! Israeli Stocks A RISK THAT MAY BE WORTH TAKING - UPDATE: Our last update of this section was on July 14, 2003. .... The charts of all these stocks continue to perform and ... these stocks will continue to trade higher AUDC, DSPG, PCVA, FLSH, NICE
"Terrorism and the threat of war have sunk Israeli stocks. There now appear to be some real bargains out there! Israel isn't likely to be on the A fist of many investors looking for international exposure right now. The looming war with Iraq and the memories of Scud missiles it evokes-not to mention those nightly TV reports of terrorist attacks-have made buying stocks of Israel-based companies seem increasingly perilous. Even firms whose official headquarters are elsewhere but have close ties to Israel aren't immune. Consider chipmaker DSP Group. In the risk-factor section of its regulatory filings, the California company (whose R&D staff, top executives, and directors mostly live in Israel), warns "Any major hostilities involving Israel ... could significantly harm our business, operating results, and financial condition." Indeed, the war buildup, combined with the struggling tech economy (many Israeli companies are involved with technology spawned from the country's military), has already clobbered stock prices. The shares of the 93 Israeli companies listed on US. exchanges, for example, are down an average of 41% over the past year, compared with a 29% drop for the Nasdaq. Yet Toronto money manager Richard Mashaal of Senvest Partners, whose portfolio has an average annual return since 1997 of 35% after fees, sees nothing but opportunity for 'investors who can sit tight on Israeli investments until tensions ease. Says Mashaal: "They're the first stocks to get thrown out of the portfolio; people just toss them out, without asking questions." That's why jumping in now might not be as wacky as it sounds. As all good contrarians know, the best time to shop is when the stores are empty. (Just ask anyone who loaded his shopping cart with gold back in 1999!) The Israeli companies Mashaal likes are ones that, for the most part, went public at the tail end of the tech bubble. After the market crashed, many lost research coverage when investment banks such as Goldman Sachs shut down their Israeli operations. "This has particularly hurt the securities of smaller Israeli companies," says Mashaal, whose father was raised in Iraq and whose mother is from Israel."
"Mashaal's bet is that eventually, even if it's in three to five years, life in Israel will calm down. "It won't be perfect," he says, "but it will be better." At that point, if he's right, the market will rediscover Israeli companies, and the stock prices will come back fast. The thing is, while the shares have plummeted in the past couple of years, the fundamentals of many Israeli companies have actually improved. The best ones are sitting on piles of cash left over from their public offerings, have little in the way of debt, and now trade at historically low valuations. Some have even been able to show solid growth in the past year in what has been an abysmal environment for tech and capital spending. Take, for example, AUDIOCODES which makes products to deliver voice and faxes over the Internet. Back in 1999. shares of AudioCodes traded as high as $148, giving it a market valuation of $3 billion. At its current price the company now has a market cap of only $90 million. Best of all, it trades at around a 22% discount to cash and boasts five straight quarters of revenue growth, making it A favorite Israeli stock. CIBC World Markets, one of the few investment firms that still follows Israel companies, agrees and recently upgraded the company to a "speculative sector performer.' Adding to the allure, the company's two founders each own more than 11% of the stock. If they thought the best thing would be to liquidate, they could stash away $12 million each, but they're not doing it! Another Israeli stock to consider is DSP GROUP, which makes chips used in cordless (not cellular) phones. It's easy to see the appeal. Not only did DSP's revenues leap 40% in last year's terrible tech market, but with $8 per share in cash and no debt, the company is also making money and gaining market share. Its biggest customers are Panasonic, Uniden, and Sanyo, which have been looking for ways to break into the European market. They now have it in the form of a new chip they co-developed with DSP, so it should be an easy sell. Others to consider include PARTHUSCEVA, the leader in digital-signal software licensing, which counts the ten top semiconductor companies as customers; M-SYSTEMS, which specializes in adding value to flash memory and which trades at a slight premium to cash; and NICE SYSTEMS, which sells digital recording products to financial institutions, air-traffic-control centers, and government surveillance. While a strong economy would help all of these companies, they should all grow even in a lackluster economy. All these stocks are similar in nature to several recommended last October in a section titled "HIGH FLIERS OF THE PAST." These stocks included TELLABS (TLAB), CIRRUS LOGIC (CRUS), INTERDIGIT COMMUNICATIONS (IDCC), SYCAMORE NETWORKS (SCMR), RAMBUS (RMBS), IGATE CORP (IGTE), LEGATO SYSTEMS (LGTO) and PALM INC. (PALM).
In "A Risk That May be Worth Taking," three stocks stand out technically and we would like to look at these three in a little more detail. Those stocks are Nice Systems (NICE), DSP Group (DSPG) and AudioCodes LTD (AUDC).
