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Twice-trashed
Israeli techs are the sweetest spot in the rebounding market
by
Adam Lass
Buy low and sell high.
It seems so obvious, and yet so many get it wrong.
Every trade has two players, a buyer and a seller. Both
figure to be on the winning end of the deal. But usually,
one guy is going to come out ahead. In practical terms,
being a contrarian means buying stuff no one else wants,
and doing it when the herd is screaming “sell”!
You should be watching for that moment of maximum pain,
buying seats on the plane when everyone else is bailing
out without parachutes.
If you’re looking for good companies crushed by outrageous
fortune, then Israeli tech stocks are the easy winners,
handicapped as they are by both the U.S. downturn and a
permanent low-grade war on their doorstep. Here are two
ideal candidates: both of them are strong Israeli companies
with strong products, long customer lists and vastly undervalued
stocks.
Beating
the bear
You
could easily call my first pick “bear-proof,”
as it has already profited from the demise of the Soviet
bear and the latter-day exodus of huge numbers of Jews from
the former USSR to Israel that it heralded. Now it’s
about to repeat that performance as the U.S. bear market
keels over.
The Soviet Union’s collapse in the early ’90s
lead to an influx of more than 1.5 million Russian Jews
into Israel. Unfortunately for the ailing Russian economy,
this exodus included a sizable number of highly trained
engineers and scientists. But this was good news for Israel,
as they complemented the hordes of skilled personnel already
trained by Israel’s top-notch universities, armed forces
and industries.
This Russian influx continues to power Israel’s dramatic
technological renaissance, with help from government and
private capital. Israel is now a leading developer of new
technologies, especially in the IT, med-tech and semiconductor
industries.
Their
pain, our gain
Based
outside of Nazareth in northern Israel, ACS-Tech 80 Ltd.
(ACSEF:NASDAQ-SC) continues to benefit from this renaissance,
along with the many Fortune 500 companies that have opened
development facilities in Israel. These include AT&T,
GE, Intel, Motorola, Rockwell, Samsung and Siemens.
With headquarters in Israel, operations in the United States
and distribution worldwide, ACS-Tech 80 develops and markets
leading-edge motion control products. Their advanced motion
controllers and control modules offer sophisticated multi-axis
capabilities that cost-effectively deliver speed and accuracy.
In October 1999, ACS Electronics and Technology 80 merged
complementary strengths to form ACS-Tech 80. The blending
of each company’s experienced staff, leading-edge technology,
and product lines has created one of the industry’s
largest and most agile motion controller vendors. The company
will officially change its name to ACS-Tech 80 Ltd. during
the next annual shareholders meeting.
Machines
in motion
The
merger of ACS and Tech 80 brings together two complementary
product lines that serve both ends of the motion control
marketplace. ACS specializes in advanced, stand-alone motion
controllers and control modules (motion controllers with
integrated digital amplifiers) for high-performance motion
control applications. Tech80’s host-dependent motion
controllers and encoder interfaces offer solutions for low-
and mid-range board-level applications. The products are
stocked in both locations to enable quick delivery of manufactured
components.
ACS-Tech 80 employs more than 75 professionals, 50 in Israel
and 25 in the United States. Nearly half of the staff is
devoted to research and development. R&D teams are maintained
in both locations, which allows the company to concentrate
efforts where the best expertise is located. The teams provide
expertise in real-time software development, motion control,
digital and analog electronics, ASIC design and power electronics.
This combination of technical expertise and a can-do sales
team is clearly visible in ACSEF’s numbers. Q4 00 saw
revenues increase 57% to US$4,649,000, compared to US$2,962,000
for Q4 99, while net income increased 201% to US$860,000,
compared to net income of US$286,000 for the same period
last year. Q4 00 earnings per share were similarly chunky,
coming in at US$0.28, compared to US$0.10 for Q4 99.
Money
in motion
The
annual picture is even sweeter: revenues for the twelve
months ended December 31, 2000, increased 157% to US$16,545,000,
compared with US$6,428,000 for the previous twelve months.
Net income was US$2,922,000, compared to a net loss of US$833,000
the year before.
Earnings per share were US$0.91, versus a loss of US$0.30
in the prior year. The net loss in 1999 resulted primarily
from a one-time write-off of in-process research and development,
and an immediate write-off of part of the acquired goodwill
from discontinued products following the acquisition of
Technology 80 Inc., which was completed on September 30,
1999.
ACTION
ALERT
ACS-Tech 80 Ltd. (ACSEF: NASDAQ-SC) • P.O.B.
