Cheap Stocks, 9/4/2009 Update

Well no repeat of last weeks huge gains, but it was a plus week. We were up .5% for the week and are now up 56.5% for the year.

We sold OPKO last week for a 116% gain. This could go much higher long term, but we couldn’t ignore a 100% gain short term.

The DOW was down 1.1%, NASDAQ was down .5% and the S+P 500 was down 1.2%. For the year the DOW is up 7.6%. NASDAQ is up 28.0% and the S+P 500 is up 12.5%. The Russell 3000 and the Wilshire 5000 are also up 14-15% this year.

Last week we went 10 stocks up, 7 down and 2 even. Since inception we are now 35 stocks up and 15 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%
2009-NED +46%
2009-CUTR +13%
2009-HSTM +67% (continued good earnings)
2009-RNWK +36%
2009-OPK +116%

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 32 stocks that we closed out in 2006, 2007, 2008 and 2009 the average net gain was 29%.

AEterna Zentaris (AEZS-Recommended 6/20/2009)
Buy price $1.78 (was $1.82 before double up)
Valuation –Speculation.
Closed up $.04 to $.93.
Just waiting for some good news here on their drug pipeline.
They stil have $57 million in cash, marketed products and a good pipeline.
Down 48% 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 up $.08 at $6.00.
Hopefully we are getting close to a settlement with the FDA.
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.
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 11 months since the raids.
SPNC is suffering from the FDA, ICE raids that apparently eminated from the ex-employee whistle-blower. 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.
UP 6%. 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 $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 up $.01 at $2.70.
Last weeks heavy volume became apparent on 9/1. KVO Capital management filed a 13D. They own 402,000 shares (just under 7% of the company). Purchases were all in the second half of August from $1.66 to $2.74 per share. Finally, someone else seems to see the value here.
Earnings out in August. 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.
Up 12%. Hold

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)
Up $.15 at $5.50.
Cnstellation announced another acquisition last week–just not MEDW.
Constellation Software filed another 13D/A in late August. Bought 290,000 shares at $5.20 raising their stake to 21.8%. When is the take-over offer??
All we read is that medical records will be a hot area, so MEDW looks like the place to be.
Earnings out in May. Sales up 4% and they made $.06 per share versus $.04 last year. Cash was $2.68 per share and our valuation rose to $11.90 a share.
earning out next week.
Down 13%. BUY

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up),
Valuation $7.60 (was $7.60, $4.31, $5.88, $8.63, $9.90, $8.69, $11.51)
Down $.06 at $1.64
Earnings out in August. Sales down 16% to $31.4 million. They only lost about $130,000 from operations and reported net income after a gain on discontinued operations of $7.1 million or $.31 per share. Our valuation fell to $6.69 on the sales decline and some margin erosion.
Looks like they lost some of their patent claims against Palomar. While these findings are not final, not a good outcome.
They have $1.25 per share in cash.
Down 56%. 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 $1.65 (was $1.89, $5.61, $6.42, $6.84, $7.58, $7.59)
Down $.05 at $.25.
Earnings out in August. Horrible of course (again). Sales were $6 million and they had an EBITDA loss of $3.4 million. Marigns held at a whopping 93%. Cash ended up at $8.3 million ($.25 per share and falling) down from $11 million or $.34 per share last quarter. They have amazed us at their ability to burn through all that cash they had. Our valuation coninued to fall–to $1.65 per share from $1.89 per share.
They keep claiming that the business is turning around and that the EBITDA loss will decline in Q3 and turn positive in Q4. We’ll see, so far this has been catching a falling knife.
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 $.69 (was $1.79, $1.82 before adding $10,000 each time, $2.02 before $10,000 added and $2.15 before double up),
Valuation $3.09 (Was $2.78, $4.67, $4.66, $6.00, $5.96)
Down $.02 at $.82.
Earnings out week before last. Sales fell 32% and they only lost $.01 per share. Apparently there is life here.
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.
Finaciere De Sainte Marine, is a big investor in HPOL. They now owns over 14% of the company.
Up 18%. HOLD

