was $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.74, unchanged.
Trading at only 20% of our valuation.
Earnings out next Friday (14th) before the market opens.
Down 7%. 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 $.01 at $.09. Closed at $.09.
Their VOIP business continues to struggle and lose money–$707,000 in the last 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.
CTIG issued a very positive press release in early October. Hopefully there is some substance to their touting their VOIP business. We’ll see.
Still an “undercover” company and stock.
This is still trading at only 9% of our latest valuation.
Down 67%. 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 $.37, up $.05
LTUS is actually presenting at Rodman & Renshaws conference on Tuesday. Hopefully it will be more organized than the last conference call.
Our only solace is that all Chinese stocks have been hammered also.
Down 56%. HOLD

Cheap Stocks, 10/31/2008 Update

Finally a good week overall, but still lots of uncertainty out there, and still plenty of choppiness ahead. Mutual Fund liquidation, margin calls, tax selling, Q4 earnings warnings.

The markets soared for a change. The DOW was up 11.3%, NASDAQ 10.9% and and S+P 500 10.5%. For the year the DOW is now down 30%, NASDAQ 35% and the S+P 500 is down 34%. The Russell 3000 and the Wilshire 5000 are also down about 34%.

We managed to post “only” a 3.5% gain, but are still down 35% for the year.

There are a ton of values out there, that, if you assume that our economy will not implode, are once in a lifetime values.

Last week we went 14 stocks up, and 8 down. Since inception we are now 24 stocks up, 20 down and 1 even.

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 $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Up $.26 to $3.00.
SPNC released earnings last week. They were good. Initially the stock junped to $3.65, but sellers used the opportunity to dump into the small rally. Tax loss selling no doubt (I am personnally doing some tax selling on other positions).
Sales were up 26% and thay managed to make $.01 per share despite over $400,000 in legal expenses (see below). They are still predicting at least $105 million in sales for the year, which means Q4 will be over $27 million in sales. At the current $101 million market-cap, SPNC is trading at a little over 50% of sales, net of $44 million in cash. Cash includes $16 million of auction-rate securities (shame on the CFO). Based on what we have been reading, these “investments” will likely turn out OK.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too. Now the CEO has resigned. Perfect storm.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44 million in cash ($1.30 per share), no debt and is trading at about 1/2 times 2008 revenues (net of cash)and is growing about 25% a year.
Now down 66%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $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 $1.34, up $.02.
They have $.75 a share in cash and are profitable.
Earnings out Thursday, Nov. 20, before the open
Trading at a measly 15% of our valuation.
Now down 44%. 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 $11.48 (was $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.04 at $3.98.
Earnings out last week. Not bad. Although sales were down 8%, they still managed to make $.03 per share (HPOL management should learn from this–see below). Still have $2.76 per share in cash. Our valuation moved up a penny to $11.48.
Last Wednesday over 250,000 shares traded. It looks like 5, 50,000 share blocks traded. Someone is selling, but someone is also buying. No new SEC filing yet.
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%.
Cannell sold some MEDW (about 175,000 shares at about $5.60 to $5.80) but still holds 875,000 shares or 11.5%. We have not seen another Constellation filing, but obviously someone is buying these shares and the price has barely moved.
Looks like something is going to happen here–but when?
Down 37%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $5.88 (was $8.63, $9.90, $8.69, $11.51)
Up $.12 to $.68
Earnings out in mid September. Sales down 24% and they lost $7 million pre-tax. Still have $1.29 per share in cash, but burning through it. New valuation is $5.88 per share. They hired an investment banker to sell the company. We’ll see. Maybe Palomar will buy it to cut both there legal fees ($3.2 million this quarter for CLZR).
Down 82%. HOLD, we may get lucky and this thing will be sold for North of $1.

