Aaron Katsman
IsraelNewsletter.com

Volatile markets have impacted even the best of investors. Last week we heard that Warren Buffett had his worst first half of a year in 19 years, and news out yesterday shows that the hedge fund industry didn’t fare much better.

According to a report in Bloomberg: ” Hedge funds declined by an average 0.7 percent in June, bringing the year-to-date loss to 0.75 percent, data compiled by Hedge Fund Research Inc. show. It’s the worst start to a year since the Chicago-based firm began tracking returns in 1990.”

While hedge fund investors lamented the lack of volatility in markets for the last few years, they finally got their wish and, on average, weren’t able to deal with the high level of volatility.

But before we jump on the anti-hedge fund bandwagon, it’s important to note that the average equity hedge fund lost about 3.3% during the 1st half of the year. That thoroughly crushes the S&P 500 which dropped 19% from the October peak. This actually means that the hedge funds are doing what they are supposed to do and be a hedge against falling markets. To often recently hedge funds have become correlated to the market, exactly what they shouldn’t be.

It will be interesting to see the numbers from the mutual industry as well. If actively managed mutual funds also manage to beat the market, it may help slow down the explosive growth of the ETF industry. With investors constantly being told to simply buy and hold ETFs, double digit under-performance within traditional ETFs has burned investors.  This may cause investors to revert to more actively managed accounts.

After all, how many buy and hold investors wish that they would have only lost 3.3% so far this year?

Disclosure: Author’s fund has no position in any stock mentioned as of 7/10/08.

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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Aaron Katsman
IsraelNewsletter.com

One of my 7 year old daughter’s favorite movies is the Disney classic Aladdin. In the movie, Aladdin must rely on his intelligence to trick Jafar and save his friends and the Kingdom. He meets a genie and receives 3 wishes. We all know what happens next. He saves the kingdom and falls in love with the Princess. If only stock investing followed a Disney script.

Fast forward to reality and today we have Aladdin Knowledge Systems (ALDN) getting slammed on the back of a terrible earnings warning. This follows a Q1 warning and lowering of ‘08 numbers. Now the company is back with a new an improved warning. According to the AP report: “Aladdin, which released preliminary figures for the quarter, said it expects to report profit of 1 cent per share on revenue of $26 million to $26.5 million in the latest period. Analysts polled by Thomson Financial expected profit of 27 cents per share.”

Yikes! The company attributed the shortfall on a slow global economy, strong Shekel, and some orders that were delayed. Keep in mind that this is a stock that started the year over $25 and is now trading under $10. The obvious question is where is management. How can analysts think you are going to do 27 cents and you end up saying that you are going to do a penny? Once again we have an example of why investors get spooked about investing in Israeli stocks that trade in the US. They have little confidence that management can deliver consistent numbers. As I wrote last week regarding Israeli companies, ” They have great technology but the management is inexperienced and can’t take the company to the next level. Then they operate as if no one is watching and try to and make out like bandits. Newsflash: This doesn’t play well on Wall Street.”

One should always be wary of investing in a company that shares a name with a Disney character. For investors it sure would be nice to see a Genie appear, and give management 3 wishes to get the company back on track.

Disclosure: Author’s fund has a position in ALDN. He has no position in any other stock mentioned as of 7/02/08.

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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Aaron Katsman
IsraelNewsletter.com

While it sounds opportunistic, many investors think that the best time to invest is when there is ‘blood in the streets’. One industry that has been absolutely crushed is the oil refinery business. With prices of crude oil reaching record high levels daily, refiners are feeling the squeeze. That’s why it’s interesting that the Israeli refiner Delek US (DK) is reportedly looking to make acquisitions in the range of $1 billion.

According to a report in the Israeli daily, Globes,: “Delek US Holdings Inc.  notified the US Securities and Exchange Commission (SEC) on Friday that it ‘is currently exploring the potential acquisition of certain petroleum refining, retail, and wholesale marketing assets in the US’ for $1 billion.”

The report continues: “US energy market sources believe that Delek US is seeking to buy a refinery in Oklahoma. Valero Energy Corporation (VLO) and Sonoco Products Company (SON) have both put up refineries for sale because of eroding profit margins.”

Shares in Delek have lost more than 65% over the last year. But you have to love their vision. They can get  another refinery at a huge discount, so they are buying it.  You have to believe that at some point the price of crude will drop. If it doesn’t, then all the refiners will probably go out of business anyway, so to me this deal makes a lot of sense. What do they have to lose?

Buy low and sell high. Over the long-term management may turn out to be real heroes. Instead of resting on their laurels through a bad market cycle they are looking for ways to enhance future shareholder value. Loading up on cheap assets when things are tough. If the price of crude starts to fall, look for shares in Delek to potentially power higher.

Disclosure: Author’s fund has a position in DK. He has no position in any other stock mentioned as of 6/29/08.

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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Aaron Katsman
IsraelNewsletter.com

Shares in Medis Technologies (MDTL) reached a 5 year low Friday on news that the company was doing a $29 million offering. This raise leads to the question of whether the company is teetering on the brink of financial solvency? For those who don’t know, Medis focuses on its fuel cell technology, and sells through OEM partnerships.

The problem is that they aren’t doing much selling. The company has made announcement’s in the past about prospective deals but little has come to fruition. A year ago, after announcing a deal with Microsoft (MSFT) that was said to be in the millions, Herb Greenberg wrote in SeekingAlpha.com: “A Microsoft spokesman, noting that the order was “small,” told me there has been “inaccurate” information in the marketplace about what Microsoft plans to do with the fuel cells. “We have no plans to resell these products around the world,” she said. She added that Microsoft has no plans “for development of the product.”

Then what is Microsoft doing with it? As John says in his piece, Microsoft plans to use the Medis products as a giveaway at an upcoming event…like a chatchke. Yet another Medis announcement that isn’t quite what it appears to be.

Jonathan Weil of Glass Lewis, the proxy and research firm, added color in a report to his firm’s clients. He quoted a Microsoft spokesman as saying the Medis product is “not a Microsoft branded product. He added that the total purchase price was “less than $15,000. We have no agreements with them. No joint development. There’s no partnership around accessories. If you think of this as akin to Microsoft buying a pen or a Frisbee — that’s the way you should think of it.”

If you look at their Q1 ‘08 earnings report you will find that the company lost more than $14.7 million in the quarter. The report goes on to say: “We recently announced the signing of a $60 million equity line of credit facility with Azimuth Opportunity Ltd. We believe that the equity line offers financing which is sufficient to meet our current and near term foreseeable needs but is also very flexible. As we move forward with our sales and marketing programs we will determine how best to finance our activities.”

That was on May 12th. A short time after signing a $60 million equity line of credit, the company goes out and raises $29 million? I know that when talking about an alternative energy company this may sound heretical, but it seems like Medis is about to run out of gas.

Disclosure: Author’s fund has no position in any stock mentioned as of 6/22/08.

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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