Washington broker remains bullish on Israeli stocks

Investing

June 03, 1996|By Bill Atkinson

DESPITE CAR bombings, political uncertainty and the threat of war, analyst Robert Goldman says, Israel is still the land of milk and honey for investors.

Goldman heads a group of analysts at Josephthal Lyon & Ross Inc., a Washington brokerage with expertise in Israeli-based companies.

He believes that, despite last week's election upset that ousted Israeli Prime Minister Shimon Peres, investors shouldn't be frightened off.

"We are bullish because we do not expect a change in fiscal policy," said Goldman, who followed Israeli companies at Chesapeake Securities Research Corp. in Towson from 1992 until he left in 1995. "The peace process will continue, and the fundamentals of the companies that we follow remain outstanding. The country cannot afford to turn back."

There are 70-plus Israeli companies whose shares are traded in the United States, and there are plenty of good deals to be had, he said.

Goldman likes companies that have carved out niches in electronics, pharmaceuticals and computers.

Not everyone is as confident about the near future. Some people are worried that Benjamin Netanyahu, the right-wing winner, could derail the peace process and hurt business.

Companies traded on the Tel Aviv Stock Exchange were hammered Thursday when it became apparent that Peres had been defeated. Stocks fell 4.8 percent for the day, which would be equivalent to a 300-point drop in the Dow Jones industrial average at current levels.

Goldman says investors should grit their teeth and bear the turmoil because Israel has huge potential. It is quickly becoming the Silicon Valley of the Middle East, and its work force is highly educated.

"If you were to travel to Israel right now, the planes are full of investment bankers," said the 27-year-old analyst. "Everybody is willing to give Israel money."

Just last month, Alex. Brown Inc.'s top brass met with Israeli government and business officials to broaden ties with the country's burgeoning high-technology and health-care industries.

Goldman likes companies that are leaders in their niches and generate business by exporting their goods. He recommends companies that are growing their earnings rapidly but trading at modest price-to-earnings ratios.

A company he is high on is Teva Pharmaceutical Industries Ltd. It's the largest pharmaceutical company in Israel and owns the third-largest generic drug company in the United States, called the Lemmon Co.

The company could win approval from the U.S. Food and Drug Administration this summer for a blockbuster drug called Copaxone, which treats multiple sclerosis. Goldman estimates that the company's earnings will rise from $1.53 a share in 1995 to $2.19 in 1996 and on to $3.24 in 1997. Teva closed Friday at $44.75 a share, down 12.5 cents.

Gilat Satellite Networks Ltd. is another company that Goldman is recommending to investors. The company makes small satellites that allow businesses to communicate and conduct electronic transactions. For instance, it has installed satellite networks for Rite Aid and Winn Dixie that not only broadcast music and messages over a speaker system, but also enable employees to track inventory and process credit card transactions.

Gilat has no debt, $40 million in cash and an estimated $21 million backlog of orders. The company earned 95 cents a share in 1995, and Goldman expects earnings to reach $1.19 this year, then $1.55 in 1997. The company closed Friday at $20 a share, up 50 cents. He expects the price to reach $34 a share in the next 12 months.

A company involved with the computer industry that Goldman likes is Orbotech Ltd. It makes equipment that inspects printed circuit boards and liquid crystal display screens that are used mainly for laptop computers.

"It is a boring industry, but the growth in liquid crystal displays is tremendous, whether it is for laptops, personal computers, televisions, you name it," Goldman said. "It has been trading like crazy lately. Institutions have just begun to hear the story."

He estimates that earnings will grow from 93 cents a share in 1995 to $1.15 this year and $1.40 in 1997. Orbotech's stock closed Friday at $15.625, up 25 cents.

Pub Date: 6/03/96

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