Commentary: How to invest in the Iron Dome

With the regularity of a Swiss watch, every few years a minor war breaks out here, reminding investors of the need to attach a war-risk premium of some kind to Israeli stocks. In my view, if the Intel fab in Kiryat Gat is put out of action by a direct hit, the financial consequences on Wall Street will be greater than the aggregate market cap of all the Israeli technology stocks traded there.

Until not long ago, foreign investors were in a panic over the nuclear war that was going to break out any minute here, and one of them even requested in writing an explanation from EZchip Semiconductor Ltd. CEO Eli Fruchter of his preparations for a possible war with Iran. But every war brings something new, and this time it is missiles flying in the skies of Tel Aviv.

On CNBC, a Wall Street veteran was asked on the trading floor of the New York Stock Exchange how it was that the price of oil had not soared because of the missile war in our region, and he replied unhesitatingly: “Because there are no oil wells in Gaza.”

Offsetting the risk premium, this war will undoubtedly boost our “Silicon Valley” image because of the astounding success of the Iron Dome system. Developers, principally at Rafael and Elta, who grew up on Star Wars films and computer games, have turned the virtual into unbelievable reality. At Rafael they think outside the box concerning civilian applications too, and it was there that the revolutionary camera-in-a-pill of Given Imaging Ltd. was born.

Eltek customers Rafael and Elta are not public companies, but the massive procurement of Iron Dome missiles and systems that will now take place will benefit the order book of Eltek Ltd., a small public company from the center of Israel that I hold in my portfolio here. Eltek specializes in developing and producing what are known as flex-rigid printed circuit boards. These are circuits for tough work environments, such as the very high temperature and pressure endured by missiles and aircraft.

All the local defense companies are Eltek customers, and I know that its circuits are in Iron Dome.

Eltek was also the first company to develop and produce for Given Imaging the tiny electronic circuit in its camerain- a-pill, and that was not something to be taken for granted.

Eltek’s share price has not broadcast great success lately, and it has sunk to a low of $0.87.

Since Eltek has now been profitable for six successive quarters, and has a ridiculous market cap of $6 million on annual sales of $45m., I attribute the plunge in the share price to the exhausting battles between Yosef Maiman and the Ampal-American Israel Corporation bondholders.

Eltek has been dragged into this war against its will.

Maiman holds 25 percent of Eltek personally, not via Ampal, but in the negotiations with the Ampal bondholders he contributed his shares in Eltek to the settlement and even guaranteed a value of $3m., which means nearly $1.9 per share, double today’s market price. When the settlement recently broke down, there were those who thought that this was bad for the stock, hence its plunge to an annual low.

It’s no secret that Maiman put Eltek up for sale a long time before the above-mentioned negotiations, and I believe that sooner or later a new owner will be found. The company has defense and medical customers not just here, but also in Europe and the US, and it has another plant in Germany and a marketing presence in the US. The global PCB industry is undergoing a wave of mergers and acquisitions, and there will be those interested in a foothold in Israel as well.

Alvarion’s last dream Alvarion Ltd. released results in line with its warning and refused to commit to a date for switching to profit and a resumption of growth. The company also refused to disclose the rate of sales of Wi-Fi solutions on the basis of Wavion, the company it bought exactly a year ago.

Investors want to know more about the Wi-Fi successes, because on Friday the first public company active solely in this field, called Ruckus, had its IPO on Wall Street.

Ruckus had a valuation in excess of $1 billion, and in the first nine months of this year it had sales of $152m. In the Wi-Fi niche, Alvarion is very far from this rate of sales, and it also loses money. But with a laughable market cap of $25m., Alvarion investors can be allowed to dream again, especially as all the past dreams disintegrated, and Wi-Fi is absolutely the last one.