Cheap Stocks, 11/1/2013 Update

Down .3% again last week. We are now up 28.5% for the year.

CCUR, ARIS, TSYS and AVNW 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:

GRVY	133%
CCUR	36%
SIGM	48%
MRVC	40%
AVNW	61%
QADA	23%

The DOW was up .3% last week, NASDAQ was down  .5% and the Russell 3000 was down .2%. For the year, the DOW is up 19.2%, NASDAQ is up 29.9% and the Russell is up 24.2%.

DXM, MRVC, GRVY and CBEY can still be bought.

Last week we went 7 stocks up, 7 down and 1 unchanged. Since inception we are now 63 stocks up and 19 down for a 76.8% 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% (4^th 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%
2013-EXTR +63%

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 67 stocks that we closed out since 2006 (53 were winners) the average net gain was 31%

QAD Inc. (NASDAQ-QADA)-Recommended 6/7/2013)

Buy Price $11.80
Valuation $27.89 (Was $28.27)
Closed up $.57 at $14.46
Earnings announced on August 28^th. Pretty good. Revenues were up to $65 million from $61 million last year. Net cash was $3.33 per share and they made $.08 per share. Our valuation was $27.89 only down slightly from our initial valuation.
UP 23% BUY

Dex Media Inc. (NASDAQ-XRSC)-Recommended 5/10/2013)

Buy Price $15.14
Valuation $24.25
Closed up $.14 at $6.78
Earnings announced in August for the June 30^th quarter. Not enough detail to do a full valuation even with their 10Q . We will have to wait for a full quarter of combined operations. But, it looks like combined revenues (on a pro-forma basis since the merger was completed April 30^th) were $568 million versus $684 million last year and EBITDA was $224 million versus $286 million last year. Using a simple 3.5X EBITDA less net debt valuation and 15 million shares outstanding we come up with a value per share of $30. We didn’t see any big sellers with the announcement, so we think it is just people shocked by the $10 a share loss reported.  We believe this is an overreaction, but will not double up here as there really is a lot of debt and this will need a couple of more quarters of performance before it is proven they can handle the debt and survive for the long term. As far as we can tell they seem to be on track with their plan as filed with the SEC on 12/6/2012.
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 14^th, they filed a 13D/A disclosing another 350,000 share buy at prices up to $17.07 bringing their stake to 13%.
Down 55% BUY

XRS Inc. (NASDAQ-XRSC)-Recommended 2/26/2013)

Buy Price $1.50
Valuation $6.16 ( Was $6.79, $6.50)
Closed up $.02 at $2.54
Earnings announced in August. Ok for such an undervalued company. Revenues were $13.4 million down from $15.6 million last year. Margins grew from 49% to 61% and they made $.07 profit on a Non-GAAP basis versus a $.03 loss last year. The company continues to transition to a software company (less lower margin hardware sales) as software revenues were 84% of revenues versus 76% last year. Our valuation fell to $6.16 a share-still more than double the current stock price.
UP 69%, HOLD

Daegis Inc. (NASDAQ-DAEG)-Recommended 11/30/2012)

Buy Price $1.09 (Was $1.20 before we doubled up)
Valuation $3.42 (Was $4.64, $4.86, $4.00)
Closed down $.01 at .87.
Earnings announced August 28^th. Hmmm. Revenue fell from $9.6 million to $8 million. They lost $100,000 versus making $300,000 last year. Net debt continued to decline and our valuation fell to $3.42 a share. Disappointing, but the stock is still trading at less than 50% of our valuation.
Kurt Jensen a 10% owner continues to sell stock at almost any price, putting a lid on DAEG. He still has 1.6 million shares, so this could take a while.
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 20%, HOLD

Bridgeline Digital Inc. (NASDAQ-BLIN)-Recommended 8/24/2012)

