Well the third quarter ended with a thud.
Good week for us, up .9%, but a bad week for NASDAQ, which was down 2.7%.
Note that Interactive Brokers imposed new margin requirements that recently went into effect. This forced selling could continue to hit Monday morning, but we don’t think any impact will last. They raised their margin requirements to 100% on stocks trading with a market cap under $250 million. This has had some extra impact on small cap stocks on top of the lousy market. They also did this to Chinese stocks (including our LTUS) in April of this year.
Some of our stocks are just stupid cheap—compared to their cash on hand. Check the list in our posting of 9/2/2011.
We were up .9% last week and are now down 6.5% for the year.
The DOW was up 1.3% last week, NASDAQ was down 2.7% and the S+P 500 was down .4%. The Russell 3000 was down 2.2%.
AVSO, BVSN, CCUR, EXTR, RIMG, MTSL and MITL are our favorites.
For the year, the DOW is down 5.7%, NASDAQ is down 9%, S+P 500 is down 10%, the Russell 3000 is down a whopping 12.5%
Last week we went 10 stocks up, 8 down and 2 unchanged. Since inception we are now 48 stocks up and 23 down for a 70% winning percentage (80% is our target win %).
Since our beginning, we have closed out the following positions:
2006-ONXS +11% (Buyout offer)
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-DTLK +25% (2 weeks)
2007-PDLI + 3%
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-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)
2009-HSTM +67% (continued good earnings)
2009-CLZR -32% (a loser even on a buy-out)
2009-DTLK +28% (our 5th profitable trip on this one)
2010-CHRD +37% Buyout (2 weeks after we recommended it)
2010-CAW EVEN (excluding 2.5 years of dividends)
2011-PRM +56% Buyout (1 week after we recommended it)
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 48 stocks that we closed out since 2006 (43 were winners) the average net gain was 37%.
Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Valuation $13.40 (Was $16.02)
Closed down $.15 at $7.84
Earnings out in August. Sales were down 23% to just under $47 million and they lost $22 million. Yuck. But it is not as bad as it seems. Cash and investments actually went up to $5.40 a share ($170 million) and if you exclude the GAAP non-cash BS and the inventory write down, the loss was “only” about $6 million. So we are trading at a market cap of about $65 million (excluding cash) for a $200 million a year chip company with 50% margins. Still pretty stupid we think. However, our valuation dived to $13.40, so we need to keep our eye on this one.
Down 8%, HOLD
Mitel Networks (NASDAQ-MITL)-Recommended 7/6/2011)
Buy Price- $3.04( Was $3.36 before $10,000 added, $3.95 before $10,000 added)
Valuation $14.04 (Was $10.39)
Closed down $.43 at $2.12
Earnings in August. Pretty good. Revenues were $164 million up from $160 million last year. Non-GAAP net income was $9.2 million or $.16 a share compared to $10.8 million and $.19 a share last year. They took a 44.8 million restructuring charge in the quarter, to they reported a loss of $2.8 million in the quarter.
Our valuation jumped to $14.04.
Down 30%, BUY
Rimage (NASDAQ-RIMG)-Recommended 5/24/2011)
Valuation $25.63 (Was $26.45)
Closed down $.60 at $12.65
Yield here is 3.2% and cash is 99% of its market cap.
Arcadia is pushing again. They sent a letter to Rimage on September 12th, again asking for the $9 dividend and making vague threats of doing something. Not clear what exactly. Oust the CEO, make a tender offer are among the possibilities we guess.
Earnings out in July. Sales were off about 10% to $20.2 million and earnings were off $.10 to $.12 per share. Cash continued to rise to $119 million ($12.49 per share). Our valuation slipped a bit to $25.63 on the lower sales. With the 2.6% dividend and a huge cash cushion, we still like RIMG.
Their activist shareholder Arcadia Capital Management also sent a letter to the Board in July, suggesting that RIMG should pay out a $9 per share special dividend, and not waste it on some stupid acquisition. We would take the dividend—or a buy-out.
