Cheap Stocks, 5/3/2013 Update

 

We continued to lag the averages last week-up 1.4%. We are now up 12% for the year. We are a bit discouraged that we are 4 months into the year and had no take-overs, and we have lost significant gains in TSYS, BLIN and AVNW. All while the market averages have already had a good YEAR.

EXTR, CBEY, AVNW, DRIV, TSYS and CCUR earnings last week. None of the earnings reports were bad—or outstanding.

We sold AGYS last week for a 41% gain in a little over 3 months.

 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	65%
GRVY	146%
CCUR	31%
SIGM	54%
MRVC	49%
AVNW	54%
DRIV	69%

 The DOW was up 1.8% last week, NASDAQ was up 3% and the Russell 3000 was up 2.0%. For the year, the DOW is up 14.3%, NASDAQ is up 11.9% and the Russell is up 13.3%.

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

Last week we went 7 stocks up and 8 down. Since inception we are now 64 stocks up and 16 down for an 80% 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%
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%

 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%.

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

Buy Price $1.50
Valuation $6.50
Closed down $.01 at $1.82
UP 22%, BUY

Agilysys Inc. (NASDAQ-AGYS)-Recommended 1/18/2013)

Buy Price $8.40
Valuation (Was $16.10)
SOLD at $11.80
UP 41%

Digital River Inc. (NASDAQ-DRIV)-Recommended 1/11/2013)

Buy Price $14.20
NEW Valuation $35.57 (Was $34.59, $32.20)
Closed up $1.22 at $15.16
Earnings announced last week. Pretty good, but tempered by weak guidance. Sales were up 11% (including the LML acquisition) and they made $.33 a share on a Non-GAAP basis, up 10% YOY. Guidance for next quarter was revenue of $89-$92 million and Non-GAAP EPS of $.01 to $.04 per share. Full year guidance is $.55-$.65 a share in Non-GAAP earnings. Net cash rose to $9.49 per share. Our valuation rose to $35.57 but will likely fall to around $30 a share based on the guidance—still double the current market price.
UP 7%, BUY

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

Buy Price $1.20
Valuation $4.86 (Was $4.00)
Closed down $.02 at $1.06
Earnings announced in March. Not bad. Sales fell from $11.1 last year to $10.4 million, but they were up slightly from last quarters $10.35 million. Gross margins were up to over 70% and net debt decreased to $13.8 million from $14.5 million last quarter. Non-GAAP earnings were $449,000 versus $252,000 last quarter. Our valuation spiked to $4.86 per share up 20% from last quarter.
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 12%, BUY

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

Buy Price $1.24
Valuation $2.35 (Was $2.56, $2.24)
Closed up $.09 at $1.25
Next earnings due out Wednesday, May 15^th after the market close.
Earnings announced in February. So-so. Revenues fell from $6.5 million to $6.2 million. iAPPS revenue rose 17% ($4.2 million) and recurring revenues were just under 20% of total sales. They lost $.02 on a Non-GAAP basis versus a profit of $.01 last year. Guidance is for revenues of $27-$28 million for the year. iAPPs revenue is expected to increase 27% to $21 million. They expect to be adjusted EBITDA positive in 2013.
Our valuation fell a bit to $2.35 per share. We see our valuation soaring to $3.25 if they can make their numbers this year.
Down 3%, BUY

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

Buy Price- $1.37
NEW Valuation $4.89 (Was $6.02, $6.72, $5.49)
Closed up $.08 at $2.09
Earnings announced last week. 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 53%, HOLD

Aviat Networks Inc. (NASDAQ-AVNW)-Recommended 2/27/2012)
Buy Price- $2.62
NEW Valuation $9.31 (Was $10.28. $9.03, $9.37, $8.85, $8.31)
Closed down $.54 at $2.57
Earnings announced last week. 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.
Down 2%, 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 $28.24 (Was $28.33, $29.04, $29.59, $29.58, $29.21)
Closed up $.66 at $89.03
Earnings announced last week. 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 26%, 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 $9.27 down $.48
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 8%  BUY