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)
Down $.06 to $.39.
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.
MIVA issued a press release in early October. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Trading at 7% of our latest valuation
Down 76%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),
NEW Valuation $4.66 (Was $6.00, $5.96)
Up $.17 to $1.16.
Earnings out last week, not great. Sales down 9% and they had an operating loss of $3.5 million compared to an operating profit of $1.6 million last year. Basically they failed to cut expenses as the $5 million decline in sales, dropped directly to the bottom line. This is likely why they hired a new CEO last week and pledged to cut expenses. Our valuation fell to $4.66 from $6.00.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just a few months ago, or just over 14% of the company.
Trading at 16% of our valuation.
Down 35%. 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 $.14 to $1.90.
Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.9% of IPASS. They also sent another letter to IPASS urging they sell the company. Looks like they are serious.
With $1.12 per share in cash (75% of market cap), we feel that this has little additional downside.
Earnings due out Nov. 3rd, after the close.
Down 6%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
NEW Valuation $4.62 (Was $4.42)
Up $.05 at $2.25.
Earnings out last week. Pretty good. Sales up 16% and they made $.03 a share (same as last year) despite having $550,000 of expense in the quarter for their annual Summitt, which was in Q2 last year. Our valuation moved up to $4.62 from $4.42.
Down 6%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$5.51 (was $6.14 before $10,000 added, $6.66 before $10,000 added, $7.00 before $10,000 added) (9.8% dividend yield)
Valuation $17.23 (Was $18.36)
Up $.03 to $4.50.
Down 18%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
NEW Buy Price-$1.93 (was $2.08 before another $10,000 added, $2.00 before $10,000 added at $2.16)
Valuation $4.15
Closed down $.21 at $1.64
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. 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.
Earnings out November 10th, before the market opens.
Down 15%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
NEW Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.03
Closed down $.13 at $3.85
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.
No news.
Up 1%. HOLD

Noah Educational. (NED-Recommended 10/5/2008)
NEW Buy Price-$3.03 (was $3.00 before $10,000 added)
Valuation $13.03
Closed down $.25 at $2.60
Still trading at below cash value of $3.62 and profitable.
Down 14%. BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $10.26
Closed up $.37 at $3.08
Cash is $2.08 per share–68% of the current market cap.
Up 2%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed down $.26 at $3.08
Current dividend yield–30%
Earnings out Thursday, November 13th, before the open.
Down 17%. BUY

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed up $.07 at $1.35
New management and capital investment at $3.90 a share.
Earnings out Thursday, November 13th, before the open
Up 16%. HOLD

SonicWALL. (SNWL-Recommended 10/20/2008)
Buy Price-$4.50
NEW Valuation-$11.09(Was $10.44)
Closed up $.04 at $4.48
Earnings out last week. Sales were up 5% and they made $.01 per share versus a small loss last year. They have $3.02 in cash and our valuation moved up to $11.09 per share from $10.44.
Down 1%. HOLD

Cynosure. (SNWL-Recommended 10/29/2008)
Buy Price-$9.10
Valuation-$29.49
Closed down $.34 at $8.76
Earnings out last week. Sales up 21%, made $.25 per share (compared to $.36 last year). Not bad. CYNO has $7.33 per share in cash–86% of its market-cap. Cheap.
Down 4%. HOLD

Cutera. (CUTR-Recommended 10/29/2008)
Buy Price-$7.88
Valuation-$21.07
Closed up $.63 at $8.51
Cutera has $8.01 in cash–94% of its market-cap. So you can buy this for 7% of sales. Profitable too.
Up 8%. 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),
NEW Valuation $5.66 (was $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.95, up $.06.
Earnings announced last week. Sales up 5% and they made $.05 per share. Pre-tax loss was $204,000 versus $180,000 last year. Even so, our valuation moved up to $5.66 from $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 41%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
Valuation $3.76 (was $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.74, up $.14.
Trading at only 20% of our valuation.
Down 7%. 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 $.01 at $.10. Closed at $.10.
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.
CTIG issued a very positive press release in early October. Hopefully there is some substance to their touting their VOIP buaisness. We’ll see.
Still an “undercover” company and stock.
This is still trading at only 9% of our latest valuation.
Down 63%. 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 $.32, up $.02
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. Our only solace is that all Chinese stocks have been hammered also.
Down 62%. HOLD