Down 11%, HOLD
Lexmark International (NYSE-LXK)-Recommended 5/24/2011)
Valuation $79.12 (Was $63.99)
Closed down $1.00 at $27.03
The International Trade Commission ruled last week in LXK’s favor banning foreign imports from 24 companies, of LXK replacement ink cartridges that infringe their patents. LXK also said they were going to start litigation for damages against these companies. No matter, stock went down anyway.
Earnings in July. They were great. They made $1.27 per share earnings on flat sales up from $1.07 in earnings last year. They are projecting $.86-$.96 in earnings for Q3. They seem easily on track to make over $4 per share this year. Our valuation soared to $79.12 per share. PE guys should be drooling over LXK. This would normally be a “buy” with such a huge discount to our valuation, but the vagaries on the stock analysts make us cautious.
Down 6%, HOLD
MER Telemanagement (NASDAQ-MTSL)-Recommended 5/17/2011)
Buy Price-$1.42 (Was $1.50 before adding another $10,000 investment)
Valuation $5.61 (Was $5.11)
Closed up $.14 at $1.37
MER announced a contract extension in August of $2.5 million (minimum). This is almost 50% of MER’s entire market cap.
Earnings in August. Not bad. Sales were just over $3 million and they made over $200,000 or $.05 a share. For the six months they have made $.08 a share (untaxed of course). So MTSL is trading at about 8X untaxed annualized earnings. Oh yeah, they have $.63 a share in cash also (up from $.60 last quarter). Our valuation jumped to $5.61 per share.
Down 4% BUY
Harris Interactive (NASDAQ-HPOL)-Recommended 3/3/2010)
NEW Valuation $3.31 (Was $2.63, $2.97)
Earnings last week. Interesting. Sales were actually up over last year by 4% to $45.2 million, margins dropped a bit to 34% and excluding a $4.2 million restructuring charge, they only lost $859,000. Net cash was a positive $.06 a share—the highest since 2008. Our valuation moved up to $3.31 a share but this increase is mostly due to the fact that the June quarter is a seasonally high quarter. Still it is higher than last years $3.15 valuation. No one was impressed as the stock fell.
Closed at $.62, down $.05
Our valuation fell to $2.63 per share, still 4X the current price.
Down 33%, HOLD
Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Valuation $14.04 (was $18.54, $15.99)
Closed up $.19 at $5.59
Earnings out in August. Sales were down to $15.1 million from $17.3 million and they lost $1.353 million or $.16 a share. Cash per share rose to $3.95 from $3.41. Not a great quarter, but not horrible with the cash rise. Our valuation fell to $14.04-still more than double the current price, and with a huge cash cushion.
In April the company announced that it would not do the stock buy back that Skellig was suggesting. We don’t like buy backs anyway. Hopefully Skellig will keep pushing management to get the share price up. Their ownership is up to 5.86%.
Up 10%, BUY
Astex Pharmaceuticals Inc. (Was SuperGen Inc.) (NASDAQ-ASTX)-Recommended 10/4/2010)
Buy Price-$2.31 (was $2.09 before adding $10,000)
Valuation $3.11 (was $5.21, $4.89, $4.37, $3.48)
Closed up $.03 at $1.92
Earnings out in July. Despite that the quarter results did not include the results of Astex, they provided good guidance of what the second half’s combined results will be. For the latest quarter, revenue rose to $11.7 million from $9.9 million last year and they made $.01 a share versus $.02 last year. This quarter’s results included $1.3 million of expenses related to the merger. So all in all, it was a good quarter. However, our valuation based on this quarter fell to $3.11 as revenues declined from the prior quarters $17 million.
As we suspected, the merger with the revenue poor Astex will hurt our valuation which does not take into account the massive drug pipeline of Astex. It is not easy to find a small drug company that has a pile of cash, is not losing a ton of money and is trading at even close to our valuation.
There are $2 BILLION of potential milestone payments down the road.
