Cheap Stocks, 9/17/2010 Update

Much better week for the market averages for a change.

We lagged a bit-up only .8%

Our lead over the markets averages dropped to 11-13 points depending on the index.

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

We are up 13.4% so far in 2010.

The DOW was up 1.4%, NASDAQ was up 3.3% and the S+P 500 was up 1.5%. The Russell 3000 and the Wilshire 5000 were both up 1.6%. For the year the DOW is now up 1.8%, NASDAQ is up 2% and the S+P 500 is up .9%. The Wilshire is up 2.1% and the Russell is up .5%.

Last week we went 8 stocks up, 7 down and 4 even. Since inception we are now 41 stocks up and 16 down for a 72% 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%. 7 of our current stocks are down less than 15%.

Harris Interactive (HPOL-Recommended 8/9/2010)
Buy Price-$1.00
NEW Valuation $3.15 (was $2.85)
Closed down $.08 at $.82
Earnings out in August. Nothing special. Sales were flat with last year and they had $2.3 million of “adjusted” EBITDA. $168 million in sales for the year, $8.9 million of “adjusted” EBITA, debt reduced to just $1.4 million more than cash and our valuation rose to $3.15 per share. $50 million market cap for well known brand name with $168 million of sales just seems too cheap.
Down 18% HOLD

Performance Technolgy (PTIX-Recommended 3/30/2010)
Buy Price-$2.70
Valuation $5.03-(was $5.98, $7.13)
Closed up $.17 at $2.24
Earnings out in July. Nothing to write home about. Sales were up 15% from last year to $7.4 million, but they lost $1.9 million or $.18 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 fell to $2.39, and our valuation fell to $5.03 as cash and margins fell.
Down 17% HOLD

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.04
Valuation-$7.32 (was $6.82, $6.81)
Closed up $.25 at $3.15
Interesting filing in September. The CFO got some modifications to his “Change of Control” agreement that seemed quite specific. Maybe a deal is in the works? Ramius fund filed a 13D/A on July 20th. They own 5.9% of EXTR and are starting to make some noise. Good catalyst.
Earnings out in August. Revenues up about 5% to $85 million and they made $3.4 million. Cash rose to $1.47 per share and our valuation shot up to $7.32 per share. Still a cheap stock.
Up 4% BUY

Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$13.50
Valuation $21.77-(was $23.37, $27.15)
$13.61 per share in cash.
Closed down $.52 at $10.00.
Earnings out in August. Revenue dropped from $8.2 million to $5.7 million and they lost $2.4 million. Cash per share fell to $13.61. Our valuation dropped on the sales drop to $21.77. Trading well below cash value.
Down 26%. BUY

Ninetowns Internet Technology (NINE-Recommended 1/25/2010)
Buy Price-$1.53
Valuation-$3.54 (Was $3.19)
$2.80 per share in cash
Closed down $.03 at $1.36.
Second half 2009 earnings announced in June. Cash rose to $2.80 per share and our valuation rose to $3.54. Only doing about $15 million a year in sales, but still trading way below cash value and didn’t lose any money.
Down 11%. BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price-$1.68
Valuation $4.38-(Was $4.44, $5.15)
Closed up $.02 at $1.54.
Earnings out in August. Not bad. Has $2.22 per share in cash and they were slightly profitable ($.02)-despite a 19% drop in sales. Our valuation fell $.06 to $4.38. Have to keep an eye on this, but GRVY is still trading at $.72 below cash value and they are keeping their noses in the black.
Down 8%. 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 up $.25 at $1.38.
Earnings out in August. Revenues were $5.6 million and they lost about $4.5 million or $.06 per share. Hey, at least they have real product revenues. The pipeline is what it is all about. With the recent capital raise, cash was about $45 million and they say their burn rate is about $ million a quarter, so they have about 2 years to make this a $10 stock!
Fonds de solidarite des travailleurs du Quebec filed a 13G in mid-June disclosing they had reduced their holding down to 2.6% and Société Générale de Financement du Québec filed a 13D diclosing that they have been steadily reducing their holding from over 10% to under 5%. This dumping by these Canadian funds has been weighing on the market. We need some good news, or these guys to finish selling for the stock to go up.
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.
Speculative for sure.
Down 3% 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 up $.02 at $5.13.
Earnings out in July. Sales up 3% and they actually made a profit! Not enough to round up to a penny a share though. The market yawned. No one follows this stock. Only a buy-out will make us money on this one.
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.
Down 10%. 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 $7.20 (was $7.17, $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 up $.02 at $2.89
Earnings out in August. Not bad again. Sales down 4% to $4.6 million and they made $.04 per share. They have $1.00 per share in cash. Our valuation rose a tad to $7.20.
Still trading at only 32% 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 20%. 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 $15.02 (was $14.35, $12.13, $12.57, $12.29, $11.90, $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Closed down $.47 at $10.28
Earnings out in September. Sales up 25% to $13.3 million and they made $.12 per share up 71% from last year. Cash was $2.92 per share and our valuation rose to $15.02.
Constellation has bought more shares (about 130,000 at over $9 per share) and MEDW announced they had re-engaged William Blair to look at “strategic alternatives”. Got to have an I Banker to sell your company.
Constellation now owns 22.8%. 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 62%. HOLD

