Cheap Stocks, 5/21/2010 Update

Brutal week for us. Almost everything went the wrong direction. We suffered a 8.7% loss last week, and are now up 17% for the year. All the averages are now showing losses.

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

The DOW was down 4%, NASDAQ was down 5% and the S+P 500 was down 4.2%. The Russell 3000 and the Wilshire 5000 were both down 4.5%. For the year the DOW is down 2.2%, NASDAQ is down 1.8% and the S+P 500 is down 2.5%. The Wilshire is down 1.4% and the Russell is down 2.6%.

Last week we went 2 stocks up, 15 down and 1 even. Since inception we are now 45stocks up and 12 down for a 79% 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
Valuation $5.98-(was $7.13)
Closed down $.10 at $2.63
Earnings out in April. 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.
Down 3% HOLD

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.04
Valuation-$6.82 (was $6.81)
Closed down $.16 at $2.79
Earnings out in April. Revenues up about 1% to $78 million and they made $2.9 million on a non-GAAP basis. Not great, but not bad. Cash fell a bit to $1.43 per share and our valuation went up a penny to $6.82 per share. Still a cheap stock.
Down 8% BUY

Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$13.50
Valuation $23.37-(was $27.15)
$14.14 per share in cash.
Closed down $.33 at $11.85.
Earnings out in April. Revenue dropped from $8 million to $5.9 million and they lost $1.5 million on a non-GAAP basis. Cash per share actually rose to $14.14. Our valuation dropped on the sales drop to $23.37. Trading below cash value.
Down 12%. BUY

Ninetowns Internet Technology (NINE-Recommended 1/25/2010)
Buy Price-$1.53
Valuation-$3.19
$2.68 per share in cash
Closed down $.11 at $1.60.
Up 5%. BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price-$1.68
Valuation-$5.15
Closed down $.08 at $1.79.
Up 7%. 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 $.10 at $1.76.
Earnings out in May. Not bad considering that AEZS is still a fledgling bio-tech baby. $6.4 million in real product sales and lost “only” $5.9 million. Riding the tail of Kerx and perifosine, new orphan drug apporval from the FDA and a lot of investor interest in their pipeline of cancer products.
Still they have $40 million in cash and a good pipeline of products. Speculative for sure.
Up 24% 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 $.72 at $5.83.
Earnings out in April. Sales of $29 million, up 6% from last year. They lost $924,000 pre-tax. This loss included another $353,000 of legal costs related to the closed Federal investigation (you would have thought they would have accrued enough last quarter to cover this–but then thay never seem to deal with these matters very well). They reiterated their 2010 guidance:
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 3%. 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 $7.17 (was $5.86 $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 down $.10 at $2.39
Earnings out in May. Not bad. Sales down 10% to $4.6 million and they only lost $97,000 or $.02 per share. They have $1.07 per share in cash. Our valuation rose to $7.17 as sales, cash and margins were up .
Stil trading at only 34% 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.
Down 1%. 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 $14.35 (was $12.13, $12.57, $12.29, $11.90, $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.33 at $9.35.
Earnings out in May. They were good. Sales up 26% to $12.8 million and they made $.11 per share up 80% from last year. Cash was $2.67 per share and our valuation spiked to $14.35, up 18%.
Oracle recently 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.
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 48%. 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 $.11 at $.42.
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 74%. 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 $3.22 (was $3.34, $4.17, $4.73, $4.75, $4.12, $4.99, $4.30, $4.09)
Down $.04 at $1.06
Earnings out in May. Not great. Sales were down 9% to $40.4 million, and they lost a penny. Cash was $.61 per share and our valuation fell a bit to $3.22. Still, IPAS has plenty of cash, and is trading at only 36% of our valuation.
Foxhill ownership is 6.9% and Millenium owns 10.4%.
Down 19%. 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 $.33 at $5.81.
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 5%. 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 down $.46 at $4.49
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 17% 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 $.50 at $2.57
Current dividend yield–suspended
GSL is up 116% this year.
Earnings out in May. More of the same-good. Ship utilization was about 98%, and they made about $.15 per share on a “normalized” basis (excluding “mark-to-market” accounting on interest rate hedges). They generated $17 million of cash in the quarter.
Container rates are rising and CGM appears to be getting its feet back under them.
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.
Their average ship charter life is around 10 years and the closest-in renewal is at the end of 2012.
Up 17%. 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 $.13 $.80.
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 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 $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 $.80, down $.18.
Earnings out last week. Sales up 5% to $8.4 million and they made $.03 a share versus a loss of $.01 last year. Our valuation rose to $3.07 a share. The stock got caught in the market downdraft anyway.
Another 13D/a filed in May. The “dissident” group is up to 33% ownership.
The initial 13D filing was in early March. A group of investors including a prior CEO of AVSO 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. 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.
Up 1%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $.88 (Was $.96, $.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 $.07, closed at $.05 unchanged.
Earnings out in May. Sales were flat with last year at $3.9 million, and they lost about $200,000. Their VOIP business continues to drain the company. Q4 sales were a whopping $120,000 and it lost $431,000 excluding depreciation. Our valuation fell a bit to $.88.
At a $1.5 million market cap, this is stupidly cheap. Their itellectual property is probably worth 10 times this price. They need to liquify this value somehow.
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 74%. HOLD

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up)
Valuation-$1.87 (Was $1.91, $2.00, $1.84, $1.56, $1.99, $2.22, $1.61, $1.06, $2.28, $2.08)
Closed at $1.19, down $.19.
Earnings announced in May. Sales were up 26% and they made $.09 per share, up from $.07 last year. So they did not go out of business like I guess everyone seemed to be thinking!
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 $1.87, but this is still only selling for about 3 times last years earnings.
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.
Up 11%. BUY

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