Cheap Stocks, 11/26/2010 Update

Good week for us–up 3.5%–thank you VTRO. NASDAQ was up a bit but all the other averages were down. Our lead over the markets averages widened to 21-27 points depending on the index.

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

We are up 33.1% so far in 2010.

The DOW was down 1%, NASDAQ was up .7% and the S+P 500 was down .9%. The Russell 3000 was down .5% and the Wilshire 5000 was down .5%. For the year the DOW is up 6.4%, NASDAQ is up 11.7%, the S+P 500 is up 6.7%. The Wilshire is up 9.2% and the Russell is up 7.3%.

Last week we went 13 stocks up, 4 down and 2 even. Since inception we are now 43 stocks up and 17 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%
2010-GSL +78%
2010-CCEL +49%

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%. 9 of our current stocks are down less than 15%.

SuperGen Inc. (NASDAQ-SUPG)-Recommended 10/4/2010)
Buy Price-$2.09
Valuation $4.37 (was $3.48)
Closed up $.07 at $2.78
Up 33%-HOLD

Harris Interactive (HPOL-Recommended 8/9/2010)
Buy Price-$1.00
Valuation $2.57 (was $3.15, $2.85)
Closed up $.03 at $.91
Earnings out in October. Nothing special. Sales were down 5% from last year and they had $.867 million of “adjusted” EBITDA. Cash was $11.3 million and debt $14.4 million. Our valuation fell to $2.57 in this seasonally weak quarter. $48 million market cap for well known brand name with $150 million of sales just seems too cheap.
Down 9% HOLD

Performance Technolgy (PTIX-Recommended 3/30/2010)
Buy Price-$2.70
Valuation $3.87-(was $5.03, $5.98, $7.13)
Closed up $.05 at $1.80
Earnings out in November. Not good. Sales were down 20% from last year to $6.3 million, and they lost $2.9 million or $.26 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 $2.09, and our valuation fell to $3.87 as cash, sales and margins fell. Still trading below cash value, but that cash is dwindling.
Down 33% HOLD–close to a sell.

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.04 (Valuation-$7.23 (was $7.32, $6.82, $6.81)
Closed up $.06 at $2.94
Earnings out in November. Sales up 26% to $84 million and they made $.03 per share versus a loss last year of $.06 per share. Cash per share stayed at 1.47 and our valuation fell a tad to $7.23. We thought this report was pretty good, but the market apparently did not agree.
EXTR entered a settlement agreement with Ramius (Ramius owns 6.4% of EXTR. Declassify the Board, add a Ramius Director and the Ramius Director must be on any committee that reveiws “strategic alternatives”. Pushing to sell EXTR obviously.
Positve patent news in October. An appelate court upheld the validity of some EXTR patents that were being challenged. Got to have your IP in order before you can sell the company.
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.
Still a cheap stock.
Down 3% BUY

Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$13.50
Valuation $22.31-(was $21.77, $23.37, $27.15)
$13.87 per share in cash.
Closed up $.32 at $13.
Earnings out in October. Revenue dropped from $7.5 million to $5.2 million and they had a $1.5 million profit. Cash per share rose to $13.87. Our valuation inched up to $22.31. Trading below cash value.
Down 4%. HOLD

