Aaron Katsman
www.IsraelNewsletter.com

News that Time Warner Cable (TWC) and Comcast (CMCSA) are discussing a plan to provide funding for a national wireless network using WiMax technology, has sent shares of the IsraeliCeragon (CRNT) surging higher. According to the report, “Sprint (S) and Clearwire (CLWR) have been working for months to cooperate on a WiMax rollout and are now trying to raise at least $3 billion for a joint venture, the report said. Under the plan the parties are reviewing, Comcast would put as much as $1 billion into the venture, with No. 2 operator Time Warner Cable adding $500 million.

Why is this such good news for Ceragon? Because Ceragon, the leading provider of wireless backhaul solutions for IP-centric networks,  has been rumoured to be a big winner if Sprint were to go ahead and build out the WiMax network. Ceragon stock has gotten crushed over the last few months, as Sprint bailed on their deal with Clearwire. The fact that we are again talking about a nationwide U.S. WiMax network, is great news for Ceragon.

For investors, if we hear some more good news from the company coming on the heels of this report, it could potentially send Ceragon stock back to the highs made last year. It’s important to note that this is not a stock for the weak of heart, but for volatility lovers, this may be a company to take a look at. 

Disclosure: Author’s fund holds a position in CRNT. He holds no position in any other stock mentioned as of 3/26/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

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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Someone called us recently to ask about a newish ETF called the SPDR Emerging Middle East & Africa (Amex: GAF). The ETF is heavily weighted around three countries — South Africa (65%), Israel (17%) and Egypt (6%).

There are other ETFs that include exposure to Israel but as far as we know, this ETF currently has the largest exposure.

Israel as a destination

We like Israel (but hey, we’re biased). While Israel is not putting up double-digit GDP growth like China, we are seeing close to 4-5%.

Not too shabby.

Foreign capital is flowing

We’re continuing to see money coming into Israel looking for a home. Canaan Partners just announced another fund that will be targeting opportunities in Israel.

Can Israel do better?

And if you ask Netanyahu [subscription required], we could see close to 8%, if certain pro-market policies are put into place. Even Netanyahu’s detractors credit his cuts in welfare benefits, the removal of remaining currency and capital controls, and liberalization of the banking sector as cutting the way for an amazing economic recovery.

Check out Eze Vidra’s post, “Israel 2008: What the Bulls and the Bears are saying“, for some good forecasts of what various analysts are looking for from the Israeli economy in 2008.

What does the ETF hold?

Check out the GAF’s holdings. What you’ll see is that Israel’s 11% weighting is driven by the fact that Teva Pharmaceuticals (Nasdaq: TEVA) is the ETF’s largest holding at over a whopping 9%. We then see Israel Chemical (2%), Bank Leumi (1.43%) and Bank Hapoalim (1.41%). Elbit Systems (Nasdaq: ESLT) is also in there (1.06%). The rest of the Israel holdings each account for less than 1% of the SPDR Emerging Middle East & Africa Fund.

Investors in Israel from abroad may like the fact that this fund holds locally traded companies that aren’t dually listed or carry a corresponding ADR in the US.

So, what’s an investor interested in Israel to do?

That said, 17% of a fund that has exposure to really different economies may not be enough for foreign investors looking to trade locally-traded Israeli shares. Also, TEVA’s weighting at 9% of the overall fund means that Teva alone accounts for over 50% of the total Israeli exposure.

Teva may be a great company but it’s not indicative of the Israeli market as a whole. I’d like to see more exposure to Israel Chemicals, the Israeli banks, Bezeq, 012.Smile (Nasdaq: SMLC), the Mobile phone carries including Partner (Nasdaq: PTNR) and Cellcom (NYSE: CEL), let alone all the newer, smaller, tech firms listed locally.

What about mobile fixed telecom players like Alvarion (Nasdaq: ALVR) and Ceragon (Nasdaq: CRNT)? Both have taken a worse beating than Britney has received from the paparazzi.

I’d like to see a country ETF also include local retailers like Blue Square-Israel (NYSE: BSI)

Israel investors may be better off weighting for new offerings in the works as we hear that Barclays and another firm has an Israel ETF in registration.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

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The entire interview with Stearman Capital’s, Zachary Scheidt, 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

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Can you tell us a bit about your firm?

Zachary D. Scheidt: Stearman Capital is unique in that it focuses on stocks that are new to public markets. While our formal universe includes stocks that have been public less than five years, most of our investments turn out to be companies that have issued stock within the past 12 to 18 months.

We believe that there is an information disconnect for many names in our universe because up to this point there has been little or no media or analyst coverage leading up to the IPO. Once a company comes into the public realm, the first people to write about the names usually have an agenda. Underwriters issue reports after the quiet period is over with the hopes that their positive rating will propel the stock higher. This helps their reputation when soliciting investment banking business from other clients and also creates goodwill with the management of the newly issued stock. Goodwill is important in their business model because a large portion of companies who issue public stock come back to markets to raise additional capital.

I believe that Stearman is able to capture positive returns by digging through the primary information from the company as well as third party research to find the nuggets of truth that point to the eventual direction of these often misunderstood stocks.

One more advantage that we have is our relationships with multiple underwriters. When a company is pricing an IPO, we take calls from most of the major brokerages selling the deal and are able to pick up on the demand for a particular issue. If a contact calls in and says, “This deal is going to be red hot and I can get you as many shares as you want!”, we know that there is excess supply and the underwriters are pushing to get the deal sold. So, while you have to read between the lines at times, the relationships with these important firms gives us an edge that is difficult to quantify and nearly impossible to duplicate.

How does a firm located in Atlanta, GA start investing in small Israeli companies?

ZS: Well, believe it or not, the process is very simple. As Israel’s economy continues to evolve and new enterprises demand capital for expansion, companies often come to US markets to raise that capital. With technology making the world smaller every day, our research process is able to grapple through the same information that hits the desk on the 87th floor of a Park Avenue office (with considerably less overhead, I might add) and we are able to make a well-informed decision based on publicly available information.

To me there is not much difference in picking a stock based in NYC, San Francisco, London, Buenos Aires, or Tel Aviv. While currency issues come into play, local culture and customs are of course important, but the bottom line is whether I can make money trading the stock or not. The price of the stock will fall in line with supply and demand and that will be based on the public expectation of the future prosperity of the business. So if I can get an edge on what that public perception will be, I can trade a stock successfully, no matter where the company is located. (Continue »)

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Aaron Katsman
www.IsraelNewsletter.com

As my buddy Zack“Facebook” Miller posted exactly 2 weeks ago, Alvarion(ALVR) today announceda huge win, inking a deal with a “Tier-1″ player. That player is expected to be France Telecom and the deal is estimated to be in the $20 million range. Here at IOI we continue to be positive about the technology and the 2 major Israeli players, Alvarion and Ceragon Networks(CRNT).

You just have to love these little Israeli companies and their innovation. Just when you think the end is near, Bang, they sign a major deal. 

With the recent weakness in both stocks, these 2 could be big winners in ‘08.

Disclosure: Author’s fund holds a position in ALVR and is long the stock as of 12/19/07.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter.  Stay ahead of the game and make smart decisions in Israel stocks.  Go here to learn more.

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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