Buy Price $1.24
Valuation $1.61 (Was $2.19, $2.35, $2.56, $2.24)
Closed down $.10 at $.83
BLIN raised $2 million in October by selling 10% secured convertible notes. The conversion price is $1.30. Let’s hope they convert soon.
Earnings announced in August.
Not great (again). Revenues fell to $5.6 million from $6.4 million last year as they lost $1 million of their legacy business and they lost $.09 a share on a Non-GAAP basis versus breakeven last year. iAPPS revenue was 78% of sales up 4% from last year, recurring revenue was up 10% to $1.2 million. They also lowered their guidance for 2013 to revenue of $24.5 million from $25-$26 million. Our valuation fell to $1.61 per share. Based on their 2013 guidance our valuation would be about $1.92 a share. They made a small acquisition with about $2 million in revenue, most of which is recurring. While their iAPPS revenue continues to grow, it appears more slowly. We are changing this to a HOLD.
Down 33%, Hold

Telecommunications Systems Inc. (NASDAQ-TSYS)-Recommended 6/14/2012)

Buy Price- $1.37
NEW Valuation $6.81 (Was $6.28, $4.89, $6.02, $6.72, $5.49)
Closed down $.14 at $2.36
Earnings announced on October 30^th. Not bad. Revenue rose from $93 million to $96 million and they reported breakeven net income versus $.07 last year and “adjusted net income of $.05 per share versus $.12 last year. Gross margin was 37.3% versus 31.5% last year. Our valuation rose to $6.81 a share. Net debt declined to about $92 million, down $3 million from last quarter and down $19 million from a year ago.
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 72%, HOLD

Aviat Networks Inc. (NASDAQ-AVNW)-Recommended 2/27/2012)

Buy Price- $2.62
NEW Valuation $3.79 (Was $8.60, $9.31, $10.28. $9.03, $9.37, $8.85, $8.31)
Closed down $.21 at $1.97
AVNW announced earnings on October 30^th. Ugly.  They did not even make the low end of the revenue guidance they announced a couple of weeks ago. Revenues came in at $93.4 million down from $115 million a year ago and they lost $7.8 million on a Non-GAAP basis versus a $2.8 million profit last year. Gross margin plunged to 25% and net cash fell to $1.20 a share. Our valuation also plunged to $3.79 a share as all the key metric dropped.
Their book-to-bill ratio was a bit over 1 this past quarter leading them to give next quarter guidance of $100 to $107 million in revenues and Non-GAAP income of $.03 to $.08 per share. Not good. This is definitely not a BUY anymore.
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.
Down 25%, HOLD

CBeyond Inc. (NASDAQ-CBEY)-Recommended 2/28/2012)

Buy Price $7.17 ( Was $7.94 before another $10,000 added at $6.53)
Valuation $27.58 (Was $28.24, $28.33, $29.04, $29.59, $29.58, $29.21)
Closed down $.04 at $6.45
Next earnings due out Wednesday, November 6^th before the market opens.
Earnings announced in July. Nothing to write home about. Sales were $118.2 million versus $123.8 million last year and they lost $41,000 versus making $2.7 million last year. Apparently the earnings were $.05 better than estimates—whoo—hoo.
They also lowered their guidance to $464-$471 million (from $475-$485 million) and adjusted EBITDA guidance to $76-$80 million from $75-$82 million. This was pretty much a non-event to us as our valuation fell a tad to $27.58.
Penn Capital Mgmt. filed a 13G in late February disclosing a 5.55% stake.
$80 million of EBITDA, $.39 a share in net cash and a $200 market cap. Cheap.
Down 10%, BUY

MRV Communications (Pink Sheets-MRVC.pk)

Valuation $24.01 (Was $23.06,  $27.15, $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 $11.00 up $.32
Earnings announced on 8/9/2013
Revenues were up slightly to $38.2 million from $37.6 million and their loss declined to $1 million from $2.1 million last year. Net cash per share was $4.40 and our valuation rose a bit to $24.01 a share. They say they are continuing to invest in the business and that these should become apparent in 2014. Patience.
Lloyd Miller disclosed a 6.9% stake in February.
Raging Capital bought another 1.6 million shares in the first week of December 2012 at $10.80 bringing their holdings to 20.1% of the company.
Still trading at less than ½ our valuation.
UP 28%  HOLD

Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)

