Cheap Stocks, 4/23/2010 Update

Despite disappointing action in LTUS and AEZS, we had a good week, up 3.6%.

We are now up 26.6% for the year.

EXTR, BVSN, AVSO, IPAS, NINE, and LTUS.ob are our favorites.

The DOW was up 1.7%, NASDAQ was up 2% and the S+P 500 was up 2.1%. The Russell 3000 and the Wilshire 5000 were both up 2.4%. For the year the DOW is up 7.4%, NASDAQ is up 11.5% and the S+P 500 is up 9.2%. The Wilshire is up 10.9% and the Russell is up 9.4%.

Last week we went 14 stocks up and 4 down. Since inception we are now 48 stocks up and 9 down for a 85% winning percentage (80% is our target win %).

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)
2010-HPOL +110%
2010-DIVX +25%
2010-CHRD +37% Buyout (2 weeks after we recommended it)
2010-HPOL +30%
2010-MGIC +82%

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 39 stocks that we closed out since 2006 the average net gain was 33%.

Performance Technolgy (PTIX-Recommended 3/30/2010)
Buy Price-$2.70
NEW Valuation $5.98-(was $7.13)
Closed up $.12 at $2.78
Earnings out last week. Nothing to write home about. Sales were up 7% from last year to $7.4 million, but they lost $1.8 million or $.16 per share as they “invested” in sales and marketing. This, plus a bunch of new product announcements will hopefully boost sales and get some attention. Cash per share remained at $2.64, but our valuation fell to $5.98 as sales fell from the previous quarter and the loss was bigger.

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.04
Closed up $.15 at $3.60.
Earnings due out Monday April 26th ater the close.
Up 18% BUY

Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$13.50
$13.94 per share in cash, profitable.
Closed up $.21 at $13.61.
Up 1%. BUY

Ninetowns Internet Technology (NINE-Recommended 1/25/2010)
Buy Price-$1.53
$2.68 per share in cash
Closed up $.06 at $1.84.
Up 20%. BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price-$1.68
Closed up $.14 at $2.24.
Up 33%. HOLD

AEterna Zentaris (AEZS-Recommended 6/20/2009)
Buy price $1.42 (was $1.78 before adding another $10,000, $1.82 before double up)
Valuation –Speculation.
Closed down $.08 at $1.17.
AEZS continued under selling pressure and the stock continues to trade below the recent stock offering price of $1.35
Earnings out in March. Excluding the $30 million in deferred revenue from the canceled Sandofi deal, sales were $9.8 million. Looks like they lost about $10 million of cash earnings in the quarter. Still they have $50 million in cash and a good pipeline of products. Speculative for sure.
Down 18% 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 –$15.00
Closed down $.01 at $7.13.
Earnings out in February. Record sales of $29.7 million, up 11% from last year. The litigation is behind them with a $5 million P+L hit in Q4. Another $1.1 million write down of their auction rate securities and a total net loss for the quarter of $5.5 million. Excluding all the abnormal stuff, they actually made about $600,000!
Guidance was tepid. Looks like maybe a 10% sales increase, a Q1 loss and a profitable year. SPNC has always been very conservative in their guidance. 2010 is their year to show us what they can do–assuming they don’t step on their …..’s again.
Wells Fargo filed a 13G in early February disclosing that they had upped their stake to 5.3 million shares or about 16%–up from their previously disclosed position of about 11.6%.
The company has $30 million in cash ($.90 per share), no debt and is growing about 10% a year.
Up 26%. 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 $5.86 (was $7.17, $7.46, $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 $.42 at $2.79
Next earnings due out May 6th before the market open.
Earnings out in February. The economy finally caught up to DWCH. Revenue down 19% as you would expect this year, but they slipped into a loss of $.03 a share (only $200,000 though). Cash rose to $.99 a share, but sales and margins fell and so did our valuation–to $5.86 per share. Stil trading at only 40% of our valuation.
KVO Capital management filed a 13D in September 2009. 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.
Up 16%. 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 $12.13 (was $12.57, $12.29, $11.90, $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Up $.14 at $8.77.
Oracle announced the purchase of Phase Forward for $685 million recently (a medical related software company), which was about 2.5 times sales (net of cash). Equivalent price for MEDW would be about $15.50.
Earnings out in February. Sales were up 8% and EPS more than doubled to $.10 per share. Cash is $2.23 per share. Our valuation fell $.44 to $12.13 per share, but we think that when they get a full quarters revenue from the acquisitions that reduced cash, this will rebound.
Constellation Software filed a 13D/A in late August 2009. 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.
Up 39%. 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 $2.51 (was $2.17, $1.65, $1.89, $5.61, $6.42, $6.84, $7.58, $7.59)
Down $.03 at $.60.
Earnings out in March. Actually kind of good! Sales were $8 million, they had positive EBITDA of $400,000 and made $.02 a share. Cash was $4.8 million.
Our valuation rose to $2.51 per share. If they can keep going and grow revenues and earnings, we might see that price some day, but that is a big “IF”.
We have no hope that we will ever make money on this one, nor are we sure they will survive at all.
Down 63%. HOLD

