Cheap Stocks, 1/7/2011 Update

The first week of 2011 was a good week. All the averages were up, as were we.

Last week we were up 1.1%.

EXTR, AVSO, ANGN, NINE, and LTUS.ob are our favorites.

The DOW was up .8% last week, NASDAQ was up 1.9% and the S+P 500 was up 1.1%. The Russell 3000 and the Wilshire 5000 were both up 1%.

Last week we went 9 stocks up, 5 down and 3 even. Since inception we are now 48 stocks up and 12 down for a 80% 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%
2010-HPOL +27%
2010-CAW EVEN (excluding 2.5 years of dividends)

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 43 stocks that we closed out since 2006 the average net gain was 32%. 4 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 $.09 at $2.71
Up 30%-HOLD

Performance Technolgy (PTIX-Recommended 3/30/2010)
Buy Price-$2.70
Valuation $3.87-(was $5.03, $5.98, $7.13)
Closed up $.06 at $1.70
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 37% 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 $.15 at $3.24
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.
Still a cheap stock.
Up 7% HOLD

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 down $.50 at $12.00.
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 11%. 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 $.05 at $1.51.
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 1%. BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price-$1.68
Valuation $5.73-(Was $4.38, $4.44, $5.15)
Closed up $.05 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 6%. 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 $.01 at $1.71.
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 latest 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.
Up 20% 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 $.16 at $5.00.
Another quarterly “extraordinary” P+L hit coming in Q4, this time $1 million for their retiring CEO. Unbelievable.
13D filed in November 2010. 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 is just 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 down $.21 at $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 up $.28 at $11.11
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 77%. 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 $.49 at $5.42.
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 34%. HOLD

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.35 (adjusted for $.32, $.16 and $.07 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 $.16 at $1.41
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%.
Up 3%. HOLD

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $15.00 (was $13.06, $12.15, $11.29, $11.73, $11.47, $11.16, $9.53, $13.30, $13.03)
Closed unchanged at $5.20
Earnings in December. Sales up 28% and they made $.10 a share. Our valuation rose to $15.00–our highest valuation ever. $2.48 per share in cash also.
Zacks upped their price target on ANGN last week to $7.
Up 36% BUY

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 $4.86 (was $5.60, $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 unchanged at $.55.
Earnings in December. Sales down 2% to $5.3 million, operating income was $445,000 and they made $.01 per share. Our valuation dropped to $4.86 on lower than expected margins.
Wake up management–you have a great little company here worth 10X what it is selling for.
Now down 66%. BUY. Still a Huge valuation gap here.

Rand Worldwide (RWWI.ob (Was Avatech, 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 $.70, up $.10.
RWWI announced a $5.6 million deal last week. Maybe new management will get the word out on Rand and at least get us over $1.
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 12%. 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 $.105, closed at $.09.
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 $3 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 61%. HOLD

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $1.68 (Was $1.80 before $10,000 adder, $2.16 before double-up)
Valuation-$4.84 (Was $4.98, $4.60, $3.82, $4.00, $3.68, $3.12, $3.98, $4.44, $3.22, $2.12, $4.56, $4.16)
Closed at $2.45, down $.14
The stock split 2 for 1 in December and the trading symbol changed to LTUSD.ob for 20 days, then it will revert back to LTUS.ob. All of our numbers have been adjusted to reflect this split.
They seem to be serious about getting off the bulletin board, as this is just another step in that direction.
LTUS canned 4 directors in December and replaced them with 4 new ones. With their previous announcement that they are abandoning their Inner Mongolia foray and are looking to sell the land rights, looks like they are cleaning house for a listing on NASDAQ or the AMEX and a much higher valuation-hopefully. They have $40 million invested in the Mongolian land. If they can just break even, they will solve their perceived liquidity problem and they have 2/3’s of their market cap in cash.
Earnings out in November. Sales up 28% and they made $6.7 million or $.24 per share. 9 month earnings are now $18 million or $.66 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 $.80 of earnings. We expect they will beat these numbers. We bought 50,000 more shares in August personally, another 13,000 in October and another 5,000 in December. Their new Bejing buiding is about 65% complete, and they extended their operating contract for another 20 years.
Up 36%. BUY


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