Vertro. (VTRO (was-MIVA)-Recommended 10/21/2007)
Buy Price $8.15 (Was $11.90 before adding another $20,000, $13.10 before another $10,000 and was $15.00 before double up),
Valuation $12.40 (was $12.55, $10.85, $8.25, $9.45, $28.05, $32.10, $34.20, $37.90, $37.95)
Closed unchanged at $2.13.
1 for 5 reverse split effected in August, so all numbers have been adjusted for this.
Earnings out in August. Sales were $8.1 million, slightly higher than Q1 and they were slightly profitable. Cash rose to $6.1 million ($.85 per share). Our valuation fell $.15 to $12.40.
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 $2.95 (was $3.22, $3.34, $4.17, $4.73, $4.75, $4.12, $4.99, $4.30, $4.09)
Unchanged at $1.00
Earnings out in August. Sales were down again to $39.1 million, and they lost $.02 a share. Cash was $.52 per share down from $.61. 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 22%. 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 $17.45 (Was $15.95, $13.80, $18.89, $17.09, $17.05, $14.51, $17.23, $18.36)
Closed up $.04 at $5.42.
Earnings out in July. Sales flat at about $14.9 million and they lost $900,000 after a $2 million litigation settlement charge. So they made about a nickel a share compared to a dime last year.
Our valuation moved back up to $17.45 as gross margins increased. Cash is $2.55 a share–48% of the market price.
Down 2%. HOLD

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
NEW Valuation $13.06 (was $12.15, $11.29, $11.73, $11.47, $11.16, $9.53, $13.30, $13.03)
Closed up $.39 at $4.50
Earnings out in August. Not bad. Sales up 14% and they made $.03 per share. Cash was $2.59 per share and our valuation rose to $13.06.
Angeion announced a settlement in August with BlueLine partners. The BlueLine representative will stay on the Board of Directors and they will add 3 new directors. Doen’t seem like much, but it is a catalyst.
Zacks actually recommended ANGN in early March with a short term price target of $6.
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 18% 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 $.07 at $2.63
Current dividend yield–suspended
GSL is up 85% this year.
Earnings out in August. More of the same-good. Ship utilization was 100%, and they made about $.14 per share on a “normalized” basis (excluding “mark-to-market” accounting on interest rate hedges). They generated $16 million of cash in the quarter.
CGM made $864 million in the first half of 2010. Quite a turnaround.
Container rates are rising and CGM appears to be getting its feet back under them.
CGM has been 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. GSL 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 20%. 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 $5.73 (was $5.54, $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 down $.01 at $.56.
Earnings out in June. Sales up 29% to $5.4 million, 79% gross margins and they made $26,000 for the quarter. Our valuation moved back up to $5.73 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 65%. 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 $3.07 (was $3.03, $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 $.70, unchanged.
AVSO announced in August that they in effect sold themselves to Rand International a private company in the same business area. Not many details made available and no financial information given on Rand except that the combined company has about $82 million in sales over the last 12 months. AVSO shareholders now own about 33% of the new company (thus, they were really bought by Rand). At the current price and with about 51 million shares now outstanding the market cap is only about $38 million. Hopefully they will get some liquidity in these shares and get the price up to at least 1 times sales–soon. We assume the dissident shareholder group went along with this.
Earnings out in May. 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.
Down 12%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $.83 (Was $.88 $.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 $.09, closed at $.05.
Earnings out in August. Sales were down from $4.1 million last year to $3.6 million, and they lost about $433,000. Their VOIP business continues to drain the company. Sales were a whopping $200,000 and it lost $500,000 excluding depreciation. Our valuation fell a bit to $.83.
At a $2 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 63%. HOLD

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up)
Valuation-$2.49 (Was $2.15, $1.91, $2.00, $1.84, $1.56, $1.99, $2.22, $1.61, $1.06, $2.28, $2.08)
Closed at $.96, down $.01.
LTUS announced hiring a new CFO and a PR firm. Hopefully they are preparing to start the effort to get off the bulletin board and get some investor attention. This stock is truely under appreciated.
Earnings announced in August. Sales were up 40% and they made $.12 per share, up from $.10 last year. They are projecting sales of $74 million and about $.40 of earnings. We expect they will beat these numbers. We bought 50,000 more shares in August personally. Their new buiding is about 65% complete, and they extended their operating contract for another 20 years. It looks like they are getting ready to get off the bulletin board pretty soon.
Up 7%. BUY


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