Cheap Stocks, 5//15/2009 Update

After our double digit gain last week, we managed to eke out a .6% gain this past week–which was way better than the markets did.

SELL DTLK for a 33% gain. This is our 4th trip on DTLK with gains of 41%, 25% and 40% before.

The DOW was down 3.6%, NASDAQ was down 3.4% and the S+P 500 was down 5.0%. For the year the DOW is now down 5.9%, NASDAQ is UP 6.5% and the S+P 500 is down 1.6%. The Russell 3000 and the Wilshire 5000 are also down 1-2% this year.

We had a .6% gain last week and are now up 13.1% for the year.

Last week we went 5 stocks up and 15 down. Since inception we are now 27 stocks up, and 19 down.

Since our beginning, 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%
2009-MBRK +67%
2009-SNWL +14%
2009-CYNO +25%
2009-DTLK +33%

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 27 stocks that we closed out in 2006, 2007, 2008 and 2009 the average gain was 24%.

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.
Down $.22 to $3.95.
SPNC announced earnngs in May. Q1 revenues were $27.3 million, up 15% over last year. They lost $3.1 million after $1.4 million in legal expense related to the “investigation”. Cash is $1.07 per share.
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. Growing nicely in a crappy economy. Just got to wait this one out.
The company has $34 million in cash ($1.07 per share), no debt and is growing about 15% a year.
Now down 30%. 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 $8.12 (was $8.07, $8.12, $8.64, $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed up $.22 at $1.97.
Cash is $.83 per share.
Earnings out in May. Sales down 13% to $5.1 million, but they made $.04 per share (excluding an intangible write-off). New valuation is $8.12, back where is was 2 quarters ago.
Now down 18%. 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 $11.90 (was $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Up .84 to $4.90.
Earnings out last week. Sales up 4% and they made $.06 per share versu $.04 last year. Cash was $2.68 per share and our valuation rose to $11.90 a share. With all of the below going on, when does MEDW get bought out?
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 2008, bringing their combined owership in MEDW to 17.9%
Down 23%. BUY

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up),
Valuation $7.60 (was $4.31, $5.88, $8.63, $9.90, $8.69, $11.51)
Down $.16 at $.99
Earnings out in April. Much better than the prior quarter. While sales were down, they only lost half a million dollars. They have $1.13 per share in cash and our valuation spiked up to $7.60.
Down 74%. 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 $.01 at $.32.
Earnings out in April. Horrible of course. This all means nothing at this point due to the sale of the media business for $11.6 million after the quarter ended.
The MEDIA had 20-30% gross margins and likely lost money. Looks like this will reduce annual revenues to maybe $40 million with 90% gross margins. No info on the bottom line impact. With say $15-$20 million of cash (our guess) and a high margin sales base we think our valuation will be in the $3+ range.
Down 80%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $.59 (was $1.79, $1.82 before adding $10,000 each time, $2.02 before $10,000 added and $2.15 before double up),
Valuation $2.78 (Was $4.67, $4.66, $6.00, $5.96)
Up $.01 at $.38.
HPOL announced in early May that they had successfully amended their bank line and also Q1 earnings. Sales were down 30% to $39.9 million, and they lost $6.7 million or $.12 per share. The loss included $5.3 million of “restructuring” charges. They reported that they had positive “adjusted EBITDA” of about half a million dollars.
Cash declined to about $16.9 million and debt was $24.2 million. Our new valuation plunged to $2.78 a share. But the sock is still tading at only 13% of our valuation. Give this one one more quarter to see if they can stabilize things.
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.
Down 44%. 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 $4.75 (was $4.12, $4.99, $4.30, $4.09)
Down $.01 to $1.49
Q1 earnings announced in May. Revenues were down YOY 7% to $44.6 million. Their “dial-up” businss revenues dropped from $11.5 million last year to $6 million this quarter. Their ongoing business grew over last year. GAAP loss was $3 million and non-GAAP income was $1.3 million–$.02 a share. Cash stayed healthy at $68 million–$1.10 per share. Our valuation rose to $4.75 per share.
Foxhill has been buying more IPASS. Ownership now up to 6.7%. Shamrock owns 9.8%, Royce 5.9% and Federated, 5.5%.
our valuation fell to $4.12, as margins dipped a bit.
Down 22%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.81 (Was $4.83, $4.62, $4.42)
Down $.17 at $2.52.
Earnings out in late April. Sales up 19% to $13.6 million and they made $.9 million pre-tax. Reported EPS was $.04. Our valuation stayed about the same at $4.81 per share. Not that easy to do in this economy.
Up 5%. BUY

