Famous businessmen have purchased a building in the heart of Tel Aviv for a coll $12.5 million. Who says that there is a real estate slowdown?
According to Ynet: “The existing building has three stories and includes 14 apartments, each measuring 80 square meters (861 square feet) in size. The plan is to renovate the existing building and add three floors. The 14 existing flats will be reduced to 10 over a larger area, and will be joined by 12 new apartments, each measuring 80 square meters. In addition, several luxurious apartments are planned: A garden apartment of 180 square meters (1,937 square feet), including a garden of 150 square meters (1,614 square feet), as well as another penthouse which will be built on 240 square meters (2,583 square feet), including six rooms. In total, the building will consist of 22 apartments.”
The developers are hoping to to generate a 6% return for renting out the apartments. While for many outside of Israel that sounds pretty low, by Israeli standards that’s actually on the high side, as most money in Israeli real estate is made via capital gains.
Thanks to Bizzywomen.com for submitting this article.
Over the past 14 months, drastic market falls have caused many investors to lose significant portions of their savings. The U.S. market has fallen by more than 40%, while international markets are down by 60% or more in many cases.
In this scenario, one of the questions that I am most frequently asked is, “How do I make my money back?” My answer to this question is simple - don’t try to make your money back. If you try, chances are that you are going to take unnecessary risks and end up losing even more money. For this reason, the best advice may not be something that many investors want to hear. It is probably better to forget about the past and concentrate on the future. While the markets are getting hammered, stocks are selling at a discount. Although no one can predict when the market will hit bottom, buying at a 40% off discount is something that rarely happens.
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Asset Allocation
Creating your asset allocation, or the mix of stocks, bonds and cash in your portfolio, is the single most important task that an investor has to face. Many studies have shown that the proportion of stocks, bonds and cash held in a portfolio has a greater effect on its returns and volatility than the individual investments that are chosen.
That is why after assessing one’s investment goals, it’s of the utmost importance to create an allocation that can help you achieve the aforementioned goals. Once you have fixed your asset allocation, you can start considering what to buy. “Be greedy when others are fearful,” is one of investor extraordinaire Warren Buffet’s favorite sayings. Many economists believe that the United States is in the midst of a recession. While this does not sound good, there may be a silver lining for investors. Though you need to always remember that past performance is no guarantee of future returns, consider this: According to a report in Smart Money, “Stocks tend to rebound before the economy does. Over the past nine recessions, the S&P 500 has gained an average 13% during the second half of the downturns and another 13% the year after they ended. Even during the Great Depression, the S&P rose 33% from the market’s trough to the end of the recession. And while it’s folly to try to predict a bottom, with the market down 40% from its 2007 high, it may not be far away.”
Buy Low/Sell High
During more stable times, clients ask me which stocks I think may have big upside potential. Usually, they are looking for small companies that have the potential to move up rapidly. I like to refer to this as “being a hero.” These clients expect me to wade through loads of information to pick out a company that no one has ever heard of. (Whether that is realistic or not is for another column!) In today’s climate, however, there is no need to be a hero. It is not necessary to speculate on risky companies. It is enough to look at large companies that continue to pay or even raise their dividends as a place to start. These are usually companies that make products that we all use in our day-to-day lives. For example, come what may, consumers are still going to use shampoo, toothpaste, soap, and other necessities. Obviously there is no guarantee that your money will be doubled within the next week. But if you have a long-term investment horizon and you can withstand continued volatility, then investing in stocks now will have the potential to reward you in the future and help you rebuild some of the wealth that you have lost.
With the current market volatility, it is worthwhile speaking with your financial adviser to make sure that your portfolio is well designed with your financial goals in mind. Then, if your financial plan allows for it, have a talk about trying to take advantage of a once-in-a-lifetime opportunity.
Please see our Disclaimer HERE.
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.
As we have mentioned here more than once, the Israeli economy may not be in as great shape as our leaders have let on. Tonight’s surprise 50 basis point cut, bringing rates down to just 3%, indicates that even the Bank of Israel is worried about a potential economic slowdown or even a recession.
With analysts lowering their ‘09 growth forecasts, Fischer who has until last week remained unrealistically optimistic, appears to have thrown in the towel an admitted that things aren’t all that rosy, and is trying to add liquidity to the Israeli banking system to try and prevent the same type of credit crisis gripping the global banking system.
While I think the local economic slowdown will continue, this aggressive move by the Bank of Israel will help stem the damage to the economy that a prolonged recession could cause.
Please see our Disclaimer HERE.
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.
Recently Israelnewsletter.com had a chance to interview Jamia Jasper, portfolio manager of The American Israeli Shared Values Capital Appreciation Fund. This interview shouldn’t be taken as a solicitation or recommendation to buy or sell securities. The views and opinions are solely of the interviewee, and are not that of Israelnewsletter.com. You should not consider the information here to consist in any way of investment advice, and you should speak with your own adviser and do your own research before making any investment decisions.
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Jamia, can you tell us about your fund?
Jamia Jasper: The American Israeli Shared Values Fund is an actively managed mutual fund that invests in the stocks of Israeli companies and U.S. companies that do business with Israel. It is a multi-cap fund with about 50% Israeli stocks and 50% U.S. stocks. In addition to the primary goal of long-term capital appreciation for investors, the Fund aims to expand the market for Israeli companies, making it easier for businesses there to raise capital and expand. Lastly, I have pledged to donate 7% of my personal profits from this venture, or a minimum of $5,000 per year, to charities and educational and research institutions in Israel.
How did you get started investing in Israel?