Down 17%, HOLD
Performance Technology (PTIX-Recommended 3/30/2010)
Valuation $4.87-(was $4.99, $3.79, $3.87, $5.03, $5.98, $7.13)
Closed up $.19 at $1.94
Earnings out in August. Sales up 15% to $8.5 million and they made $300,000 on a non-GAAP basis. Not bad at all. Cash is $1.23 a share and our valuation fell a tad to $4.87
We think we will hold on to this one a bit longer and see if they can get to a consistent profit.
Down 28%, HOLD
Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.18 (Was $3.04 before adding another $10,000)
Valuation-$6.45 (was $5.67, $7.36, $7.23, $7.31, $6.82, $6.81)
Closed up $.01 at $2.65
Earnings out in August. Sales rose about 5% from last year to $89 million and they lost $2 million or $.02 a share after about $4 million of non-cash charges. Cash stayed at about $147 million or $1.59 per share. Our valuation moved back up to $6.45 a share.
Big news in July. EXTR announced they are laying off 16% of their employees and expect $20 million of cost reductions in FY 2012 and allow the company to make consistent double digit operating income. We view this all as good news for the future. Starboard was cleared to buy up to 15% of EXTR as disclosed in an SEC filing in June.
Starboard Value Fund filed another 13D/A in June disclosing that they had upped their stake again to 9.6%.
Down 17%, BUY
Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$10.84 (Was $13.50 before double up )
Valuation $18.01-(was $21.21, $22.95, $22.31, $21.77, $23.37, $27.15)
$13.14 per share in cash.
Closed down $.34 at $8.71
Now trading $4.36 below cash value. Nuts.
Marlin Capital Investment bought 248,000 shares on September 16th as reported in their Form 13g in September. Finally somebody has noticed how cheap this is!
Earnings in July. Not so hot. Sales were down to $4 million (from $5.1 million last quarter), and they lost $1.5 million. Cash per share fell to $13.14. Clearly their social networking initiative has not taken hold yet. This is still trading like a Chinese stock, but it is a U.S. company and it trading at less than cash value. Our valuation however fell to $18.01. Without the fact that BVSN is trading at less than cash, we would likely sell BVSN but will hold on another quarter or two and see if they can produce some decent results.
Down 20%, BUY
Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price- $1.45 (Was $1.68 before double up)
Valuation $5.33-(Was $5.61, $5.73, $4.38, $4.44, $5.15)
Closed unchanged at $1.28
Now trading at $.82 less than cash value. And they are profitable.
June quarterly earnings out in August. Revenues were just under $14 million and they made $.06 a share. Only fly in the ointment was that Ragnarok 2 is delayed until at least Q1 2012. Cash per share rose to $2.10.
Our valuation fell a bit to $5.33 on some margin compression, but at less than cash value and 24% of our valuation this is one good lottery ticket if they ever release Ragnarok 2.
Down 24%, 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)
Closed down $.13 at $1.52
AEZS announced positive Phase 2 results for AEZS 108 in September.
Earnings announced in August. Revenues were up about $900,000 to $6.5 million and their operating loss was about $8 million (compared to $15 million loss last year). AEZS has been diligently selling shares under their announced programs and have about $53 million in cash (but close to 100 million shares outstanding). This is pretty normal for a developing drug company.
Speculative for sure.
Up 7%, 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),
Closed up $.25 at $7.14
Earnings out in July. Sales rose 7% to $32.2 million and they actually managed a $.02 profit. Cash rose to $35.7 million.
SPNC announced recently that they finally hired a new CEO. He comes from DaVita, but we were not all that impressed with his resume. I hope he is planning on making a big killing on his stock options at SPNC and not just continuing to screw up like the other current and previous management.
Paragon filed a 13D/A in May disclosing they had upped their stake to 7%.
Up 26%, 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 $18.34 (was $16.07, $15.04, $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 $.36 at $11.44
Earnings out in September. Revenues up 20% and EPS more than doubled to $.25 a share. Cash remained at $3.66 a share and our valuation jumped to $18.34.
Constellation resumed selling in early September.
We give up on the sale of the company anytime soon.
Constellation Software owns 21.8%, but put itself up for sale this year. Should have bought Constellation stock, it has tripled since they got into MEDW!