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) (9.0% dividend yield)
Valuation $17.05 (Was $14.51, $17.23, $18.36)
Down $.11 to $3.00.
CCA filed their 10Q in May. Our new valuation was better than we expected–$17.05 and cash was $2.11 per share.
Down 46%. 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)
NEW Valuation $3.80 (was $3.97, $4.18, $4.15)
Closed down $.01 at $1.32
Earnings out last week. Sales down 9% to $13.8 million. They managed to INCREASE earnings from zero to $.02 per share. Our valuation fell a bit to $3.8- and cash stayed rose to $1.13 per share. Not bad.
Formula Systems (NASDAQ-FORTY) holds 17,605,000 shares of MGIC or 55.4%. FORTY is a long-term investor that at some point will want to sell MGIC.
Down 31%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $9.53 (was $13.30, $13.03)
Closed down $.33 at $2.42
Earnings out in late February. Sales fell from $7.5 million to $6.4 million and they lost $600,000 (actually less of a loss than last year). Cash was $2.11 per share, but our valuation fell to $9.53 (still almost 4 times the current share price).
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 37%. BUY

Noah Educational. (NED-Recommended 10/5/2008)
Buy Price-$3.03(was $3.00 before $10,000 added)
Valuation $7.79 (Was $7.98, $7.18)
Closed down $.02 at $3.30
Earnings out in February. Revenue up 11% and they made $.04 per share.
Our valuation fell a tad to $7.79. Has cash of $3.58 per share–10% more than its share price. This valuation is just stupid.
Up 28% (adjusted for $.56 dividend). BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $8.55 (Was $10.27, $10.26)
Closed up $.46 at $4.01
Cash is $2.34 per share.
SELL–still taking gains where we can get them.
Earnings out in mid-April. Sales down about 16% at $40 million, and they lost $.05 per share compared to a profit of $.04 last year. As expected, our valuation fell to $8.55. Still trading at less than 50% of even that reduced projected valuation.
UP 33%. SELL

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price $2.59-(Was $3.69 before adding another $10,000)
Valuation NA-Dividend yield play
Closed down $.07 at $1.76
Current dividend yield–suspended
Well the screwed up banking envoronment, the decline in ship values, the relectance of appraisers to even give appraisals all converged on GSL last week. They announced that they were trying to get appraisals on their ships but needed more time (until June 30) and that they would suspend their dividend until the banking crap was sorted out. Meanwhile they also announced that operating income is expected to increase 30% to $13 million as the impact of the last 3 ships put in service took effect. Unbelievable. They also said they would revisit the dividend after this mess is resolved.
Their average ship charter life is around 10 years and the closest-in renewal is at the end of 2012.
Down 32%. HOLD

Cutera. (CUTR-Recommended 10/29/2008)
Buy Price-$7.88
Valuation-$ 15.40 (Was $18.06, $18.88, $21.07)
Closed down $.15 at $7.60
Earnings out in May. Sales down 33% to $14.4 million and they lost about $2.2 million pre-tax (excluding the one-time litigation settlement). Again, not bad given the economy. Cash fell a bit to $7.88 a share, and our valuation fell to $15.40. Yes, the business is “free” and you get $.28 per share of cash as a gift to buy it.
Down 4%. HOLD

OPKO Health Inc. (OPK-Recommended 2/16/2009)
Buy Price-$1.25
Closed up $.11 $1.27.
This is still a Phillip Frost play–Key and KOS Pharmaceutical sold for billions. Frost put in $20 million to buy shares at $1.00–and keeps buying on the open market all the time. His ownership has now exceeded 50% with just over 100 million shares.
Up 2%. BUY

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),
aluation $5.19 (was $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.80, down $.23.
Earnings out in March. Not bad. Sales down about 6% from $3.4 to $3.2 million and they made $273,000 pre-tax income. Our valuation remained over $5 per share at $5.19.
Wake up management–you have a great little company here worth 5X what it is selling for.
Now down 50%. 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 $2.81 (was $2.78, $3.30, $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 $.01.
Earnings out on Friday. Sales down 38% to $8 million. But they only lost $.01 per share. While results were not good, our valuation actually moved up $.03 to $2.81.
Down 43%. HOLD.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
NEW Valuation $.85 (Was $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price $.12 down $.01. Closed at $.11.
Earnings out on Friday. Sales down 26% to $3.9 million and they lost $522,000. Our valuation plummeted to $.85 (still 7 times the current selling price)
Their VOIP business continues to struggle and lose money–$771,000 on $72,000 of revenues. They also spent $245,000 on patent enforcement, which may result in some future gains for the company but there is no way to tell for sure.
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 56%. HOLD

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up)
NEW Valuation-$1.56 (Was $1.99, $2.22, $1.61, $1.06, $2.28, $2.08)
Closed at $.43, down $.01.
10Q for Q1 filed last week. Sales were up only 1%, but margins and earnings soared. Gross margin rose from 34% to 56% and they made $.07 per share versus $.02 last year. Not bad at all. LTUS business is seasonal, with this quarter being the weakest revenue quarter. Our “unadjusted” valuation fell to $1.56 per share–but t his is up 50% from last year Q1. Hard to predict but LTUS could be selling at 1 times forward earnings.
Lotus announced in February 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 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.
Down 49%. BUY


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