Cheap Stocks, 10/30/2009 Update

Another crappy week for us, and the markets. We were down a whopping 11.6%.

Now up 62.4% this year. Still way ahead of the averages, but a week we would certainly like to forget.

SPNC, ARIS.ob and HPOL earnings last week.

IPAS, MEDW, DWCH and CAW still are our favorites–although they all got cheaper last week.

We are adding another $10,000 to AEZS.

The DOW was down 2.6%, NASDAQ was down 5.1% and the S+P 500 was down 4.0%. For the year the DOW is up 10.7%. NASDAQ is up 29.7% and the S+P 500 is up 14.7%. The Russell 3000 and the Wilshire 5000 are up 16-17% this year.

Last week we went 5 stocks up, 10 down and 1 even. Since inception we are now 33stocks up and 17 down (we are trying hard to get to our 80% winner target) .

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%
2009-CLZR -32% (a loser even on a buy-out)
2009-DTLK +28% (our 5th profitable trip on this one)

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 34 stocks that we closed out since 2006 the average net gain was 27%.

AEterna Zentaris (AEZS-Recommended 6/20/2009)
Buy price $1.78 (was $1.82 before double up)
Valuation –Speculation.
Closed down $.07 at $1.02.
AEZS raised $5.5 million in a private placement at $1.20 plus warrants.
Investors expressing confidence, yet the stock falls below the offer price. Who can figure.
We will add another $10,000 here. More upside than downside we believe. New average buy price will be
Just waiting for some good developement news here.
They stil have $57 million in cash, marketed products and a good pipeline.
Down 43% 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 $.37 at $5.70.
Earnings out last week. Pretty good actually. Sales up 7% to $28.8 million (second highest quartely sales ever). They lost $2.5 million or $.08 per share. Excluding write-offs and litigation costs they made $641k pre-tax. The market shrugged and the stock fell. Got to get past this FDA matter to allow this stock to move up.
A 510(K) filing for in-stent restenosis happened in early Octobber.
Canaccord Adams issued a BUY on SPNC in September. Target price is $8.
Hopefully we are getting close to a settlement with the FDA. Canaccord seems to think so.
SPNC is suffering from the year-ago 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 $34 million in cash ($1.04 per share), no debt and is growing about 10% a year.
Up 1%. 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 down $.42 at $2.26.
No news to account for the price fall. Just the market and thin trading.
Earnings due out Thursday, November 19th before the market open.
KVO Capital management filed a 13D in September. 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.
Down 6%. 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 $12.29 (was $11.90, $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.65 at $5.95.
Earnings out in September–they were very good. Sales were up only about 4% but EPS doubled to $.07 per share. Cash is $2.63 per share and our valuation rose to $12.29 per share.
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.
Down 6%. BUY

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 $.11 at $.35.
VTRO announced in September that they are apparently on track to do about $7.2 million of revenue in Q3 ($4.8 million for July and August), that they lost only $1.2million for these 2 months and are on track to be EBITDA positive in Q4.
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 79%. 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),
NEW Valuation $2.72 (Was $3.09, $2.78, $4.67, $4.66, $6.00, $5.96)
Up $.04 at $.94.
Earnings out last week. Not bad at all. While sales were down 23% to $38.8 million, they had a tiny loss of $.01 per share ($.04 loss last year). Adjusted EBITDA was $2.1 million up from $.7 million last year.
Our valuation fell to $2.72 per share.
More interestingly, Mill Road Capital filed a Form 13D/A last week disclosing that they bought another 742,000 shares at an average price of about $.88 from October 8th to October 28th. This brings their ownership up to 4,178,000 shares or 7.7% of the company (up from 6.4% previously).
Finaciere De Sainte Marine, is a big investor in HPOL. They own over 14% of the company.
Up 36%. 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)
Down $.09 at $1.30
Earning due out November 5th after the market close.
IPASS went ex-dividend in August. $.32 dividend was 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 15%. 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) (7% dividend yield)
Valuation $18.89 (Was $17.09, $17.05, $14.51, $17.23, $18.36)
Down $.34 to $4.54.
CCA announced earnings in October. Revenues were up 8% to $15.3 million and they earned $.23 per share compared to $.16 last year. They also declared their $.07 quarterly dividend. Our valuation moved up slightly to $18.89 per share. Cash was $2.76 per share.
Down 18%. HOLD/Buy under $5

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 $.06 at $1.82
Earnings due out November 4th, before the market opens.
The persistent bid continued last week (7 weeks now) for about 572,000 shares at $1.70 per share. 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 6%. 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 up $.02 at $3.66
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 about 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 4%. HOLD

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 down $.31 at $1.13
Current dividend yield–suspended
Earnings due out Tuesday November 10, before the market open.
CGM (their main customer continues to struggle. Trying to restructure their debt, get funding from the French goverment etc. We would think that GSL would be the last “supplier” to CGM to feel any effects of this due to CGM’s equity ownership in GSL.
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 48%. HOLD

DIVX Inc. (DIVX-Recommended 5/26/2009)
Buy Price-$4.94
Valuation-$8.49 (Was $9.24)
Closed down $.25 at $4.81.
Earnings due out Monday, November 9th, after the close.
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.
Down 3%. HOLD

OB-abies (Bulletin Board Listed Stocks)

As proven by OPTIO, patience is necessary with these stocks, especially in this 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),
NEW Valuation $5.96 (was $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.95 unchanged.
Earnings out last week. Sales up 24% to $5.3 million and they lost $114,000 or $.02 per share.
Our valuation soared to $5.96 per share. No one cares.
Wake up management–you have a great little company here worth 5-6X 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 $2.57 (was $2.81, $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 $.56, up $.01.
Earnings out in September. Sales down 38% to $7.2 million. But they only lost $.03 per share. Our valuation fell to $2.57.
Down 29%. 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 $.115 up $.015. Closed at $.095.
CTIG recently announced a sale to Ericsson in Poland for their VOIP solution. Did nothing for the stock price.
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 57%. HOLD

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 $.86, down $.10.
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 3 times earnings.
LTUS announced the granting of a new patent in July 2009. 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.

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