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, September 09, 2006


This cappy market is relentless.

We went 2 up, 9 down and 2 even this past week. Our model portfolio year-to-date gain dropped 3.1% to a 11.1% gain. MIVA is still our biggest dog, followed by DWCH, LINN.ob. Since the start of the year we are 10 up and 6 down, which stinks for us. PDLI dropped back into the red as did our latest recommedation SPNC last week.

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

As a side note, when tech related takeovers are announced, we test our valuation method against the take-0ver offer pricing. Last week EMBT had a takeover announced. We ran our valuation and came up with $8.11 a share. The takeover offer was $8.38. EMBT was trading at about $6.40 a share before the takeover or a 30% discount to the offer. Not enough of a discount for us to recommend this stock, but good validation that our method does work.

SPNC-(Buy price $10.65, Valuation $18-$20). The shorts continue to rule by constantly offering 100 share lots at lower and lower prices. Most of the time the same market makers are on the bid too--at lower and lower prices. Price fell to $10.08, down $.57 last week. Down 5%. SPNC presents at a AG Edwards conference on September 20th at 10 am EST. Hopefully they will do good and we will get some buying interest to knock off these 100 share trades. BUY

CAW-(Buy price $9.45, Valuation $18.40). Closed down $.03 at $9.96. Yield about 3%. A group called Costa Brava Partnership offerred to buy the Class A stock at a "substantial premium". The company has rejected this offer. CB owns 7.9% of the stock. CAW announced a $25 million credit line last week--so either some shares are going to get bought back or maybe an acquisition in the works? Up 5% so far. HOLD.

QADI-(Buy price $6.93, Valuation $13.73 (was $11.86). Closed at $7.34, down $.26. Yield about 1.4%. Trading at only 53% of valuation. Has $1.30 in cash also. Declared their quartely $.025 dividend last week. Up 6% so far. BUY.

PDLI-(Buy price $19.31, Valuation > $30)--Closed at $19.22, down $.62. Now down .5%. HOLD.
MIVA-(Buy price $3.80, Valuation $7.38 (was $9.10)). MIVA closed at $2.60, up $.06. Now down 32% on this one. No news. BUY.

DWCH-(Buy price $3.66, Valuation $7.63 (was $9.31)). Closed at $2.78, down $.15, still a loser--down 24%. HOLD.

INFT-(Buy price $4.11, Valuation $6.86 (was $7.32)). Up $.16 to $4.31. Still has $2.52 per share in cash. Price objective $5.50. Now up 5%. HOLD.


ARIS.ob-(Buy price $2.06, Valuation $5.21). Closed at $2.00, down $.05. Down 3% so far. BUY if you can find some shares. Huge valuation gap.

Linn.ob-(Buy price $.36, Valuation $.66 (was $.79)). Closed at $.31, down $.01. Still trading at less than 50% of our current valuation. Down 14% YTD. HOLD until we get some revenue growth and stop losing money.

OPTO.ob-(Buy price $1.25, Valuation $2.88). Closed at $1.33, down $.07. Now up 6% to date. HOLD.

AVSO.ob-(Buy price $1.19, Valuation $3.81). Stock closed at $1.70, down $.01. Now only up 43%. Still waiting on year-end results for AVSO. Could be burdened with some acquisition and capital raising charges, but we expect to see some good operating results. Still only trading at less than 50% of our valuation. BUY.

CTIG.ob-(Buy price $.27 ask, Valuation $1.05 (Was $.82)). Ask price fell $.02 to $.35. Closed at $.34. Cash is $.28 per share. Up 30% (based on asked price). If you own this HOLD. If you don't-BUY.

IYXI.ob-(Buy price $1.91, Valuation--over $3.00). Closed unchanged at $2.50, still up 31% so far. HOLD.


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