Ninetowns Internet Technology (NINE-Recommended 1/25/2010)
Buy Price-$1.53
Valuation-$3.54 (Was $3.54, $3.19)
$2.88 per share in cash
Closed up $.02 at $1.37.
Earning out in October. Sales were $5.67 million for the first 6 months of 2010 and they lost $1 million. Cash rose to $2.88 per share and our valuation stayed at $3.54. Only doing about $10 million a year in sales, but still trading way below (50%) cash value.
Down 11%. BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price-$1.68
Valuation $5.73-(Was $4.38, $4.44, $5.15)
Closed down $.10 at $1.76.
Earnings out in November. Not bad. Cash rose to $2.33 per share and they made $.08 per share. Our valuation jumped to $5.73. Not bad at all. New game coming out in Korea this quarter (War of Gods), although Ragnarok 2 is delayed unti Q2 2011.
Up 5%. 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 unchanged at $1.34.
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 $6 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 6% 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 –$10.00
Closed down $.07 at $5.01.
13D filed in November. Paragon Assoc. disclosed a 2 million share (6%) ownership purchased at $5.16 per share. Maybe we have a catalyst finally to push management to do something.
Earnings out in October. Sales up a measely 3% to $29.6 million. They had a huge $12.7 million loss for the quarter. $6.5 million of this loss was for “indemnification” of ex-officers related to the FDA/ICE raids, $6.1 million of income tax expense as they adjusted their tax valuation reserves, $.9 million for an “asset impairment” charge and $.7 million for severance for a sales force realignment. So they really made $1.6 million excluding all these items. BS for sure. They are now in the habit of having these “unusual” charges every quarter it seems.
Good news in October. The Board Chairman and CEO announced his retirement at the end of October. This is the “steward” that oversaw the “palace coup” attempt, inventory snafu’s, recalls, lack of earnings and the huge FDA/ICE raid and taken huge option grants along the way. Poor judge of CEO character and strategy that has resulted in SPNC trading at less than 1/2 its value–for years. He will stay on the Board–hopefully for only a little while.
The company has $30 million in cash ($.93 per share), no debt and is growing about 5% a year. Teetering on a SELL here. Management just is terrible.
Down 12%. 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 $7.10 (was $7.20, $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 unchanged $3.24
Earnings out in November. Sales down 6% to $4.3 million and they made $.07 per share. They have $1.16 per share in cash. Our valuation fell $.10 to $7.20.
A new Director purchased 100,000 shares at $2.75. Meanwhile KVO Capital Management sold 100,000 at $2.75 dropping KVO’s ownership below 5% to 3.55%. Don’t know what all this means so we will continue to hold for now.
Still trading at only 32% of our valuation.
Up 35%. 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 $14.23 (was $15.02, $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 $.45 at $10.60
Earnings in November. Good again. Sales up 12.5% to $12.5 million and they made $.13 per share versus $.08 last year. Our valuation fell to $14.23 as sales dropped a bit from last quarter.
Constellation 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 67%. 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 $14.23 (was $12.40, $12.55, $10.85, $8.25, $9.45, $28.05, $32.10, $34.20, $37.90, $37.95)
Closed up $1.77 at $6.81.
VTRO has more than doubled since early October. we love it, are wondering whether it is time to cash out with a “respectible” loss. Volume was huge on Friday. 2 milion shares-almost 30% of the total stock outstanding. With this volume, we will hold for a bit more.
Earnings in November. They were good. Sales up 34% to $9.3 million and they made $.05 per share. Cash was $.99 per share and our valuation rose to $14.76.
13G filed on September 24th. Red Oak Partners now owns 5.2% of VTRO. Always nice to see someone else taking a good sized position in one of our stocks.
1 for 5 reverse split effected in August, so all numbers have been adjusted for this.
Down 17%. 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 $3.10 (was $2.95, $3.22, $3.34, $4.17, $4.73, $4.75, $4.12, $4.99, $4.30, $4.09)
Closed up $.09 at $1.24
Earnings out in November. Sales were down again to $38.1 million (down 11% from last year), and they lost $.03 a share. Cash was $.59 per share up from $.52. Our valuation rose to $3.10. They also declared a $.07 dividend. Still, IPAS has plenty of cash, and is trading at only 40% of our valuation.
Foxhill ownership is 6.9% and Millenium owns 10.4%.
Down 10%. 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) (5% dividend yield)
Valuation $12.87 (Was $17.45 $15.95, $13.80, $18.89, $17.09, $17.05, $14.51, $17.23, $18.36)
Closed up $.30 at $5.30.
Dividend yield is now 5.3% and they have $2.50 a share in cash.
Earnings out in October. Sales fell 18% to $12,596,000 and they lost $598,000.
Our valuation plunged to $12.87 as sales and gross margins fell and they lost money. Cash is $2.50 a share–47% of the market price.
They also declared a $.07 dividend. With the fat cash cushion, the dividend and the fact that it is still trading at less than 50% of our valuation, we are content to hold onto CAW for a while more.
Down 9%. HOLD

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.06 (was $12.15, $11.29, $11.73, $11.47, $11.16, $9.53, $13.30, $13.03)
Closed up $.13 at $4.35
ANGN announced they had completed their share repurchase program retiring 466,000 shares. They only have 3.7 million shares outstanding. If they can ever get earnings going, the EPS leverage is huge.
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 14% 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 $5.60 (was $5.73, $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 up $.05 at $.50.
Earnings in October. Sales up 2% to $5.4 million, but operating income–was a loss of $753,000 which included a $437,000 “restructuring” charge. Our valuation dropped to $5.60. Wake up management–you have a great little company here worth 5-6X what it is selling for.
Now down 69%. 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 $1.90 (was $2.26 $3.07, $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 $.75, down $.03.
Earnings out in November. Finally some numbers reflecting the merger. Sales were up 23% to $16.8 million. They lost $2.2 million, but this included $1.7 million of one-time merger related costs. So the “normalized” loss was $.5 million. Not impressive, but we will have to watch this one over the next couple of quarters to see if they can get costs under control and make some money. Our new valuation came out to $1.90, just shy of what we expected. Trading at 39% of our valuation.
Down 9%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $.71 (Was $.83, $.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 $.07.
Earnings out in November. Sales were down only 6% from $3.6 million last year to $3.3 million, and they lost about $700,000. Their VOIP business continues to drain the company. Sales were a whopping $170,000 and it lost $600,000 excluding depreciation. Our valuation fell a bit to $.71.
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-$2.42 (Was $2,49, $2.15, $1.91, $2.00, $1.84, $1.56, $1.99, $2.22, $1.61, $1.06, $2.28, $2.08)
Closed at $1.20, up $.03
Frustrating stock action in Lotus for sure. Great earnings, great prospects, soon to be listed on a national exchange and down we go. From a peak of $1.49 recently Lotus has shed 20%–for no particular reason. We are guessing that short-term traders we expecting a big pop on earnings that didn’t happen and are still dumping their shares. We see nothing but good times ahead for Lotus.
Earnings out in November. Sales up 28% and they made $6.7 million or $.12 per share. 9 month earnings are now $18 million or $.33 per share.
We are trading at about 3 times earnings and the company is growing-not contracting. China stocks are out of favor for sure.
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 and another 13,000 in October. 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 37%. BUY

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