5668 Migdal HašEmek 10500 • Israel • Phone: +763-542-9545
• Fax: +763-542-9785 • Email: acs@acs-motion-control.com
• www.acs-motion-control.com
Plans
in motion
ACSEF
recently opened a sales office in the Netherlands under
the name ACS-Tech 80 Europe BV. Its purpose is to support
the growing business activities with Assembleon (formerly
Philips EMT)—which has selected ACS-Tech 80 motion
controllers for its next generation of electronic fast component
mounters—and to promote its European presence and operations.
ACSEF also recently transferred US$250,000 to Netzer Precision
Motion Sensors Ltd. in return for a bridge loan that is
convertible at a discount into shares of Netzer of the same
class issued in Netzer’s next equity financing. In
1998, the company invested US$1,100,000 in Netzer, and currently
holds 18.5% of Netzer’s outstanding share capital.
Netzer is engaged in the development and production of advanced
motion sensors based on a patented technology.
Compared to other companies in the same field, ACSEF blows
the competition away: at 4.30, its P/E is about a fourth
of the industry average of 16.88. P/S is similarly impressive
at 0.79, compared to a trade figure of 3.39.
ACSEF’s monstrous 157.39% annual sales growth dwarfs
the trade’s puny 9.22%, and this growth was achieved
without sacrificing profits: gross margin is almost double
the trade’s at 56.12%, as is net profit at 18.69%.
ACSEF is a classic Taipan play: cool products, clear-headed
management, tons of growth and strong profits. If it does
nothing over the next 12 months but achieve industry norms,
you can expect a fourfold increase in the stock price.
Buy
ACS-Tech 80 Ltd. (ACSEF:NASDAQ-SC) below US$4.50, with a
12-month target of US$16 and the usual -25% trailing stop.
My second double-crushed Israeli play, Eltek, manufactures
printed circuit boards and advanced circuitry solutions
for the Israeli and European electronics industries. Their
products use HDI (high-density interconnect) technology,
which reduces line width and spaces to .002 inch and holes
to a diameter of .003 inch.
The engineers at Eltek concentrate their expertise on providing
state-of-the-art technological solutions, fast turnarounds
and short production runs of high-end PCBs for advanced
electronics applications. Eltek’s products include
rigid and flexible multilayer boards (with up to 30 layers)
for medical diagnostic equipment and scanners, airborne
equipment, military avionics, electro-optic equipment, ground
radar and aerospace applications, back-panels, Teflon and
hybrid boards for radio frequency microwave applications,
and special solutions for heat distribution.
Popular
Eltek’s
management knows what it does well and when it can’t
compete, so it avoids getting bogged down by high-volume
orders, outsourcing them instead to its Asian partners.
The list of customers satisfied with this approach and the
overall quality of Eltek’s work includes some of the
industry’s heaviest hitters, like Siemens, Motorola,
GEC Marconi, Ericsson Saab Avionics, Alcatel, General Electric,
and many more.
And that list is about to expand dramatically. Eltek has
just announced an agreement with Global Logistics, Inc.,
a New York-based independent distributor of electronic components
and PC boards serving the high-tech industry. Under the
agreement, Global Logistics will serve as Eltek’s U.S.
distributor of advanced PCB products.
According to Eltek President and CEO Arieh Reichart, the
agreement mark is the beginning of an exciting chapter in
Eltek’s history, marking Eltek’s initial penetration
into the lucrative U.S. market for high-end printed circuit
boards. Reichart expects to capitalize on that through Global
Logistics’ customer base, which includes Motorola,
Analog Devices and Alcatel.
Room
to move
A
quick perusal of Eltek’s comparative values reveals
a perfect Taipan buying opportunity: a company whose
stock price has been crushed by its peers’ troubles—even
though it stands head and shoulders above those peers. Its
P/E is 3.94, a miniscule 1/6 of the industry’s 21.94.
Price over sales is similarly depressed at 0.51—a sure
sign of ample room to grow.
Sales are up 38.54% year over year. Perhaps more important,
Q3 01 is 31.51% higher than Q3 00, a growth rate that is
better than double the faltering S&P 500’s 13.77%
figure. Gross margin is par for trade at 25.67%, but net
profit is better than double that of the competition at
12.79%. All ELTK has to do to double your money is hold
the line in sales growth (an easy feat, considering the
new distribution deal) and nail a normal P/S of 1 or 1.2.
Buy
Eltek Ltd. (ELTK:NASDAQ-SC) below USUS$3.75, with a six-month
target of USUS$7.50 and a -25% trailing stop.
ACTION
ALERT
Eltek
Ltd. (ELTK:NASDAQ-SC) •
Sgoola Industrial Zone • P.O.B. 159, Petach Tikva 49101,
Israel • (212) 896-1209 • fdovi@eltek.co.il
www.eltek.co.il
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