September was a big surprise. Instead of a double dip for the American economy, it produced a 12% rise in the Nasdaq index. After such a jump, big investors believe that only if October turns red, that is, if the indices give back some of September's gains, is there a chance of a seasonal rally at the end of the year, right after the mid-term elections in the US in early November.
September yielded an average of 12%, but some Israeli shares in my portfolio soared by as much as four times that. One might have thought that Radware (RDWR) rose the most, because of the reports that it would be sold, but it turns out that September's highest leap, without fanfare, was actually by AudioCodes (AUDC): 50%, compared with 41% by Radware, while third place went to Orckit (OTCQB:ORCT), with a jump of 39%.
The story behind AudioCodes' rise is partly results that are expected to meet expectations, or a little more, but mainly the entry of American institutional investors into the stock last month. They were apparently persuaded that the stock is among the few remaining pure-play VoIP companies with growth potential for the coming years, thanks to collaborations with companies like Microsoft (MSFT) and Skype, including venturing into the mobile market.
Radware's takeover premium
As far as Radware is concerned, there is no need to stand with a stopwatch in hand and guess if it will be acquired, for how much, and when, because obviously, since the company did not categorically deny that it was for sale, something is in the offing. It is also clear that for companies like IBM or HP, Radware's technology slot, or that of its main competitor, F5 (FFIV), is vital, and it has to act sooner or later, because the option of independent development in niches outside of its existing frameworks is long gone.
Furthermore, in a normal stock market, Radware's share price will not soon return to the $20-25 range, because the recent reports have pinned to it a takeover premium that was not in its price previously.
Not every share has a takeover premium even if it is a hot sector. The best example is Check Point (CHKP).All institutional investors know that founder and CEO Gil Shwed will not sell the company in the foreseeable future, and only when he changes his mind will the stock will gain a fat takeover premium.
An analyst who covers Check Point told me that Shwed knows that, at any time, he can call two or three CEOs of American giants and name his price.
Orckit - held up in Japan, booming in India
For Orckit to veer dozens of percentage points this way, and that in a month without any official announcement, is something normal.
Since the beginning of the year, Orckit's share price has moved over a huge range, between nearly $2 at the bottom to nearly $6 at the peak, while in between, nothing happened in terms of results or official statements. Whoever examines transcripts of the conference calls that Itzik Tamir-- the founder and CEO -- has conducted this year, will find the explanation for this rollercoaster between the lines.
When the stock was close to $6 in the spring, Orckit had almost won several large new contracts with KDDI, but then there happened what often happens in the telecom world, and it has already happened to Orckit three times in the past. On the eve of the wins, KDDI decided to take over the biggest cable company in Japan, which led to a decision to unify networks, deferring Orckit's potential wins to 2011 - and the stock crashed.
Since then, KDDI has managed to announce the replacement of its veteran CEO with his young deputy, who is now working on new investment plans for the fiscal year starting in March 2011. I have no doubt that Orckit will be part of those plans next year, because they are primarily the consolidation of the cellular, fixed-line, and cable networks, to reduce maintenance costs while increasing revenues from a wider range of value-added services for all types of subscribers, tasks that Orckit's new platforms will perform effectively, as their predecessors have done since 2005.
The recent rise in the share price increase seems related to Indian giant BSNL's NGN network. BSNL bought equipment to the tune of $4 million from Orckit this year, and recently began deploying the network. The equipment purchased barely covers a few blocks of a small neighborhood in one city in India, and the deployment is in 20 cities that this network has to cover in the next few years, and that in India, where one city accommodates more people than the entire population of Israel.
Published by Globes [online], Israel business news - www.globes-online.com - on October 5, 2010 Reprinted on Seeking Alpha with permission © Copyright of Globes Publisher Itonut (1983) Ltd. 2010