Three that bucked the trend - and why

Shlomi Cohen

Attunity, Orbotech and Radware all rose last week in a falling market.

At the start of last week, when the market opened with rises, there were those who thought that the correction was over, and that the shrinking of the inflated sales multiples of momentum stocks in the social networks, Big Data and cloud computing sectors had been halted. But then came Friday's brutal session, a slap in the face for the optimists, with a 2.6% drop in the Nasdaq index. At the same time, the recycling that began the previous week, whereby money exiting bubble stocks partly found its way to what I dubbed 'the old men of Nasdaq', continued. Last week, Intel (INTC), Oracle (ORCL), and Cisco (CSCO) again stood out as advancers. Beyond Nasdaq, but there too among the veteran stocks, IBM and HP (HPQ) rose against the trend.

HP will probably keep rising this week, after Barron's paid tribute to CEO Meg Whitman, who has led an impressive recovery since taking over the helm three years ago. Barron's sees the stock rising a further 20% in the coming year, and even then it will be traded at a low p/e ratio of 10, similar to that of Xerox (XRX).

Among the Israeli stocks that I hold here, Attunity Inc. (Bulletin Board: ATTUF), Radware Ltd. (Nasdaq: RDWR) and Orbotech Ltd. (Nasdaq: ORBK) rose last week for direct and indirect reasons. Despite a 7% drop on Friday, Attunity rose by 7% over the week, after launching a new platform for managing and monitoring information flow in enterprises.

This platform joins the other software tools that Attunity sells for Big Data and cloud computing environments, the main one being copying tools that transfer files rapidly from the enterprise to the storage center. The new platform should generate significant sales from next year, and the deal size is substantially larger than the average deal it currently closes.

Orbotech rose after the Ion Israel Fund, founded eight years ago by Jonathan Half and Stephen Levey, both ex UBS Israel, reported a holding of over 5%, a substantial investment of over $28 million. This was a 13D report, that is, a declaration of the fund's intention of being involved in the company and influencing decision making.

The fund's managers want Orbotech to share its $218 million net cash (as at the end of 2013) with its shareholders, and in addition they seek a seat on the board.

It's rare that we see activism in the style of Carl Icahn in Israeli companies, and Ion's move is certainly welcome, although I doubt their chances of obtaining all that they want.

Facing them are the founders, the Richter brothers, who hold over 10%: Yochai, who is chairman, and Jacob (Kobi), who is a director, and an experienced combatant, in the air as a pilot, and in the courts here and overseas as a businessman.

The positive side is that shareholder activism generally sends the share price northwards, as long as the company's business is good, and that is what can be expected at Orbotech, at least over two to three years.

Two years ago, Radware's share price shot up when Oppenheimer analyst Ittai Kidron discovered negotiations between Radware and Juniper (JNPR) on a second, new collaboration between the two companies that was expected to generate revenue of up to $100 million for Radware over a few years. Kidron recommended buying Radware, and predicted a substantial rise in earnings per share.

Two months later, it became known that Juniper had signed an agreement with rival Riverbed (RVBD), and Radware's share price collapsed. In the results conference call held at around that time, Radware founder and CEO Roy Zisapel explained to Kidron, who sounded angry, that he had refused to sign an agreement with Juniper because it entailed revealing software code, which in his view was not worthwhile in view of the potential of the agreement.

I wrote at the time that Radware's refusal made a great deal of sense, because if the company were to reveal its code, it should be to one of the giants in its field, such as Cisco, for example.

Last week, as part of a restructuring initiated by Juniper's new CEO, he canceled the agreement with Riverbed, and announced that Juniper was getting out of the field that Radware operates in. For its part, Radware remains with the code securely in the safe, and is also deepening its ties with Cisco.

The writer serves as a consultant and investor in securities, and advises the Pia Select Nasdaq fund. This column should not be seen as advice or a recommendation to buy or sell securities, including securities mentioned in the column. Anyone who acts in reliance on the column is exclusively responsible for any damage or loss they may incur.

Published by Globes [online], Israel business news - - on April 7, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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