Buy Price-$8.49
Valuation $12.30 (Was $11.86, $8.24, $13.05, $10.67, $8.41 $12.10, $13.40, $16.02)
Closed up $.10 at $5.45
Earnings announced on September 4^th. They continue to do what they say they are going to do. Revenues were $53.8 million, net cash rose to $88.9 million or $2.61 per share and our valuation rose a bit to $12.30.
Raging Capital filed a 13D/A in July showing sales of about 500,000 shares at prices from $4.96 to $5.68 lowering their stake to 6.6%.
Guidance from their press release:
"Moving into the third quarter of fiscal 2014, we believe revenue will be in the range of $54.0 to $58.0 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% to 54% in the quarter. In addition, we expect our non-GAAP operating expenses in the third quarter of fiscal 2014 to trend lower than the second quarter of fiscal 2014,"
We will be watching this one very closely and may sell at any time.
Down 36%, 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 $12.19 (Was $13.81, $12.26, $13.10, $10.95, $13.92, $12.81, $15.28, $14.04, $10.39)
Closed up $.31 at $5.93
Earnings announced on August 29^th. Nice quarter. This is MITL’s first quarter (July 31) and is typically a slow quarter due to Europe being on vacation. However, revenues were up to $141.6 versus $138.5 last year and they made $9.3 million or $.17 per share versus $4.1 million or $.08 a share on a Non-GAAP basis. Net debt climbed to $232 million and adjusted EBITDA was $20.6 million versus $12.6 last year. Overall a very good quarter. Our valuation rose to $12.19 versus $10.95 last year.
UP 95%, HOLD

Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)

Buy Price-$4.58 (Was $5.08 before $.50 special dividend)
NEW Valuation $14.55 (was $14.77, $16.26, $16.20, $15.37, $13.53, $15.85, $14.13, $11.38, $14.04, $18.54, $15.99)
Closed down $.01 at $7.74 (including dividends)
Pays $.48 annual dividend.
Earnings announced on October 29^th. Nice. Revenue was up 14% to $17.2 million and they made $.08 a share. Cash per share was a healthy $2.82. Gross margins fell a bit so our valuation of $14.55 was down $.22 from last quarter, but up $1.02 from last year.
We have collected $.48 in dividends so far (excluding the $.50 special dividend which reduced our basis).
UP 69%, HOLD

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)

Buy Price- $1.45 per ADS (Was $1.68 before double up)
Valuation $3.06-(Was $3.02, $4.14, $3.65, $3.41, $5.52, $5.00, $5.39, $5.33, $5.61, $5.73, $4.38, $4.44, $5.15)
Closed at $1.27 up $.01
Earnings announced on August 29^th for the quarter ended June 30, 2013.  Revenues were $11.4 million versus $10.8 million last quarter and they lost $1.5 million. Net cash was still a healthy $45 million or $1.63 per share. Our valuation rose a tad to $3.06 per share.
Lots of product introduction updates in their press release, but not much has been translating to the financials. We continue to wait on GRVY.  The cash position is some insurance, but there needs to be an uptick in their business soon, or we will dump this.
It would be a shame to have to sell this below their cash value.
Down 13%, BUY

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),
NEW Valuation $6.71 (was $6.41, $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 $3.27, unchanged
Earnings announced on October 29^th. It would be nice if they actually put their quarterly P+L in the press release, amazing. Revenues were up 44% to $8.5 million and they lost a couple hundred thousand on a GAAP basis. It looks like gross margins might have gotten to 80% and recurring revenue was 94% of sales for Q4. Our valuation rose to $6.71 per share. Impossible to tell from their press release if they were profitable on a Non-GAAP basis in Q4.  We will have to wait for the 10K to see what else is discernible from their numbers.
Wynnefield partners bought another 100,000 shares at $2.90 in the first week of July raising their stake to over 10%.
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 103%, HOLD, Still a Huge valuation gap here.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)

Buy price $.27 ask, Valuation $1.05 (Was $1.07, $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 $.24 closed at $.245
Another weak quarter announced in August. Revenues were $3.9 million, flat with last quarter but down from $.45 million last year. They lost $350,000 better than the $440,000 loss last quarter, but worse than the $330,000 profit last year. Our valuation fell to $1.05 a share still more than triple the management buyout price. Cash per share fell to a measly $.03.
Not a peep on the management buyout.
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.
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.
Down 9%. HOLD