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.

Friday, June 28, 2013

Cheap Stocks, 6/28/2013


Ok week for us-up .8%. We are now up 14.5% for the year.
MITL and DAEG earnings 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
60%
GRVY
156%
CCUR
31%
SIGM
51%
MRVC
55%
AVNW
53%
QADA
41%
The DOW was up .7% last week, NASDAQ was up 1.4% and the Russell 3000 was up 1.1%. For the year, the DOW is up 13.8%, NASDAQ is up 12.7% and the Russell is up 11.8%.

QADA, DXM, DAEG, BLIN, MRVC, MITL, EXTR, GRVY and CBEY are our favorites.

 Last week we went 7 stocks up 8 down and 1 unchanged. Since inception we are now 66 stocks up and 16 down for a 80.5% 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% (third trip)
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% No more Chinese stocks for us
2012-AEZS -63%  a bad speculation.
2012-RIMG -46% (including dividends)
2012-HPOL +34% (4th trip)
2012-MEDW +133% (Buyout 1 week AFTER we sold this)
2012-SPNC +118%
2012-RWWI +1%
2012-MOTR -29% (lost biggest customer contract)
2013-INUV -83% Held this since 2007. Failed business model.
2013-ASTX-+40%
2013-MGCD-+79%
2013-LXK +2%
2013-AGYS +41%
2013-DRIV+31%

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 65 stocks that we closed out since 2006 (53 were winners) the average net gain was 30%

QAD Inc. (NASDAQ-QADA)-Recommended 6/7/2013)
Buy Price $11.80
Valuation $28.27
Closed up $.05 at $11.48
Down 3% BUY

Dex Media Inc. (NASDAQ-XRSC)-Recommended 5/10/2013)
Buy Price $15.14
Valuation $24.25
Closed down $.18 at $17.57
Paulson & Co, filed a Form 13D on 5/10/2013 disclosing a 10.9% stake. They have held this stake since before the bankruptcy and merger. Then on May 14th, they filed a 13D/A disclosing another 350,000 share buy at prices up to $17.07 bringing their stake to 13%.
Up 16% BUY

XRS Inc. (NASDAQ-XRSC)-Recommended 2/26/2013)
Buy Price $1.50
Valuation $6.79 ( Was, $6.50)
Closed down $.07 at $2.55
Earnings announced in May. Pretty good. Although revenues were down to $14.5 million from $15.9 million last year, they were up from $14.2 million last year. More importantly Non-GAAP earnings were $2.2 million compared to $.2 million last year. For the six month period, Non-GAAP earnings were $4.4 million or $.16 per share. Our valuation climbed to $6.79 per share.
UP 70%, BUY

Daegis Inc. (NASDAQ-DAEG)-Recommended 11/30/2012)
Buy Price $1.20
NEW Valuation $4.86 (Was $4.86, $4.00)
Closed down $.07 at $.99
Time to double up here.
Earnings announced last week. Decent. Revenues fell to $9.77 million from $9.811 last year. Margins held at over 70% and net debt decreased to $12.22 million from $13.8 million last quarter. Non-GAAP earnings were $.04 versus a loss of $.03 last year. Our valuation fell from last quarter to $4.64. This is feeling like XRSC, it just needs the stock price to reflect it.
Looks like BlueLine Partners (a “strategic opportunities fund”) have shaken up Daegis management in January with the ouster or the CEO and CFO. The interim CEO and Chairman of the Board is a BlueLine founder. Its feeling like they are not happy with the current stock price for sure.
Down 18%, BUY

Bridgeline Digital Inc. (NASDAQ-BLIN)-Recommended 8/24/2012)
Buy Price $1.24
Valuation $2.19 (Was $2.35, $2.56, $2.24)
Closed up $.01 at $1.20
Earnings announced in May. Not great on the surface but all still looks good for BLIN going forward. Revenues fell to $6 million from $6.7 million last year and they lost $.03 a share on a Non-GAAP basis versus a $.01 profit last year. iAPPS revenue was 78% of sales up 9% from last year, recurring revenue was up 30% to $1.3 million. They also lowered their guidance for 2013 to revenue of $25-$26 million from $27 to $28 million. It looks like the reason for this is that their average deal size had doubled and it takes longer to deploy their software—which stretches out the revenue recognition period. We would recommend reading the conference call transcript where they give great detail on the business and forecast. Our valuation fell to $2.19 per share, but we still like the prospects here. It looks a bit like HSTM.
Down 3%, BUY

Telecommunications Systems Inc. (NASDAQ-TSYS)-Recommended 6/14/2012)
Buy Price- $1.37
Valuation $4.89 (Was $6.02, $6.72, $5.49)
Closed up $.13 at $2.33
Earnings announced in May. So-So. Revenues fell 5% to $95 million and they made $2.1 million of adjusted net income versus $3.2 million last year. Guidance was limited to the following quote:  “Our first quarter results were consistent with our expectations, as we worked to set the stage for another strong second half,". We’ll see. Our valuation fell substantially from $6.02 to $4.89 on lower sales and higher net debt compared to last year.
Carlo Cannell, an activist investor filled a 13D in September 2012 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.
UP 70%, HOLD

