Who says video games cant prepare you for real life? Faced with Iranian weapon convoys traveling through the Sudan on their way for Gaza and the Hamas, Israel took out a joystick, sent up a couple of Hermes 450 UAVs unmanned drones, and scored a direct hit on the entire convoy. Can you say Free Game?
According to Ynet: “According to the Sunday Times, Hermes 450 drones attacked two convoys, killing at least 50 smugglers and their Iranian escorts. One source claimed they were accompanied by giant Eitan UAVs, which have a 110ft wingspan, similar to that of a Boeing 737. The drones, controlled via satellite, can hover over a target for 24 hours, the report said. The defense sources said that the main reason for choosing the drones was that a convoy forms a “slippery” target. “When you attack a fixed target, especially a big one, you are better off using jet aircraft. But with a moving target with no definite time for the move UAVs are best, as they can hover extremely high and remain unseen until the target is on the move,” one of the sources said.”
Israel may have a political vacuum, but there is no disputing the tactical superiority of the Israeli Defense Forces. In the span of just a few months Israel has destroyed this convoy, doing it completely undetected, and let’s not forget that they made the Syrians look downright silly, as they blew up a nuclear reactor, again completely undetected.
What would you say if I told you that there was a company that developed GPS-like technology for the human body? You’d probably say that that is really cool. Well leave it to Israeli ingenuity and creativity to create such a cutting-edge technology. In fact it’s such an interesting technology that St. Jude Medical(STJ) has bought the Israeli company for $300m.
In a market with very little M&A, this makes 2 acquisitions of Israeli companies in as many months. Johnson & Johnson(JNJ) bought Omrix Biopharmaceuticals(OMRI) as well. This shows that multi-nationals would rather outsource their R&D than develop it in-house. if this trend continues, it could get very interesting for Israeli hi-tech.
MediGuide was founded in 2000 by Gera Strommer, president and CEO, and Uzi Eichler, vice president technology, as a spin-off from Elbit Systems (Nasdaq: ESLT), which owns 41.3% of the company, and with backing from Israeli venture capital fund Vitalife.
According to Globes: “MediGuide has developed technology and products for minimally invasive navigation and tracking within the human body. Its devices are for use in cardiac procedures and catheterization. The system consists of sensors mounted on a catheter introduced into the body, with the locating done on the basis of the distance of the sensors from several sources of magnetic radiation, with an accuracy of fractions of a millimeter.
The information from the sensors is combined with an image of the interior of the body, in a way that is similar to the way locating using a GPS device works. Since in catheterization or other invasive procedure, the human body undergoes changes, the device measures physiological indications from the body breathing, EKG, and so on and amends the picture accordingly.”
What will they think of next?
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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.
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.
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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.
Before we get to the Israel news briefs, I want to send a big congrats out to Seattle Mariners announcer Dave Niehaus, on his induction, yesterday, to the Baseball Hall of Fame. My childhood was spent listening to him do play-by-play and nobody does it better. His “Fly away”, “My o My”, and ” A very pleasant good afternoon everybody on a glorious day out for baseball, the mountain is out in all her majesty” are calls that will forever be ingrained in my memory as well as millions of baseball fans who have listened to him over the years.
Now to the news:
Elbit Systems(ESLT) looks like it will have a strong quarter. Globes reports that the company is looking to make between $8-11 million more than they had thought as short-term delivery contracts rose.
Did I mention that today is my birthday?
The Jpost is reporting that Israeli chip maker Metalink (MTLK) is about to cut a lot of jobs as they try and reduce their burn rate. The report also says that the company is reviewing ’strategic alternatives’ which sounds like a potential sale maybe in the works.
Over at Seeking Alpha, Pierre Daillie interviews well respected investor Larry Sarbit, who speaks highly of the Israeli company Ituran (ITRN). Commenting on the the company that provides location sensing devices, Sarbit says, “It’s a cash machine. Once you get this thing in the car, it just spills out cash and they probably got pricing built into this. In other words, if they increase the price of monitoring by a buck a year, do you think a guy who can afford a Mercedes in Argentina is going to give a damn?”
Silicom (SILC) is out with earnings and they say that they were impacted both by a drop in the Shekel/USD exchange rate as well as a tough spending environment for their customers. CEO Shaike Orbach said, “On the one hand, our revenues for the quarter suffered from both the difficult market environment, which has affected the revenues of many players in the network appliance value chain, and from a significant reduction in orders from our largest customer. We have been impacted by the customer’s new appliance configurations, which reflect its decision to begin offering our copper BYPASS cards as an optional add-on rather than as a standard component, as well as by its low quarterly volume of orders for fiber cards.“
Aaron Katsman, IsraelNewsletter.com
Disclosure: Author’s fund has a position in ESLT,ITRN,SILC. He has no position in any other stock mentioned as of 7/28/08.
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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.
