Aaron Katsman
www.IsraelNewsletter.com

April’s Israeli CPI rose a much more than expected, 1.5% leading most analysts to predict that the Bank of Israel will raise interest rates by at least 0.5% at the end of the month. The inflation jump for April was the highest since 2002, and inflation over the last 12 is at 4.7%. IOIactually wrote about surging Israeli inflation some time back. The question for investors is how to play the rising inflation game?

I think that we will see a rotation out of local Tel-Aviv Stock Exchange stocks into Israeli stocks that trade abroad. Why? Because most of the large, locally listed companies are a play on the local consumption game. Keep in mind that Israel had been experiencing 5+% growth for the last three years. With surging inflation, and interest rates set to rise sharply, the local Israeli consumer is undoubtedly going to take it on the chin. All you have to do is walk into a local supermarket and you see how prices have risen. Tomato prices have almost doubled in the last few months, chicken, bread, other fruits and vegatable have all seen sharp price rises as well. The local consumer is sure to cut back spending, making local consumption stocks, not a particularly attractive place to park your money.

So what to do? As I said, I think we are at the early stages of a rotation into the Israeli companies that do most of their business outside of Israel. Hi-tech companies for the most part. We have seen a recent out-performance in these companies, and many have also produced stellar earnings reports. Companies like Given Imaging (GIVN), Syneron (ELOS) and Pointer Telocation(PNTR) have all blown past earnings estimates over the last few days.

If you are looking to invest in Israel, it may pay to take a long look at the Israeli stocks that trade in the US, as they appear set to outperform.

Disclosure: Author’s fund has a position in GIVN,ELOS, and PNTR. He has no position in any stock mentioned as of 5/16/08.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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The entire interview with Cliff Goldstein of AMIDEX is part of our new subscription newsletter, Israel Opportunity Investor. You can find out more about the product and the opportunities we cover at www.israelnewsletter.com.

Can you tell us how AMIDEX got started?
Cliff Goldstein: I’m a lawyer by trade. In 1998 I saw some really compelling advances being made by Israeli technology companies. I decided to go to brokerage firms to see if I could find a way to invest in this ingenuity. I was specifically looking for a mutual fund that invested in Israeli companies. There wasn’t anything out there. After speaking directly to brokers, it was also clear to me that brokers themselves weren’t really knowledgeable about what was occurring on the ground in Israel. I then went to Israeli Economic Mission to the U.S. to complain about the lack of retail investment opportunities.

Why aren’t there Israeli investment products in the U.S.?
CG: I think part of the problem was that there was no benchmark for those Israeli companies trading in the U.S. There is really no comprehensive index because a significant portion of Israeli marketcap trades in the U.S. and in Tel Aviv. There were indices for the Tel Aviv Stock Exchange (TASE) but not one that included New York as well.We decided in 1999 that we could address this barrier and create our own index that included both U.S. and Tel Aviv listed Israeli companies. As this was a time before Exchange Traded Funds (ETFs) had really developed, we borrowed from the protocols developed by the WEB products. We created an index that included 60% of total Israeli marketcap. To get here, we needed 35 companies to get 60% of the total universe. Most of the companies in the initial index were Israeli companies that traded in the U.S. Given what’s transpired over the past couple of years in the U.S. and the growth of Israeli  businesses, we now see the inverse: about 60% of our firms trade in Tel Aviv and the minority in the U.S. It was these 35 companies that comprised the original AMIDEX35. We could then back test historically and when speaking to investors, this really looked good from a performance point of view. When we launched the actual fund in June of 1999, 68% of the companies traded in the U.S. and the remainder in Israel. We thought that the volatility and risk of political disruption would be highest in Israel so we were comfortable with this mix. It’s interesting to think that soon after we had the meltdown of the dot com boom. (Continue »)

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By Aaron Katsman
IsraelNewsletter.com

I was recently on vacation, spending time both in Seattle and in New York, and I was asked to speak a bit on both the Israeli economy as well as interesting Israeli companies. Other than Teva Pharmaceuticals (TEVA), the company that is most well know is Given Imaging (GIVN). Everyone seemed to be aware of their “cool” PillCam technology. For those who don’t know, GIVN has revolutionized the gastrointestinal diagnosis industry with the PillCam video capsule, a disposable, miniature video camera contained in a capsule, which is ingested by the patient and allows for the non-invasive visualization of the GI tract. They have become the symbol of Israeli ingenuity.

For investors though, until recently, the stock was in a deep freeze. Though the company had this innovative technology, they had problems penetrating the market, and they disappointed investors with slower than expected growth. Over the last few quarters, however, the company has started firing on all cylinders, and the stock has reacted accordingly. Noted Israeli investor Shlomo Greenberg had an interesting take on the company’s newfound success in a recent Seekingalpha article. He spoke about the appointment of Israel Makov, former President and CEO of TEVA, as Chairman and the impressive Board of Directors that has been compiled. While this certainly plays a part in the company’s recent stock price surge, I think it’s actually executing the business plan that is the main driver. Recent news of Japan’s Ministry of Health, Labor and Wealth approving PillCam SB Capsule and equipment for sale and marketing, signing a global strategic agreement with Fujinon Corporation to collaborate on research and development, sourcing and non-exclusive distribution activities and a strong 23% increase in North American PillCam sales, and raising of revenue targets for the rest of ’07, are the main contributors. Ultimately it comes down to execution, not hype that excites investors. We have seen too many overly-hyped Israeli companies falter. It’s refreshing to find innovative companies that are also able to execute on the business side.

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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

Please see our disclaimer here: http://israelnewsletter.com/disclaimer/

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