It's not a great time to jump into Israeli tech stocks. As a group, prices are too high. There may be better opportunities in other emerging technology centers, such as India.

Barak seems committed to moving forward with the "Peace Process." Any stable breakthrough in Israeli-Palestinian relations would be very bullish for the Israeli stock market. While Israeli tech stocks are not reliant on the state of the Israeli economy, there is a correlation between the mood of Israelis and the Israeli money flowing into stocks (including NASDAQ- traded Israeli tech stocks).

Israeli companies remain rock solid from a financial prospective, with almost no balance sheet debt, generous tax breaks, and healthy profit margins. And you can still find bargains in individual Israeli tech stocks.

Over the long term, the Israeli tech boom requires continued foreign aid from the U.S. The Israeli government is essentially financing R&D tax credits with grants from U.S. taxpayers. I doubt that this constellation will unravel in the foreseeable future: the Israeli lobby is extremely powerful in the U.S. The Christian lobby also supports the Israeli government (thanks to wacko Christian mystics, who believe that Israeli politics can trigger the Armageddon foretold in the Book of Revelations). While the Arab lobby is gradually gaining power in the U.S., it will never be strong enough to counter the combined weight of the Jewish and Christian lobbies.

1998 was a year of Merger Mania for Israeli tech stocks. I believe that 2000 will be a year of IPO mania for Israeli tech. We are positioned to benefit from this trend with our positions in ELBTF and ELRNF.

When you make this kind of return on a foreign small cap, it's tempting to sell. However, ELBTF remains severely undervalued. And there are specific catalysts to unlock the tremendous value in the stock. It makes sense to let winners like ELBTF run as long as there is material upside left in terms of valuation.

With an early-stage company like ELBTF, it's critical to evaluate the quality of management. ELBTF has been on my screens since the Elbit demerger in 1996. I inspected ELBTF's physical assets and met with top scientific officers in 1997. I interrogated ELBTF's top management a number of times throughout early- to mid-1998. Since I have been following ELBTF:

• Management has never diluted shareholders by a single share

• Management has created US$230+ million in market value for shareholders

• Management has realized hidden value by disposing of non-core assets including real estate and Inframetrix shares

• Management took on an US$80 million bank credit line in 1998--and will have paid it down to zero by Q4 1999 even though the company is cashflow negative (according to my projections)

Based on the outstanding success of ELBTF's management team in financing and building up the Partner GSM cellular network, I have faith in the company's ability to realize value in the other core subsidiaries. I estimate that the full Net Asset Value of ELBTF's holdings is over US$30 per share. At current levels, ELBTF is trading at a preposterous 57% discount to NAV. Given the glaring discount, ELBTF remains my top pick on Israeli tech.

ELBTF remains a Strong Buy.

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