Cheap Stocks, 2/25/2011 Update

While the market swooned last week, we managed to keep our head above water with a .1% gain.

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

The DOW was down 2.1% last week, NASDAQ was down 1.9% and the S+P 500 was down 1.7%. The Russell 3000 and the Wilshire 5000 were both down about 1.7%.

For the year so far, we are up 9.1%. The DOW is up 4.8%, NASDAQ up 4.8%, S+P 500 is up 5%, Russell 300 up 5.1% and the Wilshire is up 4.9%.

Last week we went 5 stocks up, 9 down and 3 even. Since inception we are now 49 stocks up and 12 down for a 80.3% 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)
2011-DWCH +116

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 44 stocks that we closed out since 2006 the average net gain was 34%. 4 of our current stocks are down less than 15%.

Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$5.08
Valuation $15.99
Closed down $.04 at $5.96
Skellig Capital Management file a 13D/A last week pushing CCUR to use their excess cash to do a share buy back. They used examples in the filing of $6.60 and $6.90 a share. They also bought a few more shares of CCUR. Their ownership is up to 5.86%.
Up 17%-HOLD

SuperGen Inc. (NASDAQ-SUPG)-Recommended 10/4/2010)
Buy Price-$2.09
Valuation $4.37 (was $3.48)
Closed down $.08 at $3.00
Earnings due out on Monday, February 28th after the close.
Up 44%-HOLD

Performance Technolgy (PTIX-Recommended 3/30/2010)
Buy Price-$2.70
Valuation $3.87-(was $5.03, $5.98, $7.13)
Closed up $.13 at $2.01
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 26% HOLD–close to a sell.

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.04
Valuation-$7.36 (was $7.23, $7.31, $6.82, $6.81)
Closed down $.27 at $3.79
Earnings out in February. Sales up 7% to $85 million and they made $.10 per share ($.06 if you exclude a favorable litigation settlement) versus a loss last year of $.02 per share. Cash per share rose $.08 to 1.55 and our valuation rose to $7.36. Next quarter guidance was $82-$85 million in sales and earnings of $.05-$.08 per shares before a $.04/$.05 write off off some assets.
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.
Still a cheap stock.
Up 25% HOLD

Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$13.50
Valuation $22.95-(was $22.31, $21.77, $23.37, $27.15)
$13.87 per share in cash.
Closed up $.32 at $13.17.
Earnings out in January. Revenue was $5.1 million and they made $.01 per share. Cash per share fell a tad to $13.60. Our valuation inched up to $22.95. Trading below cash value.
Down 2%. 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 unchanged 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 up $.05 at $2.05.
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 until at least Q2 2011.
Up 22%. 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 $.11 at $1.81.
Earnings out in October. Revenues were $5.7 million and they lost about $10 million or $.12 per share. Hey, at least they have real product revenues. Cash was about $40 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 27% 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 $.04 at $4.85.
SPNC announced earnings in February. Nothing to write home about. Sales decreased 1% to $29.3 million. At least they were able to earn a profit of $.02 a share-even after their million dollar charge for EG. I think the only way we are going to make money on this one is if they are sold. Otherwise they just can’t perform and I think the stock will go nowhere.
Good news. Geisemheimer is off the Board! Now just a consultant through June.
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 (like sell this dog).
The company has $33 million in cash ($.99 per share), no debt and is growing about 5% a year. Teetering on a SELL here. Management is just terrible.
Down 15%. 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 $15.04 (was $14.23, $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 $.09 at $11.18
Earnings out in February. Good again. Sales up 22% to $13.2 million and they made $.21 per share versus $.10 last year. Our valuation rose to $15.04–the highest ever.
MEDW 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 down $.22 at $3.92.
The stock got hammered earlier in February after they announced preliminary Q4 results. Then VTRO announced a share buyback program for $1 million over the next year. We didn’t think the pre-announcement was that bad, but it disappointed investors as revenues dropped sequentially to $9.6 million from $9.8 million in Q3. Of couse the $9.6 million is still 20% more than they did in Q4 last year. They also said that EBITDA would be up sequentially from Q3. The worry here is that their new business model which seemed to be just rolling along–may have been a fluke. It seems overdone to us. But then we have been in this one a long time and seen much worse results than this.
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 52%. 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 $3.23 (was $3.10, $2.95, $3.22, $3.34, $4.17, $4.73, $4.75, $4.12, $4.99, $4.30, $4.09)
Closed down $.06 at $1.47
Earnings out in February. Nothing too noteworthy. Sales down 5% to $38.6 million, however they did turn a $753,000 profit ($.01 per share). Cash fell a bit to $.53 per share. Our valuation rose to $3.23 per share on the elimination of losses and slightly higher sales. The fly in the ointment was their guidance on next quarter. Sales of $34-$36 million (down from $40 million last year) and a loss. This will knock our valuation down to about $2.70. Still not low enough to sell, but getting there.
IPASS announced in January that the number of hotspots had grown by 70% over the last four months to 263,000 making it the largest mobile network in the world. Pretty cool.
Foxhill ownership is 6.9% and Millenium owns 10.4%.
Up 6%. 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 down $.16 at $5.33
Earnings due out March 9th after the close.
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 to $7.
Up 39% 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 at $.80 unchanged.
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 50%. 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 $2.40 (was $1.90, $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, down $.05.
Earnings out in February. Sales were $21.7 million and they made $.02 a share. Our valuation jumped back up to $2.40 a share. Trading at 31% of our valuation. Cheap.
RWWI announced a $5.6 million deal in January. Maybe new management will get the word out on Rand and at least get us over $1.
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 $.10, closed at $.08.
CTI announced in January that it paid off it’s bank debt with a replacement loan from Fairford-its largest shareholder. Hmmm, not a positive for sure. We still think this is worth a lot more in a sale than it is trading at. Have to keep an eye on this.
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 63%. 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 $1.80, down $.04
This is the Rodney Dangerfield of stocks. No respect whatsoever.
Looks like the Mongolian land story has shifted again. Now they intend to keep some of the land and build a distribution facility on it and sell the rest for $50-$80 million. No matter to us, either number is more than their entire market cap right now, and TTM earnings are $.78 per share.
LTUS announced in February that they are expanding their Beijing factory by adding 2 more floors for a total of 11 floors, and that it is still expected to be completed by the end of this June. When the building is complete, they expect to have invested a total of $48 million ($36 million already spent) and that based on current market values, the building will be worth over $100 million. This plus the Mongolian land are worth 3 times the current market cap of LTUS. Oh yeah, then there is the $.80 in annual earnings. Think this is a buy?
The stock split 2 for 1 in December. All of our numbers have been adjusted to reflect this split.
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 less than 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 and another 5,000 in January. Their new Bejing buiding is about 65% complete, and they extended their operating contract for another 20 years.
Up .1%. BUY


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