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, November 10, 2012

Cheap Stocks, 11/9/2012 Update

We were down .8% last week and are now up 25% for the year. This was way better than the market last week

Some of our stocks are just stupid cheap—compared to their net cash on hand per share divided by their stock price.
Check this list:
EXTR 61%
GRVY 135%
CCUR 66%
SIGM 58%
ASTX 60%
CTIG 45%
MRVC 68%
ANGN 36%
AVNW 48%

The DOW was down 2.1% last week, NASDAQ was down 2.6% and the Russell 3000 was down 2.4%.

CBEY, MRVC and INUV earnings last week.

AVNW, BLIN, GRVY, EXTR, CBEY, and MOTR are our favorites.

For the year, the DOW is up 4.9%, NASDAQ is up 11.5%, and the Russell 3000 is up 9.8%

Last week we went 5 stocks up, 11 down and 1 even. Since inception we are now 58 stocks up and 18 down for a 76.3% 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% (fourth trip on this)
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%
2011-IPAS +15%
2011-PRM +56% Buyout (1 week after we recommended it)
2011-RST +12%
2011-NINE -10%
2012-BVSN +30%
2012-TISA +137%
2012-PTIX -44%
2012-MTSL +157%
2012-LTUS -98%
2012-AEZS -63%
2012-RIMG -46% (including dividends)
2012-HPOL +34%
2012-MEDW +133% (Buyout 1 week AFTER we sold this)
2012-SPNC +118%
2012-RWWI +1%

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 59 stocks that we closed out since 2006 (50 were winners) the average net gain was 35%.

Motricity Inc. (NASDAQ-MOTR)-Recommended 11/2/2012)
Buy Price $.62
Valuation $3.40
Closed up $.06 at $.68
UP 8%, BUY

Bridgeline Digital Inc. (NASDAQ-BLIN)-Recommended 8/24/2012)
Buy Price $1.24
Valuation $2.24
Closed up $.12 at $1.70
Up 37%, BUY

Telecommunications Systems Inc. (NASDAQ-TSYS)-Recommended 6/14/2012)
Buy Price- $1.37
Valuation $6.72 (Was $5.49)
Closed down $.01 at $2.29
TSYS announced it was one of 20 companies selected to participate in a 5 year, $10 billion contract with the U.S. government in November.
Earnings announced in October. They were very good. Revenue was up a massive 24% to $140 million and they made $.07 per share. Our valuation rose to $6.72 per share.
Carlo Cannell, an activist investor filled a 13D in September pointing out how undervalued TSYS is and urged them to put themselves on the block. He points to a valuation done on the company as of August 29th of $7.40 to $11.81 a share. Even the low point here is higher than our valuation.
TSYS announced in September it was selected as part of a group of 8 companies to participate in a $2.6 million government contract.
Up 67%, HOLD

Aviat Networks Inc. (NASDAQ-AVNW)-Recommended 2/27/2012)
Buy Price- $2.62
Valuation $9.03 (Was $9.37, $8.85, $8.31)
Closed down $.10 at $2.55
Earnings announced in November. Not bad. Sales were up 3% to $115 million and the made $.05 per share (non-GAAP). Cash per share fell to $1.24 due to the timing of collecting some large receivables (collected in October). Our valuation fell a bit to $9.03 per share.
Next quarter they are projecting $115-$120 million in sales and that they will again be profitable on a non-GAAP basis and that cash will return to normal levels (about $96 million or so).
Down 3%, BUY

CBeyond Inc. (NASDAQ-CBEY)-Recommended 2/28/2012)
Buy Price $7.17 ( Was $7.94 before another $10,000 added at $6.53)
NEW Valuation $29.04 (Was $29.59, $29.58, $29.21)
Closed down $.45 at $7.21
Earnings announced last week. Not bad. Sales were off $1 million to $121 million and they made $.06 a share compared to a $.04 loss last year. They raised their 2012 guidance a bit and gave 2013 guidance that was tepid at best.
“Management expects revenue to be close to 2012 levels with increasing growth in the latter part of the year. Adjusted EBITDA is expected to decline in 2013 due to increased levels of SG&A expense primarily associated with the growing sales force needed to support future levels of revenue growth. With respect to cash capital expenditures, management expects a slightly higher level relative to 2012. As a result, management expects a reduced level of free cash flow when compared with 2012. However, management expects to continue its focus on delivering significant levels of positive free cash flow in 2013 and future years.”
$90 million of EBITDA, no net debt and a $250 market cap. Cheap.
Our valuation fell a tad to $29.04, still way more than the stock is selling for today.
Up 1%, BUY