Aviat Networks Inc. (NASDAQ-AVNW)-Recommended 2/27/2012)
Buy Price- $2.62
Valuation $9.31 (Was $10.28. $9.03, $9.37, $8.85, $8.31)
Closed down $.20 at $2.62
Earnings announced in May. Decent we think, but we were the only one. Revenues were $118 million compared to $112 million last year, gross margins were 29.1% and they made $1.2 million on a Non-GAAP basis versus $2.2 million last year. The current quarter included a $1.1 million inventory write-off for a bankrupt customer. Net cash per share was $1.38.
Their book-to-bill ratio was less than 1 this past quarter leading them to give next quarter guidance of $105 to $115 million in revenues and Non-GAAP income of $0 to $.03 per share. Not setting the world on fire, but doing ok. Our valuation fell from the huge prior quarter to $9.31—a $1 a share more than when we recommended AVNW.
Penn Capital Mgmt. filed a 13G in late February disclosing a 6.05% stake.
Dimension Fund filed a Form 13G in February disclosing a 5.3% stake, Vanguard disclosed a 5.67% stake and Blue Mountain has been buying more and is now up to a 5.90% stake.
EVEN, BUY

CBeyond Inc. (NASDAQ-CBEY)-Recommended 2/28/2012)
Buy Price $7.17 ( Was $7.94 before another $10,000 added at $6.53)
Valuation $28.24 (Was $28.33, $29.04, $29.59, $29.58, $29.21)
Closed down $.16 at $7.84
Earnings announced in May. OK.  Revenue fell from $124 million to $120 million, adjusted EBITDA fell from $23 million to $21 million and they lost $600,000 compared to a $1,200,000 loss last year. Our valuation fell a few pennies to $28.24.
Guidance for 2013 was unchanged- revenues of $475-$485 million, adjusted EBITDA of $75-$82 million and free cash flow of $15-$20 million.
Penn Capital Mgmt. filed a 13G in late February disclosing a 5.55% stake.
$80 million of EBITDA, $.68 a share in net cash and a $230 market cap. Cheap.
UP 9%, BUY

MRV Communications (Pink Sheets-MRVC.pk)
Valuation $27.15 (Was $31.80, $34.60, $28.60, $41.20, $43.20 (after $9.50, $6.00 and $1.40 special dividends), $52.40, $55.80)
Buy Price October 7, 2011- $8.50 ($25.40 before special dividends)
Closed at $8.85 up $.35
Earnings announced in April. Not bad, but not great. Sales were $46 million up slightly from $44.7 last year. They lost $3.1 million pre-tax which included $1.6 million of litigation costs and $400,000 of share based compensation (vapor cost). Net cash was $4.59 per share and our valuation was $27.15.
Lloyd Miller disclosed a 6.9% stake in February.
The 20 for 1 stock split happened in December, so all the share information has been adjusted.
Raging Capital bought another 1.6 million shares in the first week of December at $10.80 bringing their holdings to 20.1% of the company.
Still trading at less than ½ our valuation.
UP 3%  BUY

Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Buy Price-$8.49
Valuation $11.86 (Was $8.24, $13.05, $10.67, $8.41 $12.10, $13.40, $16.02)
Closed up $.10 at $5.05
Earnings announced in June. At least they did what they said they would do. Revenues were $52.5 million up 31% over last year and they made a penny on a Non-GAAP basis compared to a loss of $.26 last year. Cash rose to $87 million or $2.57 a share and our valuation rose to $11.86.
Guidance from their press release:
"Moving into the second quarter of fiscal 2014, we believe revenue will be in the range of $52.0 to $54.0 million," Mr. Tran continued. "We expect to see revenue increases in most of our target markets along with a steady non-GAAP gross margin between a range of 52% and 53% driven by higher margin product mix and continued worldwide cost savings. In addition, we expect our non-GAAP operating expenses in the second quarter of fiscal 2014 to be lower compared to the first quarter of fiscal 2014," said Mr. Tran.
Raging Capital filed a 13D/A in May disclosing the purchase of another 350,000 shares at prices up to $4.68 a share, bringing their holding to 8.1% of the company.
We will be watching this one very closely and may sell at any time.
Down 41%, 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)
NEW Valuation $13.81 (Was $12.26, $13.10, $10.92, $13.92, $12.81, $15.28, $14.04, $10.39)
Closed up $.13 at $3.84
Earnings announced last week. Pretty good. Down from last year but they exceeded their guidance. Revenues were $150.9 million versus $157.6 million last year. On a Non-GAAP basis they made $.25 a share. For the year they made $.81 on a Non-GAAP basis. MITL is selling at 5X Non-GAAP earnings. Cheap. Our valuation rose to $13.81 a share.
UP 26%, BUY

Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$4.58 (Was $5.08 before $.50 special dividend)
Valuation $16.26 (was $16.20, $15.37, $13.53, $15.85, $14.13, $11.38, $14.04, $18.54, $15.99)
Closed down $.02 at $8.01 (including dividends)
Pays $.48 annual dividend.
Whoo-hoo! CCUR announced that they are doubling their current dividend to $.12 per quarter.
We have collected (or will soon collect) $.36 in dividends so far (excluding the $.50 special dividend which reduced our basis).
Earnings announced in April. Pretty good we think. Revenues were $16.9 million, up from $16.3 million last year. They had a profit of $937,000 ($.11 per share) versus $337,000 last year. Net cash was $2.52 a share and our valuation rose to $16.26 per share.
Singer/Miller duo own 12.1% of CCUR.
UP 75%, HOLD

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.18 (Was $3.04 before adding another $10,000)
Valuation-$6.58 (was $6.99, $6.97, $7.46, $6.31, $7.01, $6.72, $6.45, $5.67, $7.36, $7.23, $7.31, $6.82, $6.81)
Closed at $3.44 down $.09
Earnings announced in April. Not bad. Revenues were $68.2 million down 7% from last year. They lost $2.2 million versus a profit of $2.4 million last year. On a Non-GAAP basis they made $3.3 million versus making $3.8 million last year. Net cash was $189 million or $2.03 per share.
Guidance for next quarter is revenue of $73-$77 million of revenue and Non-GAAP net income of $4-$7 million. Our valuation fell to $6.58 per share, double the current price.
Vanguard filed a Form 13G in March disclosing a 5.21% stake, Wellington disclosed a 6.3% stake and Soros upped his holdings to 9.85%..
Starboard owns 8.8% and Blackrock owns 5.4% of EXTR.
UP 8%, BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price- $1.45 per ADS (Was $1.68 before double up)
Valuation $4.14-(Was $3.65, $3.41, $5.52, $5.00, $5.39, $5.33, $5.61, $5.73, $4.38, $4.44, $5.15)
Closed at $1.17 down $.01
Gravity reported their Q1 results on May. Revenues were down YOY by 28% to $10.8 million and they lost $1.5 million or $.21 per share. By far the worst results since we have owned GRVY. Cash per share fell to $1.69 ($47 million). Not much good news to report although it looks like Rangarok Online is doing OK in Korea and they re-launched it in China in February.
Still trading below cash value, but operations are not looking robust at all. We may have to dump this one, but will hold on for a bit longer to see if they can turn things around. It would be a shame to have to sell this below their cash value.
Down 20%, 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 $6.41 (was $6.14, $5.97, $6.21, $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 $2.82 up $.13.
Wynnefield partners bought another 33,000 shares at $2.69 past week raising their stake to around 10%.
Earnings announced in June. Looking good. Revenues were up 44% to $8.2 million, gross margins remained steady at 77% and although they reported a pre-tax loss of $1.3 million, after you back out the loss on the debt repayment and an asset write-off , they only lost $200k. How much of this was integration costs are not known. They are projecting a return to profitability next quarter and increasing profitability as the integration activity goes on over the next year. Recurring revenue was 93% of total revenue.
If ARI can grow continue to grow their revenue and profits over the next couple of quarters, we think the stock price could approach our valuation. 
Wynnefield Partners filed a 13D/A in April disclosing purchasing another 50,000 shares at $2.50, and now have a 9.95% stake (1.2 million shares) in ARI.
UP 75%, HOLD, Still a Huge valuation gap here.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.07 (Was $1.14, $1.17, $1.34, $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 $.30 closed at $.30
Interestingly, Veramark another tiny telecom software company that we have long followed was recently being bought for $1.18 a share. Our valuation on it was $1.66. This offer was received after an initial offer of $.98. So it finally went for 71% of our valuation. CTIG would need to sell for $.76 a share to be equivalent.
CTIG announced in June that they had hired Duff and Phelps as their independent financial advisor. Guess the Board decided they need to get a fairness opinion to keep down the damages on the lawsuit.
Earnings announced in May. Not good, but I expected worse given they are trying to buy out the company on the cheap. Revenues were $3.885 million versus $.368 million last year. Gross margins held firm at 73%, but they lost $443,000 compared to a profit of $25,000 last year. Cash per share fell to $.06 and our valuation dropped to $1.07—still triple the current trading price.
Birbeck and Fairford Holdings made a non-binding offer to buy CTIG in March for $.29 a share. The company formed a special committee to evaluate the offer. Hopefully they will find somebody else who will pay fair value—or at least close to it.
UP 11%. HOLD

6 Comments:

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4:02 PM  
Blogger Learning Value said...

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Blogger Learning Value said...

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2:05 PM  
Blogger Learning Value said...

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