Cheap Stocks, 8/7/2009 Update

We gave up some of our lead on the popular averages last week but were still 30 points ahead of the Dow, 10 points ahead of NASDAQ and 25 points ahead of the S+P 500.
We were up a measley .3% last week and are now up 37% so far in 2009.

The DOW was up 2.2%, NASDAQ was up 1.1% and the S+P 500 was up 2.3%. For the year the DOW is up 6.8%. NASDAQ is up 26.8% and the S+P 500 is up 11.9%. The Russell 3000 and the Wilshire 5000 are also up 13-14% this year.

Last week we went 10 stocks up, 8 down and 2 even. Since inception we are now 32 stocks up and 18 down.

Lots of earnings out last week. See updates below.

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%
2009-NED +46%
2009-CUTR +13%
2009-HSTM +67% (continued good earnings)

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 30 stocks that we closed out in 2006, 2007, 2008 and 2009 the average net gain was 26%.

AEterna Zentaris (AEZS-Recommended 6/20/2009)
Buy price $1.78 (was $1.82 before double up)
Valuation –Speculation.
Closed down $.02 to $2.60.
Just waiting on their Q3 news releases.
Up 47%% HOLD

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.
Closed down $.16 $5.03.
Earnings out in late July. Sales up 9% to $29 million (the highest quarter ever) and they lost $2 million or $.06 per share (25% less than last year). The loss included about $700,000 of legal expenses related to the FDA/ICE raids. Cash dropped to $.98 per share. Not bad.
SPNC recently announced that they settled their wrongful dismissal lawsuit with an ex-employee, who purportedly is the wistleblower in the FDA/ICE raids last year. Maybe these issues will be resolved soon too. It has been 10 months since the raids.
SPNC is suffering from the FDA, ICE raids that apparently eminated from the 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 $32 million in cash ($.98 per share), no debt and is growing about 15% a year.
Now down 11%. 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 $7.46 (was $8.12, $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 down $.21 at $1.69.
Earnings out last week. Sales down 17% to $4.765 million, but they made $.05 per share. New valuation is $7.46 and they have $.91 per share in cash.
Now down 30%. 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 $11.90 (was $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.03 at $5.27.
All we read is that medical records will be a hot area, so MEDW looks like the place to be.
MEDW announced it closed the earlier announced acquisition in June. Cost was $2 million cash and some earnout potential. It is another healthcare optimization software company.
Earnings out in May. 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.
Cannell Capital filed a 13D in February 2008, disclosing a 12.9% ownership stake. Cannell has been pushing MEDW management to sell the company. Cannell later filed an amended 13D showing they had reduced their ownership to 6.2%. 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 17%. 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)
Up $.10 at $1.23
Looks like they lost some of their claims against Palomar. While these findings are not final, not a good outcome.
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 67%. HOLD.

Vertro. (VTRO (was-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 $1.89 (was $5.61, $6.42, $6.84, $7.58, $7.59)
Up $.06 at $.27.
Earnings out in May. Horrible of course. Sales are now at a $25 million ANNUAL run rate, albeit at 93% gross margins. Cash ended up at just over $11 million or $.34 per share (after all the sale proceeds). They have amazed us at their ability to burn through all that cash they had. Current operating loss was almost $2.9 million in the quarter. Our valuation plunged to $1.89 per share (we were thinking $3 before the announcement).
We have no hope that we will ever make money on this one, nor are we sure they will survive at all. This one is teetering on the sell list–but not yet.
Down 84%. 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 $.03 at $.46.
13D filed in early July by Mill Road Capital disclosing a 6.4% ownership. Purchases were made in May, June and very early July at prices ranging from $.33 to $.45. Always encouraging when someone buys a 5% or better stake–even if the total investment is just over $1.3 million.
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 stock is still trading at only 15% 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 33%. 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 $4.73 (was $4.75, $4.12, $4.99, $4.30, $4.09)
down $.05 at $1.73
Earnings out last week. Sales were down 10% to $43.7 but they actually made $.02 per share. Our valuation fell $.02 to $4.73 per share and cash per share rose to $1.13.
Broadband revenues were higher than last year and the prior quarter, while dial-up revenues continued to fall YOY ($4.8 million) and from the prior quarter ($1.4 million).
IPASS had two ammouncements in early June. The first was a bit of a management shakeup-New CFO, new General Counsel, new VP of Marketing. The second was a settlement with Foxhill. Among other things they agreed to return $40 million of their $68 million cash hoard to shareholders. The first $20 million will be a dividend (about $.32 per share)payable in Q3 and the second $20 million may be a dividend or a stock buyback (ICK).
Foxhill has been buying more IPASS. Ownership now up to 6.7%. Shamrock owns 9.8%, Royce 5.9% and Federated, 5.5%.
Down 9%. 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) (7% dividend yield)
Valuation $17.09 (Was $17.05, $14.51, $17.23, $18.36)
Up $.24 to $3.99.
CCA announced earnings in July and another $.07 dividend. Made $.10 per share, down from $.11 last year. Sales were down 15% year over year. Our valuation moved up slightly to $17.09 per share. Cash was $2.06 per share.
Down 28%. 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 $3.84 (was $3.80, $3.97, $4.18, $4.15)
Closed up $.05 at $1.82
Earnings out last week. Sales fell 15% to $13.6 million but they were still profitable and made $.03 per share. Our valuation rose to $3.84 per share and cash per share rose to $1.15.
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 6%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $11.16 (was $9.53, $13.30, $13.03)
Closed up $.02 at $2.97
Earnings out in late May. Sales fell 15% from $7.3 million to $6.2 million and they essentially broke-even. Cash was $2.34 per share, and our valuation rose to $11.16 (still more than 3 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 22%. BUY