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.58 (adjusted for $.32 dividend) (Was $2.07 before another $10,000 added and $2.15 before double up
Valuation $4.73 (was $4.75, $4.12, $4.99, $4.30, $4.09)
Dwon $.11 at $1.38
IPASS went ex-dividend in August. $.32 dividend will be paid September 17th.
Earnings out in August. 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 (now $.81 after dividend).
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 drop).
With the dividend in the “bag”, the second part of the settlement with Foxhill called for another $20 million to be paid as a dividend or a stock buyback (ICK).
Foxhill ownership is 6.7%. Shamrock owns 9.8%, Royce 5.9% and Federated, 5.5%.
Down 11%. 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)
Down $.06 to $3.89.
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 29%. 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 $3.84 (was $3.80, $3.97, $4.18, $4.15)
Closed up $.02 at $1.73
Interesting, last week there was a persistent bid for over 600,000 shares at $1.70 per share sitting there. About 2% of the company.
Earnings out in August. 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 10%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $11.47 (was $11.16, $9.53, $13.30, $13.03)
Closed unchanged at $3.37
Earnings out in late August. Sales fell 18% to $6.2 million and they essentially broke-even. Cash was $2.56 per share, and our valuation rose to $11.47 (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 12%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price $2.16-(Was $2.59, $3.69 before adding another $10,000 each time)
Valuation NA-Dividend yield play
Closed up $.02 at $1.69
Current dividend yield–suspended
Big announcements in late August. They finally made a deal with their bank and survived the ordeal. They had the rest of their credit line canceled, were allowed to take delivery of a used ship, no dividend until the loan to ship value is less than 75% and they have to start prepaying their loans. CGM has to stay in as an equity holder until at least November 30, 2010. Meanwhile their business is great. This is definitely going to be long-term though.
Earnings out in August. Let’s see, revenues up 58%, operating income up 39%. They made $.42 per share for the quarter and $.63 for the six months. All their ships are chartered and payments are current. Could be the buy of a lifetime if the ecomomy–and ship prices recover.
Their average ship charter life is around 10 years and the closest-in renewal is at the end of 2012.
Down 23%. Buy

OPKO Health Inc. (OPK-Recommended 2/16/2009)
Buy Price-$1.25
SOLD at $2.70–116% gain.

DIVX Inc. (DIVX-Recommended 5/26/2009)
Buy Price-$4.94
Valuation-$8.49 (Was $9.24)
Closed down $.34 at $5.17.
Earnings out in August. 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.
We will hang on to this one for a while more.
Up 5%. HOLD

Datalink (DTLK-Recommended 8/3/2009)
Buy Price-$3.05
Closed up $.12 at $3.58
Going for our fifth trip on DTLK. Looking OK so far. $2.10 per share of cash and making money.
Up 17%. 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 $.86, up $.01.
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 47%. 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, up $.01.
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 36%. HOLD.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $.75 (Was $.85, $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 $.13 unchanged. Closed at $.09.
Earnings out in August. Sales down 18% to $4.1 million (up from $3.9 in Q1) and they lost $669,000. They blame the sales decline on currency issues. Our valuation fell to $.75 (still 5 times the current selling price)
Their VOIP business continues to struggle and lose money, but sales did reach $188,00up from $72,000 last quarter. They reduced the VOIP loss to $590,000. They also spent $439,000 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 51%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up)
Valuation-$1.84 (Was $1.56, $1.99, $2.22, $1.61, $1.06, $2.28, $2.08)
Closed at $.85, down $.05.
Earnings out in August. Sales fell a disappointing 30% from last year, but they were up from Q1. Amazingly they made $4.8 million in profit or $.10 per share. For the six months they have now earned $.17 per share. Our valuation headed back up to $1.84per share. Also selling at about 2.5 times earnings.
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.
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.
Up 2%. HOLD


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