MRV Communications (Pink Sheets-MRVC.pk)
NEW Valuation $1.59 (Was $1.73, $1.43, $2.06, $2.16 (after $.475 and $.30 special dividends), $2.62, $2.79)
Buy Price October 7, 2011- $.50 ($1.27 before special dividends)
Closed at $.58 down $.03
Earnings announced last week. Not bad. Revenues fell a bit to $51 million but it appears that the revenue shortfall was in the divisions that were sold in October. Hard to tell from their press release or 10Q what the real results were excluding the sold divisions so we are still estimating our valuation which dropped to $1.59 per share. Looks like they broke even for the quarter after excluding an asset impairment write-off.
MRV closed the sale or their two remaining for-sale subsidiaries in October. Proceeds look to be about $25 million. We estimate MRV will have about $.44 a share of net cash after these sales. This is about 80% of their market cap and brings our estimated valuation to $1.55 a share.
MRVC bought back 5.8 million shares from T-2 at $.48 a share in August.
Still trading at less than ½ our valuation.
Raging Capital owns over 27 million shares or about 18% of MRV.
Up 6% BUY

Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Buy Price-$8.49
Valuation $13.05 (Was $10.67, $8.41 $12.10, $13.40, $16.02)
Closed down $.21 at $5.58
SIGM announced a big restructuring plan in November. The goal is to cut expenses by $45 million for their FY 2014 which starts in 4 months (1/29/2013). Headcount and expense cuts are the bulk of the savings. They say this will get them to Non-GAAP profitability at a $56 million a quarter run rate. They will take a $1 million charge in Q3. The also said “Sigma is also investigating strategic alternatives for several research and development programs”. Not sure exactly what this means but it sounds like it will be a positive.
Earnings announced in September. Revenues spiked up to $68.3 million including $26.6 million from their latest acquisition of Trident. They lost $13.3 million on a GAAP basis and $4.1 million on a Non-GAAP basis. Cash was $106 million or $3.22 a share after putting out $42 million for the Earnings announced in May. Overall our valuation increased another 25% to $13.05. They are projecting sales for next quarter (Q3) to be between $60-$65 million with 50% GAAP margins.
So we are trading at a market cap of about $120 million (excluding cash) for a $$200+ million a year chip company with 50% margins. Still pretty stupid we think. We plan to hold on for another couple of quarters to see if they can turn this around.
Down 34%, 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 $13.92 (Was $13.92, $12.81, $15.28, $14.04, $10.39)
Closed down $.10 at $2.52
Latest earnings announced in August. Our valuation fell to $10.95 which is still more than triple the current price.
Down 17%, HOLD

Lexmark International (NYSE-LXK)-Recommended 5/24/2011)
Buy Price-$28.80
Valuation $60.41 (Was $70.28, $62.59, $63.94, $63.84, $79.12, $63.99)
Closed up $.32 at $21.72
We have also collected $1.10 a share in dividends here.
LXK now pays a $1.20 annual dividend.
Earning announced in October. Revenues were down about 10% to $921 million (non-GAAP) and they earned $65 million versus $74 million last year (again, non-GAAP). Earnings were apparently better than analyst expectations. Our valuation fell to $60.41 still almost triple the current trading price. Net cash fell to $3.16 per share as they paid their $.30 dividend and bought back 5.8 million shares for $120 million.
LXK announced in September that it was getting out of the inkjet printer business and cutting 1,700 employees. There was also speculation that they would get bought out.
They reiterated their intent to return over 50% of their free cash flow to shareholders in dividends and share repurchases
Down 25%, HOLD

Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$5.08
Valuation $15.37 (was $13.53, $15.85, $14.13, $11.38, $14.04, $18.54, $15.99)
Closed down $.31 at $4.97
Pays $.24 annual dividend.
We have collected $.12 in dividends so far.
Earnings announced in November. Revenues were up 16% from $12.9 million to $15 million and they made a profit of $.325 million versus a loss of $2.6 million last year. Net cash per share was $3.29 and our valuation jumped to $15.37 a share.
Singer/Miller bought another 33,000 shares in early July at $3.88. They now own 12.1% of CCUR.
Down 2%, 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 $3.20 (was $3.16, $3.44, $3.42, $3.22, $3.11, $5.21, $4.89, $4.37, $3.48)
Closed up $.02 at $2.31
Earnings announced in October. Revenues were $17.2 million compared to $16.9 million last year. They lost $1.8 million after some special charges. Cash was $130 million or $1.40 per share. Based on the current quarter, our valuation rose slightly to $3.20 per share. Based on their 12 month guidance our valuation looks like $3.64 with a $4 million profit. They are projecting $60 million in product revenue next year and they do not project milestone/development revenues. They are projecting a cash loss of maybe $18 million next year—again without any milestone or development revenue.
So we have a company losing maybe $5 million in cash a year, or 25 years of cash, about $80 million in revenues and a huge drug pipeline. Any good news on the clinical trials front ought to set this stock on fire.
It is not easy to find a small drug company with substantial revenues, 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.
Up 1%, HOLD