JJ: I have a business education and prior career experience as a credit analyst and a long history of personal investing. I noticed that many interesting technologies were coming out of Israel and that many of their stocks traded in the US. Israeli companies are conservatively managed with low valuations, allowing for significant appreciation potential. I did well with my initial investments and began looking for other ways to invest in Israel. At the time there was one index Fund for Israeli stocks and no actively managed mutual funds. I was very surprised that a big investment house had not already created an Israeli mutual fund. I decided to create one to satisfy the needs of other investors looking to invest in Israel, whether for investment purposes or for a show of solidarity.
Can you tell us about some of the Israeli stocks that trade in the US?
JJ: All of the companies listed below are in the portfolio because they have solid business fundamentals, excellent management, are debt-free, and have good free cash flow.
ESLT– Elbit Systems focuses on advanced solutions in defense electronics. It is a growth company due to the early stage of adoption of its products in the market. The company is experiencing rapid earnings growth and the shares trade at a reasonable multiple of earnings and cash flow. Also, it is a defensive play given its lower exposure to economic cycles. The company is winning an increasing number of contracts from countries outside its traditional market of the U.S./Israel, in places such as Europe, India, and the Far East.
NICE- Nice Systems is a provider of solutions that capture, manage and analyze unstructured data. Its largest clients include the U.S. government for homeland security monitoring and financial companies for compliance purposes. NICE has organic sales growth of 12-15% annually, no debt, and approximately $150 million in free cash flow, which equates to a free cash flow yield of 7-8%. The company can buy back 25% of its outstanding shares, which would increase EPS by 20% or it can institute a dividend of 5% or more. The shares appear undervalued at the current price of $28.
GIVN- Given Imaging Ltd. is a medical device company that specializes in non-invasive, wireless technologies to diagnose gastrointestinal disorders. It has a unique, principal product, the Pillcam SB, which is a dissolvable pill that takes color video of the gastrointestinal tract. It is sold in 60 countries worldwide. The company has a solid balance sheet, with more than $100 million in cash and no debt. Currently the U.S. and Japan have insurance carrier coverage for the products. The French government is expected to provide reimbursement for the product in 2008. Given Systems could be an attractive acquisition target for any of the large GI or diagnostics companies.
TEVA- Teva Pharmaceuticals is the largest generic drug manufacturer in the world. Generic drugs are part of the solution to the world-wide healthcare cost crisis. Their next big leg of growth should be generic biotechnology since the company already has the unique capability to produce protein-based drugs (as opposed to chemicals). Teva also has excellent research capabilities in conjunction with other Israeli research institutions. In addition to organic earnings growth from its generic drugs and proprietary treatments for MS and Parkinsons, the company just reached an agreement to acquire Barr Labs. Barr is a U.S.-based generic drug manufacturer with 25 applications for generics already filed with the FDA. The acquisition of Barr is expected to be accretive to Teva’s earnings shortly after the transaction closes.
Tell us about some of the companies that you hold that do business in Israel? Why is the Israel piece interesting?
JJ: The US companies in the portfolio must have a business relationship with Israel. These include:
MSFT- Microsoft has been in Israel since 1991 with core R&D and start-up incubation activities, as well as venture capital outreach to create partnerships with the local pool of high-tech talent. Windows NT and XP were developed in Israel. Right now, the stock is incredibly cheap at 12x earnings and $23 billion of free cash flow in fiscal 2008 (8% fcf yield).
MDT– Medtronic is a medical device company that, among other things, controls nearly half of a $6 billion global defibrillator market. Its fastest-growing businesses include products for diabetics and small electrical implants used to alleviate pain and to treat neurological disorders. Medtronic has offices in Israel, which are primarily sales offices, but also are used as a base for discussions with Israeli medical device R&D companies. The company has expected earnings growth of 11-15% for 2008 and the shares currently trade at a significant discount to historical valuation.
AMGN – Amgen is one the world’s largest biotechnology companies. The company has a licensing agreement with the Israeli company Gamida Cell Ltd., to share several of its proprietary cytokines in the manufacturing of Gamida’s StemEx, a treatment for hematological diseases. Amgen will receive a minority equity interest in Gamida Cell in addition to royalty payments from future sales of StemEx. Right now AMGN is selling at a low 14x EPS and free cash flow is estimated to climb to $5.4 billion in 2008.
CAT – Caterpillar sells their tractor and trailer equipment to the Israeli military. While it is not a significant part of their business, the company has shown loyalty to Israel by continuing to sell to them despite threats of boycotts. From an investment perspective, CAT is benefiting from the boom in mining companies purchasing large machines. Right now the company trades at 11x earnings. Last year the company had $5 billion of free cash flow, which is nearly a 10% free cash flow yield. This is very high, even for a cyclical company like CAT.
Thanks.
Jamia C. Jasper is the portfolio manager of the American Israeli Shared Values Capital Appreciation Fund and has been responsible for the Fund since its inception in 2007. Ms. Jasper has committed her own capital to establish and launch the Fund and its investment advisor.
Ms. Jasper’s background includes nearly a decade in investments and financial services and several years as a staffer in the US House of Representatives. Jamia was most recently with the Bank of New York, where her responsibilities included the financial analysis of public companies. Prior to joining the Bank, Jamia worked for Jones Lang LaSalle, a leading real estate and investment management firm. Ms. Jasper holds a BA in International Relations from the University of Southern California and an MBA from Cornell University.
Please see our Disclaimer HERE.
It is important to understand that share price, principal value and return will vary, and you may have a gain or loss when you sell your shares. All mutual funds can be affected by market and investment style risk. The Fund’s investments in small and mid capitalization companies could experience greater volatility than investments in large capitalization companies. Request a prospectus, which includes investment objectives, risks, fees, expenses and other information that you should read and carefully consider before investing. A prospectus can be obtained by calling your investment professional.