All we read is that medical records will be a hot area, so MEDW looks like the place to be.
Up 81%, 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 $10.91 (was $12.42, $14.23, $14.76, $12.40, $12.55, $10.85, $8.25, $9.45, $28.05, $32.10, $34.20, $37.90, $37.95)
Closed down $.08 at $1.76
VTRO announced in September that their new homepage was generating 30% higher revenue per install. They needed some good news here.
Earnings announced in August. Not great. Sales were down $1 million from last year to $7.5 million and they lost $300,000 ($.05 per share).
Should have sold this when it traded over $6. Our valuation fell to $10.91 and cash per share fell to $.67.
Down 79% HOLD
Angeion Corporation (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.13 (was $13.19, $13.60, $15.00, $13.06, $12.15, $11.29, $11.73, $11.47, $11.16, $9.53, $13.30, $13.03)
Closed up $.20 at $4.55
CEO bought 10,000 shares in September at $4.25. Good sign.
Earnings in August. Another lackluster quarter. Sales fell from $7.1 million to $6.8 million and they lost $81,000 or $.02 a share. Our valuation fell slightly to $13.13 and cash was $2.39 per share. If this company could just show a bit of growth I think we would see $10 in short order—if.
Blueline Partners still owns 7.6% of ANGN and ought to be pushing on the company to do something about the stock price.
Up 19%, BUY
OB-abies (Bulletin Board Listed Stocks)
As proven by OPTIO, patience is necessary with these stocks.
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 $5.65 (was $5.39, $4,86, $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 $.98 up $.03
ARIS filed an 8k last week with presentation materials for a “potential investor”. They talk about how they think their shares are undervalued. There may be some life here.
Earnings out in June. Sales were flat at $5.354 million, operating income however jumped to $675,000 from $297,000 and they made $.07 per share (about $.04 excluding non-recurring and discontinued operations). Our valuation jumped back up to $5.65 on higher than expected margins. If they can maintain $.04 per quarter (fully taxed), we should be on our way to having a winner here.
Wake up management–you have a great little company here worth 5X what it is selling for.
Now down 39%, 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),
NEW Valuation $2.12 (was $2.60, $2.40, $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 $.79, up $.09
Earnings out last week. Not bad. Revenues were $23.3 million and they made $.01 per share. For the year they ended up with revenues of $89.2 million, 47% gross margins and they made $1.8 million or $.03 a share, after $1.9 million of one-time merger expenses. Not bad for a company with a market cap of $39 million. Our valuation dropped to $2.12 a share on the seasonal drop in revenues. Still more than 2X the current price.
Down 1%, HOLD
CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.23 (Was $.91, $1.21, $.71, $.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.
CEO bought more shares in September, about 40,000 in total.
One of CTI’s directors bought 254,000 shares in August and the CEO bought 38,000 more. Finally, some trading activity!
Earnings announced in August. Not bad at all. .Revenues increased from $3.578 million to $4 million and they only lost $.01 per share. The good news is that they got a $7 million prepayment on a big U.K. order and were able to pay off all their debt and end up with $4.65 million in net cash. This is $.16 a share—double the current trading price. VOIP revenues more than doubled to $461,000 from $197,000 last year and almost doubled from $246,000 last quarter. VOIP still lost $545,000 but the loss was $100,000 less than last year. Our valuation spiked back up to $1.23.
At a $2.5 million market cap, this is stupidly cheap. Their intellectual property is probably worth 10 times this price. They need to liquefy 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-$1.05 (Was $2.43, $4.11, $4.84, $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 $.38, unchanged.
Last earnings report in August. Sales were down $200,000 to $18.7 million and they made $.06 a share compared to $.24 last year. Our valuation plunged to $1.05 per share on margin and income declines. Gross margins fell to 26% from 48% last year. We are now worried for the first time that with the decline in net income, that they may be having liquidity issues with all of their capital commitments. If this is going to work, it won’t be until 2012 that we see anything.
Down 78%, HOLD