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Israeli Stocks Heat Up

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Israeli Stocks Heat Up As Conflict Cools John Dobosz, 02.24.05, 10:45 AM ET NEW YORK - Since the death of Yasser Arafat in November and the subsequent election of Mahmoud Abbas as president of the Palestinian Authority, the prospects for a meaningful peace between Israel and the Palestinians are looking better than they have in more than a decade. Not coincidentally, there is a surprisingly strong bull market underway in Israeli stocks, and some of the best investment advisers in the United States say that if the current truce holds and a lasting peace is achieved, even more robust gains are likely in 2005. Since a moribund Arafat left Ramallah for Paris on October 29, 2004, the Tel Aviv 25 Index is up 21.2%, far ahead of U.S. stocks. Over the same period of time, the Dow is up 6.7%, the S&P 500 is up 5.7%, and the Nasdaq Composite is up just 2.8%. "The outlook for Israeli stocks is improving, and for the Israeli economy as well," says Vivian Lewis, editor of Global Investing, whose model portfolio is up 24% in the past year. "Israeli stocks are doing better not just because of the political situation improving, but also because they are concentrated in areas like telephony and Internet technology, and pharmaceuticals, which are good sectors to be in right now. The politics can only help." More than 100 Israeli companies trade on U.S. exchanges, and Lewis recommends several of them, including her longest-held stock, Teva Pharmaceuticals (nasdaq: TEVA - news - people ), which until this week's takeover of Eon Labs (nasdaq: ELAB - news - people ) by Novartis (nyse: NVS - news - people ) was the world's largest generic drugmaker. Lewis also advises buying CRM software outfit Amdocs (nyse: DOX - news - people ), which specializes in the telecom space, as well as voice-over-Internet Protocol company Deltathree (nasdaq: DDDC - news - people ) and flash-memory maker M-Systems Flash Disk Pioneers (nasdaq: FLSH - news - people ). Fund manager Jim Oberweis, editor of The Oberweis Report also holds M-Systems in his portfolio of emerging growth companies, along with VoIP players AudioCodes (nasdaq: AUDC - news - people ) and PowerDsine (nasdaq: PDSN - news - people ), billing software provider Mind CTI (nasdaq: MNDO - news - people ) and wireless network equipment company Ceragon Networks (nasdaq: CRNT - news - people ). Oberweis says that peace certainly won't hurt these companies, but since the bulk of their sales come from the U.S. and Europe, their fortunes are more closely tied to the adoption of VoIP and wireless technologies in the West. "The fact that they're Israeli companies has little to do with why we want to own them," says Oberweis. "They fit the profile of emerging companies with accelerating growth rates that we require stocks in our portfolio to have." Forbes Wireless Stock Watch editor Nikhil Hutheesing views his Israeli holdings in much the same way as Oberweis. Hutheesing also holds Ceragon in his model portfolio, along with wireless infrastructure provider Alvarion (nasdaq: ALVR - news - people ). Alvarion turned marginally profitable in 2004, though its shares are down 24% in the past year. Hutheesing believes Alvarion is extremely undervalued, with a price-to-earnings growth ratio of 0.71. Analysts expect the company to grow at 47% per year for the next five years. "What [Israeli Prime Minister Ariel] Sharon is doing right now by engaging Abbas and the Palestinians is no less significant than Nixon going to China," says Stephen Leeb, editor of the Complete Investor. "The fact that this man who made his career out of fighting Israel's enemies is now reaching out really speaks volumes," says Leeb, who, using an interesting metaphor for the situation, adds that lasting peace in the region would create an "intellectual Mecca" in Israel. Leeb holds Teva in his portfolio, along with semiconductor maker Marvell Technology Group (nasdaq: MRVL - news - people ). https://www.forbes.com/investmentnewsletters/2005/02/24/cz_jd_0224watch_inl.html?partner=yahoo&referrer= Midas