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-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 $.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)
Valuation $4.62 (Was $4.42)
Up $.03 at $2.28.
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)
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)
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.
Down 4%. HOLD
Noah Educational. (NED-Recommended 10/5/2008)
Buy Price-$3.03 (was $3.00 before $10,000 added)
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)
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)
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)
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)
Closed down $.49 at $3.99
$3.02 cash per share.
Down 1%. HOLD
Cynosure. (SNWL-Recommended 10/29/2008)
Closed up $.31 at $9.07
CYNO has $7.33 per share in cash–76% of its market-cap. Cheap.
Down less than 1%. HOLD
Cutera. (CUTR-Recommended 10/29/2008)
NEW Valuation-$ 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