Traders on Wall Street are counting the few days that still remain of the summer of 2007, which will officially end at the close of this week. Those traders who chose to forego a sweltering vacation at the country's beach resorts, still found themselves dripping with sweat at their offices as they stood watching the graphs above the stock exchange monitors, which over the last month moved at breakneck speed in both directions. From the time the declines began at the end of June to the low reached on August 16, the Dow Jones plummeted by more than 1,500 points, and from then through last Friday, it rebounded again by almost 1,000 points. By the time traders return next Tuesday from the long weekend break for Labor Day it will be September, which is actually noted in the history books as the worst month in the entire year.
Heavy but with potential
Two small Israeli stocks in my portfolio, Ceragon Networks Ltd. (Nasdaq: CRNT; TASE:CRNT), and LanOptics Ltd. (Nasdaq: LNOP; TASE:LNOP) stood out this week, since they both recovered from the crisis at an amazing speed, hitting two-year highs during Friday's session. I wrote some time ago, that Ceragon's stock has been "captured" by strong American hands, and last Friday those hands did not tremble as they acquired it at prices upward of $18, 44% higher than the low reached in the previous week when the crisis was in full swing.
Like many other Israelis in recent months, I too have finally given in and am exiting Ceragon with a fantastic 125% return in three months. In its place, I am adding Elron Electronic Industries Ltd. (Nasdaq: ELRN; TASE: ELRN), a much less rambunctious stock which I will comment on at length later. It is also a stock that could yield the same kind of returns as Ceragon, but it'll take it up to two years to do so since it is a holding company, and companies like these are not boisterous by nature.
As for Ceragon, I know that it has been picking up new contracts at a fantastic rate in the Asian markets in which it operates, and it could, perhaps, even be up for sale, considering the aggressiveness of the buyers. That said, sometimes you also have to be able to be courageous enough to quit a good investment, and I am getting out now before the analysts arrive on the scene and downgrade their ratings en-masse. They too, are probably stunned by Ceragon's run, and are sick of having to chase after it with ever higher target prices.
As for LanOptics, Friday's gain was apparently the result of a prominent report by a technical expert on "TheStreet.com" whose headline described it as a "small-cap tech stock that could break out." On a day of sharp gains, a report like this is enough to fuel any small stock. In addition, at the beginning of the week, LanOptics sold 800,000 shares at $14.88 each to a private investor called James Cheney.
In my view, this sale of 800,000 out of an open prospectus for 2.5 million shares, strengthens those investors who believe the company has a great future, even it is traded at a level that reflects a value of at least $350 million for its sole asset, EZchip Technologies Ltd.. It turns out that the "anonymous" investor is a longstanding member of George Gilder's forum and the latter's enthusiasm over EZchip's network processors apparently played a key role in his decision to invest $11.9 million in one company.
Elron, all-in-one
For some weeks now, I have been looking for a good point of entry to Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN), since I feel that 2008 could be the year in which the company regains the honor it had in its first years as a public company when it was a dream stock, reaching a high of $45 three years ago. Instead of investing directly in Given Imaging, I am opting instead for holding company Elron Electronic Industries Ltd. (Nasdaq: ELRN; TASE: ELRN), which has, among other things, a 23% stake in the company. As a rule, I don't like investing in holding companies, but after meeting on Sunday with Elron CEO Doron Birger, and CFO Rinat Remler, I decided to add this particular one to my portfolio.
On top of the exposure to Elron's other companies, both public and private, as well as the high cash level, I am also getting a potential mega upside from a number of medical device platforms developed by private companies that Elron has invested in, which could be massive in the future. Each one has the potential to replicate the Given Imaging dream in terms of market cap, but failure by one or even all of them, will not pulverize the stock, since they are still privately held, and have negligible valuations.
Most notable of all these companies is BrainsGate Ltd., of which Elron owns 23%. Like Given Imaging, BrainsGate was also one of the approximately 50 countries which in January this year were awarded the Technology Pioneer Award 2007 at the World Economic Forum in Davos, Switzerland. It has developed a miniature electrode which, when implanted in the mouth, can transmit pulses, increasing cerebral blood flow.
The special electrode, which is already undergoing clinical trials, can be used to provide effective treatment within 24 hours to patients who have suffered an ischemic stroke - patients whose current treatment consists largely of blood diluents, and whose time window for treatment after the event is no more than a few hours. In addition, it could also be used in future as a comprehensive platform for drug delivery to the brain, a field that is critical in the treatment of diseases such as Alzheimer's, a disease that large companies have focused on without success to date.
At the close of trading on Friday, Elron had a market cap of $372 million, of which $235 million represents the value of the shares of the public companies it has invested in. It currently has $74 million in cash, so anyone investing in Elron will also be investing in its large portfolio of privately held companies at the nonsensical value of $63 million, some of which could be the next Given Imaging. Another of Elron's hidden assets is its 50.1% holding in Rafael's civil development arm Rafael Development Corporation Ltd., which produced Given Imaging, among others.
Published by Globes [online], Israel business news - www.globes.co.il - on August 28, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007