Cheap Stocks, 2/6/2009 Update

Well the markets were up last week, but we went in reverse.

This is still a very tough market to pick winners in. Everything looks scary. We have confined ourselves to just trading some our stocks at this point, when they seems to drop for no reason. We have been trading GSL, SPNC, HPOL and a few others a bit—successfully so far.

Last week the DOW was up 3.5%, NASDAQ was up 7.8% and S+P 500 was up 5.2%. For the year the DOW is now down 5.7%, NASDAQ up .9% and the S+P 500 is down 3.8%. The Russell 3000 and the Wilshire 5000 are also down about 3.5% this year.

We had a 4.5% loss last week and are down 2.8% for the year.

Last week we went 8 stocks up, 13 down and 1 even. Since inception we are now 23 stocks up, and 22 down.

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 $5.68 (was $8.90, $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Up $.25 to $3.25.
SPNC pre-announced Q4 sales in early January. Sales of $104 million for the year. Not the $107 million they predicted–but still not bad considering “the world ended in Q4”. At the current $104 million market-cap, SPNC is trading at just over 50% 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 some money from the company. 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 growing about 25% a year.
Now down 43%. 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 $8.09 (was $8.12, $8.64, $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.45, down $.25.
Cash is $.83 per share.
Earnings out last week. Sales down 16% to $5.2 million, but they made $.06 per share. Not bad. Stock did nothing. New valuation is $8.09 down a measley $.03 from last quarter.
Now down 40%. 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 $11.30 (was $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.19 at $4.70.
Cannell Capital filed a 13D in February 2008, disclosing a 12.9% ownership stake. Cannell has been 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 2008, disclosing a 6.1% ownership in MEDW (499,000 shares). Constellation has $243 million in revenues and is profitable.
On November 14th, 2008, 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?
Earnings out last week. Pretty darn good, but the stock was down. Sales up 16% to $10million and they made $.04 per share versus losing $.04 last year. Cash is $2.34 per share. Our valuation fell a tad to $11.30 a share.
Down 26%. BUY

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up),
Valuation $4.31 (was $5.88, $8.63, $9.90, $8.69, $11.51)
Down $.06 to $.48
CLZR announced “earnings” in mid-January. Bad as expected. Our valuation fell to $4.31 per share, which is still 10 times the current market price–but they are losing money at an alarming rate, and have decided not to sell the company. They still have $1.29 per share in cash, but at the current burn-rate, this will last about 1 year.
We will give this one 1 more quarter to see if the trend can reverse.
Down 87%. 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)
Down $.04 at $.15.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August 2008 for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
Blinkx later came back with a $.55 offer to buy MIVA. Not much can make a stock go up these days–even a 300% premium take-over offer.
Down 91%. 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 $4.67 (Was $4.66, $6.00, $5.96)
Up $.05 at $.55.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares in mid-2008, or over 14% of the company.
Earnings out last week. Sales off about 20%, and they took about $66 million of write-offs. Without all these charges they essentially had a small operating profit. Not bad for this economy and the 20% sales drop off. Cash was just a tiny bit more than bank debt (+-$26 million), and they triggered a bank covenant default. They expect to get an amended facility in place shortly, and we expect they will. Our valuation actual rose a penny to $4.67.
Down 69%. 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 $1.21.
Foxhill owns 3,844,000 shares or 6.1% of IPASS.
With $1.10 per share in cash, we feel that this has little additional downside.
Earnings due out Monday, February 23rd after the market close.
Down 36%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.62 (Was $4.42)
Up $.03 at $2.09.
Down 13%. 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) (15.8% dividend yield)
Valuation $17.23 (Was $18.36)
Down $.29 to $2.79.
CCA announced in mid-January that they lost $6 million in annual sales to Walmart, as Walmart will no longer carry some of their products. This is about 10% of CCA’s annual sales. When are we going to get some good news? They still have almost $2.60 in cash, and the dividend yield is now over 15%.
Down 49%. HOLD

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 up $.02 at $1.27
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September 2008. 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 due out Wednesday, February 18th before the market open.
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 $.17 at $2.92
Has $1.80 per share in cash.
Blueline Partners filed a 13D on ANGN on June 23, 2008. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
Down 24%. BUY

Noah Educational. (NED-Recommended 10/5/2008)
Buy Price-$3.03(was $3.00 before $10,000 added)
Valuation $7.98 (Was $7.18)
Closed up $.08 at $2.92
Has cash of $3.37 per share. NED traded ex-dividend in late December.
Earnings due out Tuesday, Feb. 17th after the close.
Up 15% (adjusted for $.56 dividend).

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
NEW Valuation $10.27 (Was $10.26)
Closed down $.41 at $3.04
Cash is $2.23 per share.
Earnings out last week. Sales down about 5% at $48 million, and they made $.07 per share compared to $.11 last year. Not bad for this economy. All sounded good until they said they expect a small loss next quarter. Cash is $2.23 per share and our valuation rose to $10.27. We expect our valuation to fall if their projections are correct to maybe $8.50 per share. Still trading at less than 50% of even that reduced projected valuation.
Up 1%. HOLD

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed up $.10 at $3.50
Current dividend yield–26%
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.
Presenting at BB&T transportation conference next week–Feb. 11th
Down 5%. HOLD

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed up $.53 at $1.93
“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.
Up 66%. HOLD

SonicWALL. (SNWL-Recommended 10/20/2008)
Buy Price-$4.50
Valuation-$11.09(Was $10.44)
Closed up $.42 at $3.94
$3.02 cash per share.
No news.
Down 12%. BUY

Cynosure. (SNWL-Recommended 10/29/2008)
Buy Price-$9.10
Valuation-$29.49
Closed unchanged at $7.82
CYNO has $7.33 per share in cash.
CYNO preannounced Q4 in mid-January. Not good of course. Sales will be down around 30% from last year and they expect to lose around $2.5 million or $.20 per share.
They expect to end the year with $95 million in cash–$7.51 per share.
Earnings due out Tuesday, February 10th before the market open.
Down 14%. BUY

Cutera. (CUTR-Recommended 10/29/2008)
Buy Price-$7.88
Valuation-$ 18.88 (Was $21.07)
Closed down $.74 at $5.97
Cash per share was $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 below cash value.
Earnings due out Monday, February 9th after the market close.
Down 24%. HOLD

OB-abies (Bulletin Board Listed Stocks)

As proven by OPTIO, patience is necessary with these stocks, especially in this Bear Market.

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 $.75, down $.15.
Wake up management–you have a great little company here worth 5X what it is selling for.
Now down 54%. 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 $3.30 (was $3.76, $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.55, down $.05.
Earnings out in mid-November. Sales down 13%, but they remained profitable. Made $.01versus $.02 last year.
Earning due out Tuesday, Feb. 17th, before the open.
Down 31%. 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 down $.06 at $.06. Closed at $.06.
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.
Still an “undercover” company and stock.
Down 77%. HOLD

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 $.25, down $.07
For the 9 months of 2008, EPS is $.13 per share. So looks like we are selling at about 2X earnings. Lotus announced last week that it bought the land use rights in Mongolia for $26 million, subject to contruction approvals etc. If the project is not approved, they get the money back. They said they paid for this out of internally generated funds. Pretty impressive. 3 years and $58 million to go to build this plant. They are also looking to sell or rent up to 80% of the land to other pharma companies to create a pharma industrial park. This may work out ok. Unusual legal structure, $58 million construction project all hang over this company. Stock market stinks, Chinese stocks maybe even worse than most.
Down 70%. HOLD

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