Viewpoint / Still Room to Rise?

It's practically the consensus - shares have room to rise on Wall Street and here too. Capital market animals are not dismayed by the record level of the Tel Aviv-100 index or Nasdaq's rebound in the last month. Most expect more gains, in the short run.

"The market is not expensive. There are opportunities there," says Ravit Wolkovitch of Ofek's equity research department. "The economy is constantly improving and so are the companies' results. Fears of a coalition breakdown or interest rate hike, or of surging crude prices, have blocked the improvement from reaching share prices. But in the last month some of the things weighing down the stock market have been lifted." Bank shares are at "comfortable" levels, Wolkovitch adds. "I feel very comfortable with United Mizrahi Bank. We had grown accustomed to viewing it as a gray, conservative bank, but its image is likely to change in the next couple of years. The capital market reforms aren't expected to hurt Mizrahi, either, but to create opportunities for it."

She also touches on Matrix, a computers services company belonging to the Formula Systems group.

"Matrix should benefit from the economic upswing, also because of the rule that the computer industry grows by three times GDP," the analysts predicts, adding that she expects Matrix to continue to present growth throughout 2004. If its rival Ness Technologies completes its IPO at the high pricing level it expects, that won't do anything bad for Matrix, she added. Ness plans to float stock at a company valuation of $300 million, which is about three times Matrix's market cap.

Among Israeli stocks on Wall Street, analyst Avshalom Shimei of Ofek likes M-Systems, a pioneer in flash memory technology, and VoIP technology provider AudioCodes. Both operate in hot sectors, he explains, both and growing fast. From the pure aspect of pricing M-Systems is the more attractive of the two, he adds.

Raz Ron of Salomon Capital Markets, which has NIS 2 billion under management, was more dubious. "Today the macroeconomic indications give room for hope. The financial statements from the companies have improved, commodity prices around the world have calmed down," he begins. "The shekel has stabilized and the global economy seems to be on the right path."

There is a but. "The problem is in the prices, of course. The Tel Aviv stock market is at a record height, so to justify further gains, the corporate results would have to express genuine improvement."

The high prices already incorporate the good economic news, in Ron's opinion. It isn't out of the question for people already in the market to cash out some of their gains, he phrases it delicately, and as for people who aren't in the game, this is not a good time to make the leap. Nor would it seem to be time to sell out, Ron concludes.

Salomon is optimistic about the market's performance throughout 2004, Ron adds, especially given the alternatives. Interest rates on short-term bonds are low and yields on long-term bonds could well rise, but who knows where American interest rates will go?

The president of holding company Elron Electronic Industries, Doron Birger, is also convinced that high-tech in Israel and in the U.S. proffers opportunity aplenty. Many companies are trading below their value and potential, minus their cash in hand. Elron itself is trading at a heavy discount compared with its pricing levels from 1997 to 1999. It is also true, Birger says, that many companies are priced too aggressively. Meaning, in plain English, their stock is too expensive.

Naturally, as it lives there, Oscar Gruss aims its spotlight on Wall Street. Analyst Ehud Eisenstein says tech stocks ran out of fuel for their rally in January. He believes there will be more gains, but doesn't care to speculate when they might arrive.

Rami Rosen, the chief Israeli analyst at Oscar Gruss, likes ECI Telecom the best, even after its 60 percent gain in the last month that lifted its share price to $7. Sentiment is gradually changing toward the company, which supplies equipment to phone companies. The reappearance of profit will be an important milestone for the constantly morphing company, and Rosen says Oscar Gruss "easily" recommends ECI even at $10 per share.

Try these for starters

Eisenstein surprises with two other stock picks. The first is a company he does not cover, which is still embroiled in crisis - ECtel. "We still believe in the company's technology," he explains, "and its new CEO seems to be reducing its cash burn."

The other surprise recommendation is Gilat Satellite Networks, and on the downside. "The company has been in the headlines a lot lately," Eisenstein sniffs. `But I believe its shareholders and management chose the wrong way to manage their relations with the capital market, which weighs on its chances of growing and making a profit. Investors should be wary of that share," he says.

Yet they basically agree that 2004 is not going to be a redux of the bonanza of 2003. Still, the first half of 2004 was not bad. The Tel Aviv-100 index gained 11 percent and Nasdaq rose only 2 percent, but the Meitav index of 40 Israeli companies listed on Nasdaq advanced 8 percent.

At home, El Al stock rose almost 90 percent, Analyst climbed 215 percent, and Albaad Massuot Yitzhak and Cham Foods were nothing to sneeze at. Then there was Dor Chemicals, which sank 40 percent and dropped from the Tel Aviv-100 index.

Among the Israelis on Wall Street, Check Point Software Technologies stood out with a 60 percent climb, an unusual achievement for a company that size. But Verisity and Savient Pharmaceuticals continued to nosedive, and Taro Pharmaceutical Industries disappointed with a 31 percent retreat.