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

Buy Price-$8.49
Valuation $8.24 (Was $13.05, $10.67, $8.41 $12.10, $13.40, $16.02)
Closed down $.03 at $4.69
Raging Capital filed a 13D in April reporting a 5.6% stake in SIGM and calling for faster action to turn the company around or sell it. Maybe there is hope here.
Earnings announced in March. They stunk up the place. While sales were up to $44 million from $36 million last year, they lost $36 million or $1.18 per share. Cash fell again to $2.51 per share (it was $5.40 when we recommended SIGM) and our valuation plunged to its lowest level ever. But wait, there’s more…..they are projecting next quarter to be about breakeven on $49-$52 million in sales. The market looked past this past quarter and the stock rose. We will be watching this one very closely and may sell at any time.
Dimension Fund disclosed a 6.48% stake in SIGM  in February and Vanguard disclosed a 5.61% stake via 13G filings and MAK Capital One sold their 6.6% stake.
Down 45%, 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 $12.26 (Was $13.10, $10.92, $13.92, $12.81, $15.28, $14.04, $10.39)
Closed down $.20 at $3.44
In addition to refinancing their debt out to 2019-2020, MITL announced earnings in February. Revenues were down to $142 million from $150.5 million last year and Non-GAAP net income was $.23 a share versus $.21 a share last year. Our valuation fell a bit to $12.26 a share-still more that 3X the current price.
UP 13%, BUY

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

Buy Price-$4.58 (Was $5.08 before $.50 special dividend)
NEW Valuation $16.26 (was $16.20, $15.37, $13.53, $15.85, $14.13, $11.38, $14.04, $18.54, $15.99)
Closed up $.95 at $7.99 (including dividends)
Pays $.24 annual dividend.
We have collected $.24 in dividends so far (excluding the $.50 special dividend).
Earnings announced last week. 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)
NEW 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 $3.21 down $.06
Earnings announced last week. 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.
New CEO announced last week. The market seemed to like it.
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 1%, 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 $1.25 up $.02
Gravity finally filed their Form F last week for the year of 2012. Cash was just under $51 million or $1.83 per share. Revenues for the year were about $54 million. They reported a loss of $11.5 million which included about $13 million of impairment write downs. With all this, our valuation increased to $4.14 per share. We had calculated it as $3.86 per share based on their previous filing
Now trading at way below cash value again.
Down 14%, 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 $6.14 (was $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 $2.75 up $.31
ARI announced last week that 50 Below revenues are up 25% YOY due to renewed dealer enthusiasm. Sounds good!
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.
We are almost up to 50% of our valuation!
Earnings announced in March. We saw transitional results as a result of integrating 2 acquisitions including 50 Below which closed November 28, 2012. Revenues were up 36% to $7.5 million but expenses were up 39% excluding $600,000 of acquisition related expenses. As a result pre-tax loss was $206,000 versus income of $122,000. How much of this loss was due to additional integration expenses was not disclosed.
At the same time ARI announced a private placement of stock for $4.8 million at $1.50 a share. They will use this to pay down the 14% debt they took on to buy 50 Below. With all this and only a partial quarter of 50 Below sales, we estimate the current valuation at $6.14 a share. We don’t expect much in the way of earnings over the next 2 quarters as more integration costs will continue for a while. So while this acquisition may be a game changer, we are only in the 3^rd inning.
UP 71%, HOLD, Still a Huge valuation gap here.

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

Buy price $.27 ask,
Valuation $1.14 (Was $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 $.35 closed at $.35
Well the stock is continuing to trade  above the take-private offer price. We have held this for 7 years now so what’s a few more months to see what happens.
Birbeck and Fairford Holdings made an 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.
Earning announced in April. Revenue fell again from last year by about 10% to $4 million, and they made a tiny profit of about $50,000. Net cash fell to $.08 per share and our valuation fell to $1.14.
UP 29%. HOLD