Cheap Stocks

We focus on undervalued small-cap stocks. Usually with a large cash cushion. We have developed a valuation formula that has been highly successful, especially on small tech stocks. Since 2006, we have closed out 49 stock positions with an average gain of 37%. 9 stocks have been taken over.

Saturday, July 14, 2007

7/14/07 Update--up 29.8% in 2007

Last week we went 8 up, 5 down and 1 even. Our biggest DOGS are: PARL, ARIS.ob, LINN.ob, BDR, AVSO.ob and MEDW. For the week, 2007 year-to-date, and since we started this Blog in January 2006, our model portfolio is +3.6%,+29.8% and +49.7% respectively. Since inception we are now 18 stocks up and 6 down (2 of which are down less than 5%).

We were up 3.6% this past week and are now up 29.8% so far in 2007. The DOW, NASDAQ and the S+P 500 were all up with gains ranging from 1.4% (S&P 500) to 2.2% (DOW) last week, and are all now up from 9.5% (S+P 500) to 12.1% (NASDAQ) for the year.

We are now up more than double the DOW and NASDAQ and triple the S+P 500 averages in 2007.

Since inception 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)

The model portfolio assumes $10,000 invested in each stock, less $10 commission each way (TD Ameritrade rate).

For the 10 stocks that we have closed out in 2006 and 2007 the average gain was 35%. We are tired of watching our stocks go up--and then down. So we are planning to take profits a bit sooner than in 2006. We have already closed out 6 positions in 2007 compared to 4 in all of 2006.

News on SPNC, PARL. Hopefully some news coming soon on PDLI!

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $10.65, Valuation $18-$20
Up $.22 to $12.25 last week.
SPNC got more good news last week with expanded labeling on the Turbo-Booster. Shorts continue to play here. Q2 results will hopefully be good. We think there is a lot of pent-up energy in this stock. But something has to break the short hold to make it move significantly. It could be Q2 earnings, or it could be new guidance--or it could be next year. Patience as always is needed.
Short interest is almost 4.9 million shares.
Now up 15% so far. HOLD.

QAD Inc. (QADI-Recommended 6/14/2006)
Buy price $6.93, Valuation $11.27 (was $15.92, $13.69, $13.73 and $11.86)
Closed at $8.60, down $.05.
Our valuation has fallen from $15.92 to $11.27, but if they can hit their guidance for the year, the valuation would be approximately $14.60--70% above the current price. But since they seem to have trouble hitting their numbers--we will hold for now.
No news
Up 24% so far. HOLD.

PDL BioPharma Inc. (PDLI-Recommended 5/21/2006)
Buy price $19.31, Valuation > $30
Closed at $26.22, up $2.75 last week.
It has been quiet for a couple of weeks here--until Friday. No news (yet) but the stock jumped $2.48. Q2 results are coming up also.
Activist investment firm Third Point LLC, owns 11.2 million shares or 9.7% of the company and has more than $200 million invested. They continue to exert pressure on PDL to improve shareholder value. This however, remains a very volatile stock.
If this reaches $30, without a buy-out, we would sell.
Now up 36%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.21 (averaged down from $3.66), Valuation $9.20 (was $8.32, $7.50, $7.63, $9.31)
Closed at $5.76, up $.21 for the week.
If this gets to $7 we would sell.
No news.
Now up 79%. HOLD.

Parlux Fragrances (PARL-Recommended 11/30/2006)
Buy price $6.12 (was $6.65 before double up), Valuation $8.63 (Was $13.77)
PARL closed at $4.74, up $.24 last week.
They did manage to file their 10K last week and avoid SEC and listing issues.
New management needs to get to work on this one fast.
The new management has 2.2 million reasons to make this stock go up. Glenn Nussdorf paid $6 for his shares.
Down 23%. HOLD.

Blonder Tongue Laboratories (BDR-Recommended 3/4/2007)
Buy price $1.83, Valuation $4.01 (was $5.12, $5.88).
Closed at $1.70 down $.09 for the week.
Our valuation has dropped to $4.01. BDR is still cheap in our opinion, but they need a decent quarter to get this stock moving up.
No news.
Trading at 42% of our valuation.
Down 7%. HOLD

ILOG SA (ILOG-recommended 3/26/2007)
Buy price $12.92 (was $13.60 before double-up), Valuation $20.99 (was $20.52)
Closed at $13.06 last week, up $.37.
No news.
Up 1%. BUY

Celebrate Express (BDAY-recommended 4/17/2007
Buy Price $8.82, Valuation $18.18
Up $.08 to $9.30 last week
With the insider buying in the last couple of months, we like this stock alot.
Earning due out on July 26th after the close.
Up 5%. HOLD

Mediware (MEDW-Recommended 6/4/2007
Buy Price $6.98, Valuation $13.40
Down $.18 to $6.94 last week.
Penninsula Capital owns 1.67 million shares or over 20% of MEDW. Not sure how they liguidate there stake profitably without a takeover
No news.
Down .6%. BUY

OB-abies (Bulletin Board Listed Stocks)

ARI Networks (ARIS.ob-Recommended 8/19/2006)
Buy price $1.78 (was $2.06 before double up), Valuation $5.34 (was $5.03, $5.28, $5.28, $5.21)
Closed at $1.50, down $.10 last week.
Now down 16%. BUY. Still a Huge valuation gap here.

Lion Inc. (LINN.ob-Recommended 4/15/2006)
Buy price $.23 (was $.36 before double-up on investment), Valuation $.49 (was $.57, $.62, $.66 and before that $.79)
Closed at $.20, up $.03 last week.
Lion management has announced the formation of a "Strategic Review Committee" to explore the sale of the company or parts of the company. They said that they has received "preliminary" and "conditional" indications of interest from parties interested in acquiring "portions of the company". Hopefully something will happen here.
No news.
Down 13%. Hold.

OPTIO Software Inc. (OPTO.ob-Recommended 3/22/2006)
Buy price $1.25, Valuation $2.28 (was $2.89, $2.89, $2.54 and 2.88)
Closed at $1.39, up $.04 last week.
Has cash of $.44 per share--32% of the market cap.
Optio announced some new business last week.
In late June, OPTIO announced they had hired an investment banker to help them review the "Strategic Alternatives" related to their Healthcare software division. In other words, a "for sale" sign has gone up. Having been through their SEC filings, there appears to be no disclosure on the sales or operating results for this "division", so there is no way for us to determine what this could mean from a valuation standpoint.
Still hoping we will see north of $2.00 this year--but may not happen now unless next quarter rebounds with some decent numbers, or they get a good deal on the Healthcare "division".
Up 11% so far. HOLD.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $1.19,Valuation $3.25 (was $3.29 $2.69, $3.36, $3.81)
Stock closed at $1.14, down $.04 last week.
We bought more last week at $1.15-$1.16--however, there appears to be a good supply of stock for sale at these prices. We may continue to nibble here at these prices--there seems to be a seller out there willing to part with there shares.
Trading at 35% of our valuation.
No news.
Now down 4%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.29 (Was $1.42, $1.28 $1.13, $1.05, $.82)
Ask price was unchanged last week at $.40. Closed at $.37.
This is still trading at only 31% of our latest valuation, but until the VOIP business stops losing money, we are not buyers--yet.
Up 48% based on the ASK price. HOLD.


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