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.18 (Was $3.04 before adding another $10,000)
Valuation-$6.97 (was $7.46, $6.31, $7.01, $6.72, $6.45, $5.67, $7.36, $7.23, $7.31, $6.82, $6.81)
Closed at $3.49 down $.05
Earnings announced in October. Revenues were $76.1 million down 13% from last year. They made $.04 per share on a non-GAAP basis. Cash rose to $202 million or $2.12 per share. So we are getting a $300 million in sales company that is profitable for about $1.10 per share. Crazy. Our valuation fell from last quarter to $6.97-still more than double the current price.
They are projecting next quarter at sales of $78-$85 million and EPS of $.04 to $.07 (non-GAAP).
Starboard owns 9.7%, Soros 8.8% and Blackrock owns 5.5% of EXTR.
Up 10%, BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price- $1.45 per ADS (Was $1.68 before double up)
Valuation $3.41-(Was $5.52, $5.00, $5.39, $5.33, $5.61, $5.73, $4.38, $4.44, $5.15)
Closed down $.02 at $1.30
Earnings announced in August. Revenues fell 14% to $12.5 million and they incurred a loss of $1 million versus a small profit last year. The Company said that the results from Ragnarok 2 in Korea were below their expectations. Net cash per share was $1.76 and our valuation fell to $3.41 as margins and earnings fell. Lots of news and game release information in their press release, so rather than repeating it all here, please read the PR. It looks like there are lots of good things ahead.
Now trading at below cash value again.
Down 11%, BUY

Inuvo (INUV (was-VTRO, 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),
NEW Valuation $3.82 (was $3.11, $1.84, $8.04, $10.91, $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 at $1.04 down $.07
Earning reported last week. Revenues rose 89% to $15.5 million and they lost $1.3 million ($.06 per share). Adjusted EBITDA was $1 million compared to $.1 million last year. Not a great showing. Our valuation rose to $3.82 a share but we are not that impressed. We will hold this a while longer.
Down 80%  HOLD

Medical Graphics Corporation (Was ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $12.99 (was $11.95, $13.36 $15.90, $13.13, $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 $.06 at $6.76
Earnings announced in August. Revenues were up from $6.4 million to $6.8 million. However they lost $.28 million versus a profit of $.14 million last year. Cash (adding the $1 million they just received from the sale of their New Leaf business) is $2.52 a share and our valuation rose to $12.99.
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.
While ANGN is still trading at about ½ our valuation, we are switching to a HOLD until we gets some results or news that improves the prospects here.
Up 77%, HOLD

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 $6.21 (was $6.13, $5.82, $5.81, $5.72, $5.65, $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 $1.12 down $.03
Earnings announced in October. Revenues were up 8% to $5.841 million and they made $354,000 pre-tax compared to $182,000 last year. Our valuation rose to $6.21 per share-the highest ever.
Douglas Singer a private investor filed a Form 13D/A in October disclosing he sold about 90,000 shares at prices of $1.00 to $1.16 from 9/6/2012 to October 12, 2012. He still owns 510,000 shares or 6.3%.
ARI announced an acquisition in August. They acquired the assets of Ready2Ride Inc., of Floyds Knobs, Ind., the first-to-market and leading provider of enhanced aftermarket fitment data for the power sports industry. Terms of the transaction were not disclosed.
Now down 31%, BUY, Still a Huge valuation gap here.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.34 (Was $1.34, $1.37, $1.36, $1.23, $.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 $.24 closed at $.21
CTI announced that it had partnered with BroadSoft (NASDQ-BSFT) to sell CTI’s Call Center Express solution. Very reputable company to partner with.
John Birbeck the CEO bought 85,000 shares on 9/12/2012 at $.185. He now owns over 600,000 shares.
Earnings announced in August. Another good quarter and no one cares. Revenues were up 11% to $4.5 million and they made $.3 million or $.01 per share. Cash per share was $.11 and our valuation stayed at $1.34.
CTIG announced a product deal with Mitel in June. Any PR is good news here.
Four profitable quarters in a row.
At a $7 million market cap, this is stupidly cheap. Their intellectual property is probably worth 3 times this price. They need to liquefy this value somehow.
Still an "undercover" company and stock.
Down 11%. BUY

1 Comments:

Blogger Bill Morris said...

Wow, a 35pc gain overall, that is an amazing performance!
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12:28 PM  

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