NICE SYSTEMS LTD: (NICE) $14.85 Down $.28 and traded on the Nasdaq Stock Exchange..... NICE Systems was recommended at $10.12 per share. The stock recently made a technical breakout when it closed above the $10.50 level and at the very least looks headed to the $13/$14 area in the near-term. Three years ago the stock traded in the $80's. The company provides integrated multimedia digital recording and quality management solutions by capturing, evaluating and analyzing voice communications, internet collaboration, Voice over Internet Protocol (VoIP), call data, desktop screens, Email storage and video. NICE provides advanced Computer Telephony Integrated (CTI) recording solutions. NICE serves multiple markets, primarily customer contact centers, financial institutions, air traffic control (ATC) sites, public safety centers, closed circuit television (CCTV), security installations, service providers of security solutions and government agencies. The company's principal produc t, NiceLog, is a scalable CTI digital voice recording and retrieval system. NiceLog performs continuous, reliable recordings of up to thousands of channels. NiceLog can store over 38,000 channel hours of recordings on-line per unit. NICE also offers NiceCall Focus, a voice recorder for applications requiring fewer (8 to 32) channels; and NiceUniverse, a comprehensive quality management solution used to evaluate agent performance and to raise the level of customer service in contact centers, through advanced voice and desktop screen recording technologies. In 2001, NICE introduced NiceVision Pro, a solution designed for high-end applications including real-time casino environments and transportation security needs and the NiceVision Harmony, a mid-range digital video recording solution. NICE also provides communication intelligence (COMINT) systems that are used primarily by government agencies to detect, identify, locate, monitor and record transmissions from a variety of sources. It's principal COMINT system is Nicefix. In 2001, the company introduced NiceTrack, a monitoring system for the government law enforcement markets, that meets the U.S. CALEA (Communication System for Law Enforcement Act) and TIA (Telecommunication Industry Association and the European ETSI (European Telecommunications Standard Institute) standards required by government agencies to manage the transfer of information from service providers to law enforcement agencies. The company's revenues decreased to $127.1 million in 2001 from $153.2 million in 2000.
DSP GROUP: (DSPG) $27.95 Up $.40 and traded on the Nasdaq Stock Exchange..... DSPG was recommended at $15.85 and is nearing a very important technical breakout point. A close of $17 will be a double top technical breakout and a close of $17.50 will be a spread triple top technical breakout. A close above $17.50 likely takes the stock to the low-$20's. The company develops products and technologies that perform digital signal processing (DSP), which entails the electronic manipulation of digitized speech and other digital signals. The company was involved in two business segments until November 1, 2002. Its product business designs and sells integrated circuits that perform speech related functions in telephone answering machines, cordless telephones, personal computers and other products. The intellectual property licensing segment, Ceva, develops and licenses proprietary digital signal processing algorithms or speech related, software-based microprocessor cores that are li censed to semiconductor companies and original equipment manufacturers (OEMs). On November 1, 2002, DSPG spun off Ceva to its shareholders, and it immediately merged with Parthus Technologies, plc, an Irish public company. DSPG shareholders received one share of ParthusCeva, Inc. for every three shares of DSPG held. Through Ceva, the company licensed its proprietary DSP cores to more than 60 entities. Ceva's cores cover a wide range of applications, from low end, such as digital answering machines, to high performance, such as third generation (3G) cellular communication devices, broadband modems, and VoIP gateways.
Digital speech technology provides several advantages over analog speech technology, including a broader range of features than analog-based solutions. The company has developed two lines of speech and telephony processing chips: integrated digital telephony processors, designed for use in the consumer telephone market, and Voice over Internet Protocol (VoIP) speech co-processors, designed for use in network telephony and video conferencing. DSPG's processors are incorporated in a variety of products, in more than 120 models from 39 manufacturers. Integrated digital telephony processors accounted for 73% of 2001 revenues. Voice over packet (VoIP & VoDSL) speech co-processors were developed for use in conjunction with other microprocessors to transmit voice over packet-based public and private networks, including the Internet. VoIP involves dividing the signals into many small data packets that are individually transmitted over the network and reassembled at their destination. In 2001, DSPG acquired the remaining shares of VoicePump, a supplier of embedded DSP software for high-density VoDSL and VoIP applications. In 2001, the company launched its first products for VoDSL, VoIP, and other packet voice applications. The company indicated in its third quarter 2002 earnings conference call that it was actively seeking acquisition opportunities. DSP's cash and marketable securities position at the end of the third quarter of 2002 stood at $2.46 per diluted share.
AUDIOCODES LTD: (AUDC) $6.20 Up $.25 and traded on the Nasdaq Stock Exchange..... AudioCodes made a technical breakout when it closed above the $2.50 level and it hasn't looked back since. The new recent 52-week high is $5.80. AUDC develops and markets enabling technologies and products for the transmission of voice and fax over packet networks. Packet networks are data communications networks that transport information compressed into packets over circuits shared simultaneously by several users. Newly developed equipment based on advanced voice communications standards enable packet networks to carry voice and data more efficiently and at lower cost than the traditional telephone networks, which were designed principally to transmit high quality voice calls. The company's voice compression technology permits the high quality transmission of voice over packet networks using substantially less network capacity than used in traditional telephone networks. AUDC's products enab le its customers to build highly efficient, high capacity gateways and access equipment which are used to connect traditional telephone networks with packet networks. The company sells its products to leading original equipment manufacturers in the telecommunications and networking industries, such as Alcatel S.A., Cisco Systems, Inc., Clarent Corp., Lucent Technologies, Siemens, and VocalTec Communications. In addition, the company's proprietary voice compression technology is licensed to a broad group of companies that manufacture equipment for a variety of markets. According to Frost and Sullivan, the worldwide market for gateway equipment for packet networks based on the Internet protocol is estimated to grow to $5.5 billion in 2003. Total revenues decreased 50.2% to $35.7 million in 2001 from $71.8 million in 2000. |