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 up $.02 at $1.42
Current dividend yield–suspended
They got another waiver from their bank, to August 31. We just wait on this one.
Earnings out in May. Let’s see, revenues up 47%, operating income up 56%. They made $.21 per share. Yet we sit at $1.40 with no dividend due to the banks that don’t lend. All their ships are chartered and payments are current. Could be the buy of a lifetime–or the banks could screw us. We would add more of this–but the banks are just acting so stupid in general there is no telling what they might do.
Their average ship charter life is around 10 years and the closest-in renewal is at the end of 2012.
Down 45%. HOLD

OPKO Health Inc. (OPK-Recommended 2/16/2009)
Buy Price-$1.25
Valuation-NA–Speculation
Closed down $.23 to $2.04.
OPKO announced the completion of a $31 million private placement of stock at $1 per share in mid-June. Then the stock took off.
This is still a Phillip Frost play–Key and KOS Pharmaceutical sold for billions. Frost keeps buying on the open market all the time. His ownership has now exceeded 50% with just over 100 million shares (now about 130 million.
Up 63%. HOLD

DIVX Inc. (DIVX-Recommended 5/26/2009)
Buy Price-$4.94
NEW Valuation-$8.49 (Was $9.24)
Closed down $.42 at $5.41.
Earnings out last week. Sales fell 29% to $15.2 million and they lost $2.4 million or $.07 per share. On a Non-GAAP basis they were essentially at a breakeven. Our valuation fell to $8.49 per share and cash per share was up $.06 to $4.30.
After getting well over $6 last week, the earnings report crunched the stock. We will hang on to this one for a while more.
UP 10%. HOLD

RealNetworks Inc. (RNWK-Recommended 5/26/2009)
Buy Price-$2.55
Valuation-$9.88
Closed up $.07 at $2.97
Earnings out in July. Sales down 11% to $136 million and they lost just under $13 million (excluding a $175 million goodwill write-off). Cash fell to $377 million or $2.81 per share. Our valuation fell a tad to $9.50 per share. Still a lot of value here.
Up 17%. HOLD

Datalink (DTLK-Recommended 8/3/2009)
Buy Price-$3.05
Valuation-$9.18
Closed up $.59 at $3.64
Going for our fifth trip on DTLK. Looking OK so far. $2.10 per share of cash and making money.
Up 19%. 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 $4.72 (was $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.80, even.
Earnings out in June. Not bad. Sales up slightly from $4.16 to $4.17 million and they made $278,000 pre-tax income. Our valuation fell to $4.72 per share.
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),
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 $.50, even.
Earnings out in May. 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 37%. HOLD.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
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 $.15 up $.02. Closed at $.125.
Announced a patent grant in July. Any news is a surprise on this stealth stock.
Earnings out in May. Sales down 26% to $3.9 million and they lost $522,000. Our valuation plummeted to $.85 (still 8 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–or it could be a home run.
Still an “undercover” company and stock.
Down 44%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up)
Valuation-$1.56 (Was $1.99, $2.22, $1.61, $1.06, $2.28, $2.08)
Closed at $.67, down $.03.
LTUS announced the granting of a new patent in July. Seemed to affirm that maybe this company is real, and so cheap that it is worth buying.
10Q for Q1 filed in May. 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 this is up 50% from last year Q1.
Lotus announced in February 2009 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 20%. BUY

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