Israeli Buybacks

01/21/2005 12:00 am EST

Focus:

Vivian Lewis

Editor and Publisher, Global Investing

We also congratulate Vivian Lewis, not only for being the only woman on Hulbert's top 10 list for 2004, but also the only advisor focused on global investing. Here, she looks a several Israeli stocks with a common theme-they are buying back their shares.

"One theme among our recent recommendations is buybacks. In particular, a bunch of Israeli shares in our long term buy and hold portfolio are buying back their own shares.  The logic behind these selections is pretty simple.  First of all, the market tends to undervalue the importance of stock buybacks. Secondly, Israel is the home of undervalued tech stocks. Their price-earnings ratios are well below those of competitor firms. They are undervalued because of perceptions of political risk, and a generally negative attitude toward Israeli stocks from major continental European investors and mutual funds. Thirdly, I happen to believe the chances of a breakthrough to peace in Israel are greater now than before, so I think the political risk may be getting lower.

"One is Amdocs (DOX NYSE), a major player in billing and customer relationship management systems for telephone companies. It is Israeli in ownership, headquartered in The Channel Islands (off Britain), and run from St. Louis (MO). It just reported stunning earnings growth. T-Mobile Hungary (with 4 million customers) and Amdocs recently established a system that will seamlessly link front- and back-office systems, streamlining all customer business processes. A recent downgrade by tech brokerage Janney Montgomery Scott caused the stock to fall. But it announced a $100 million buyback campaign. We view this as a buying opportunity.

"M-Systems Flashdisk (FLSH NASDAQ) makes flash memory and security systems for cellphones. A flash memory is one which doesn't get lost when you turn the portable telephone off. FLSH owns a host of licenses and patents which are widely used in this hot technology. The company,  and Memorex Products, a market leader in digital media, joined forces to sell the latest USB flash drive storage solution. The relationship brings together M-Systems' flash intellectual property with Memorex's legendary brand and sales and marketing expertise. FLSH also launched a new line of DiskOnChip devices, targeting high-end music and video handsets. The company also sold its non-volatile storage DOC system to GroupSense, the Asian maker of hand-held computers. FLSH is buying back up to $60 million of its shares. It has $180 million in cash.

"Teva Pharmaceutical (TEVA NASDAQ), a global leader in generic drugs, with its own major ethical drugs for multiple sclerosis and Parkinson's disease. It is pressuring the drug majors with its steady pipeline of applications for copycat drugs with the Food & Drug Administration while also bringing the white heat of Israeli research to the market with its own patented medicines and biotech products. Teva recently won FDA approval to make Oxycodone Hydrochloride ER Tablets in four sizes, the generic of OxyContin extended release pain management drug. It has also begun shipping Teva-branded Quinapril HCl; this is equivalent of Parke-Davis's accupril against hypertension with sales of $555 million per year. It also will share the 180-day exclusivity with Alpharma for producing two sizes of gabapentin, the generic of Pfizer's Neutonin, a blockbuster with $1.05 billion in annual sales. Meanwhile, the company is buying back $600 million of its shares.

"A fourth Israeli stock that we also rate as a 'best buy' is Magic Software (MGIC NASDAQ). The company creates application development and business productivity management technology enabling users to coordinate or update incompatible or legacy computer systems. It aims at the small- to medium-sized user and is popular with operators in fields as diverse as law enforcement and logistics management. The stock dropped in price despite being named 'best integration software' by top rater Forrester Research Co. The reason for the perverse reaction may be that Magic was dropped from the Tel Aviv Stock Exchange's Tech 15 index. When a stock is dropped from an index, tracker funds must sell. This creates a buy opportunity."

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