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.42 (adjusted for $.32 and $.16 dividends) (Was $2.07 before another $10,000 added and $2.15 before double up
Valuation $3.34 (was $4.17, $4.73, $4.75, $4.12, $4.99, $4.30, $4.09)
Up $.08 at $1.41
Next earnings due out Thursday, May 6th after the close.
Earnings out in February So-so at best. Sales down 12%, but were only down 3% if you exclude their legacy dial-up revenues. On a Non-GAAP basis they lost $700,000 or $.01 per share. Aside from their $3.8 restucturing charge, they also had a $1.2 million charge to fix “historical billing errors”. This on top of their sales tax charges, make it look like they had some pretty shoddy accounting going on. Hopefully this is the last shoe they drop on us. Seems like they are cleaning the books up though–for a sale maybe? Our valuation dropped to $3.34 per share as cash dropped ($.16 from their last dividend), margins dropped and sales fell. Still, at this price IPAS is only trading at 40% of our valuation. Cheap.
Foxhill ownership is 6.9% andMillenium owns 10.4%.
Down 1%. 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) (5% dividend yield)
Valuation $15.95(Was $13.80, $18.89, $17.09, $17.05, $14.51, $17.23, $18.36)
Up $.11 at $5.61.
Earnings out in April. Weird company for sure. Sales were down 11% to $13.2 million. Earnings were $.08 per share compared to $.02 last year. Look pretty good to me that they can quadruple earnings on an 11% sales decline, but then they spent most of the press release rehashing a California consumer class action lawsuit based on some misleading advertising claim related to “green tea” extract in some capsules they sell. Any lawsuit will cost legal fees, even frivolus ones. We hope this is nothing too major, but think the market over-reacted to old news. Our valuation moved back up to $15.95 as gross margins increased. Cash is $2.55 a share.
Up 2%. HOLD

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $11.29 (was $11.73, $11.47, $11.16, $9.53, $13.30, $13.03)
Closed up $.11 at $4.71
Zacks actually recommended ANGN in early March with a short term price target of $6.
Earnings also out in March. Sales up 5% to $6.6 million (about flat with last quarter) and they lost $800,000 or $.20 per share. Cash decreased to $2.53 per share, and our valuation fell to $11.29 (still about 3 times the current share price).
Blueline Partners filed a 13D on ANGN on June 23, 2008. They own about 6.3% of the company. All of their purchases were well North of the current price. renaissance also owns 5.5%
Up 23% 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 up $.18 at $3.14
Current dividend yield–suspended
Container rates are rising and CGM appears to be getting its feet back under them.
Earnings out in March. Good again. Revenues up 52% to $39.9 million. Made $7.3 million or $.13 per share excluding a $8 million “mark-to-market” derivative gain. Everything else seems good.
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 2009. 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.
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.
Up 43%. 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),
Valuation $5.54 (was $5.74, $5.96, $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 up $.05 at $.85.
Earnings out in March. Sales up 35% to $5.4 million, 82% gross margins and they made $.02 a share. Our valuation backed off a bit to $5.54 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 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 $3.03 (was $2.38, $2.57, $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 $.99, down $.02.
13D filing in early March. A group of investors including a prior CEO of AVSO that controls 14.5% of the stock, is clamoring for an increase in shareholder value. Basically they are hanging out a “for sale” sign. In late March the same group filed a 13D/A adding more members to the group. With the way the filings are prepared, their is double counting in the ownership % of the group which is stated at about 34%. I reckon that the actual % is about 31%–still an impressive ownership share. I hope they are successful! Management of AVSO came out with a press release disavowing any discussions or interaction with the group. Too bad, with a few more members they may control the company soon. We would suggest all shareholders join the group.
Earnings out in February. Sales fell 19% to $7.7 million, and they made $600,000 or $.02 per share. Net cash rose to $.14 per share. Our valuation surged to $3.03. Market cap is about $17 million, sales are about $30 million, with decent margins, profitable and with $.14 in net cash.
Up 25%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $.96 (Was $.93, $.75, $.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 $.09 up $.01, closed at $.08
Earnings out in April. Sales rebounded to $4.1 million, and they actually made $200,000 of income (almost a penny!). Their VOIP business continues to drain the company. Q4 sales were a whopping $152,000 and it lost $686,000. Other than saying Q4 sales were up and we made a profit, none of the Q4 numbers were in the press release, or the 10K. Amazing. It seems like they want to keep their results a secret.
At a $2.4 million market cap, this is stupidly cheap. Their itellectual property is probably worth 8 times this price. They need to liquify this value somehow.
Our valuation rose to $.96 ( 19 times the current selling price).
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 67%. HOLD

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up)
Valuation-$1.91 (Was $2.00, $1.84, $1.56, $1.99, $2.22, $1.61, $1.06, $2.28, $2.08)
Closed at $1.08, up $.04.
LTUS continues to lanquish. No reason we can figure.
Earnings out in April. They reported EPS of $.33 after about a $.04 write-off of their old building. So call it $.37 per share. No quarterly info disclosed in the press release. Way to go, new CFO.
They projected 15-20% EBIT growth for 2010. So maybe we “only” make $.45 this year. If this traded like the growth stock it is, this should trade at more than $4.50 per share. Our valuation fell to $1.91, but this is still only selling at less than 4 time last years earnings.
LTUS celebrated the groundbreaking of their Mongolian facility in early March. They expect to finish by July and be certified for production by December. Looks like they are really going to do it! They also said they expect to reach $150 million in sales in the first year after the facility is “fully operational”. They did not say 2011, so this could mean 2012. No matter, if they get even near this level this stock will be over $5, in our opinion.
Early in March LTUS disclosed a deal to sell up to 10 million dollars of stock from time-to-time at about a 7% discount to market. While under no obligation to sell any shares, they paid YA Global (the purchaser) 228,000 shares as a committment fee. This company does things without explaning to investors why. Annoying, but as long at they keep cranking out the good earnings reports, we don’t care.
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 20%. BUY


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