Replacing Tikcro with Fundtech (Though It's In a Tailspin)

After a roller coaster year of rises and falls, Nasdaq ended 2007 with a return of 10%. But the first two weeks of the new year was all it took to shave 8% off this. It would appear that the market has wasted little time in making swinging cuts in price levels in tandem with the growing belief that the US is indeed on the verge of a recession that will have severe consequences worldwide. Nearly all sectors saw share prices dive, especially the technology sector, but also energy, despite oil prices having now reached $100 a barrel.

A closer look at all 30 stocks on the Dow Jones Composite Index reveals that jittery investors now prefer to take a good many tranquilizers with Coca Cola and smoke cigarettes until the commotion dies down, since the only shares on this index that have risen since the beginning of the year are drug companies Merck & Co. Inc. (MRK), and Pfizer Inc. (PFE), drinks giant Coca-Cola Co. (KO), and tobacco company Altria Group Inc. (MO).

On the Nasdaq 100 Index, which has also lost 8% since the beginning of 2008, the ones making the gains are giants from the healthcare sector such as Celgene Corporation (CELG), Gilead Sciences Inc. (GILD), Biogen Idec Inc. (BIIB), and Teva Pharmaceutical Industries Ltd. (TEVA).

Now that investors have had their say, and with the results season yet to begin, the analysts are falling in line with the market. They assume that even if the results for the fourth quarter are good, the guidance will be disappointing. After all, no manager in his right mind would not lower his guidance when everyone around him is saying there's going to be a recession. For him, it would be better to give the market a pleasant surprise than to disappoint. Yesterday, Andrew Neff, hardware analyst at Bear Stearns, cut his estimates and target prices for all the stocks he covers, but did not downgrade his ratings for them.

Rock bottom expectations

As far as I can remember, this is the first time during its meteoric climb of recent years that Neff has cut his target price for Apple Inc. (AAPL), although not dramatically - down to $233 from $249. He also cut his prices for other key hardware stocks such as Hewlett Packard Co. (HPQ), Dell Inc. (DELL), Research In Motion Ltd. (RIMM), IBM Corp. (IBM), and others. Neff believes the slowdown now beginning in the US will spread to Western Europe and Japan, and that the growth engines of China, India, and Eastern Europe, will also experience slower growth.

I have parted company with Tikcro Technologies Ltd. (TIKRF.OB) one of the veteran stocks in my portfolio, tracked by "Globes", after making a return of almost 150% since I added it five and a half years ago on the eve of the sale of its chip production business to European giant STMicroelectronics NV (STM).

Tikcro is now a market shell with $10 million in cash. If I have understood it correctly, the appointment of Aviv Boim as CEO is a sign that the company is to become some sort of venture capital fund. That is of no interest to me as an investor.

I am using the money freed up from Tickro to increase my holdings in one of the stable companies in my portfolio - electronic payment software solutions company Fundtech Ltd. (FNDT). Fundtech did not escape the recent massacre, and saw its share price cut by half from the $18 high in early October, but I do not feel there was any economic rationale for this.

I don't know whether the share collapsed because Fundtech is in the financial sector which has been so volatile since the summer. It could be because its largest customer is Citigroup Inc. (C). It may have been triggered by the sell-off by a US fund based in San Francisco called Cannell Capital LLC. It held 2.8 million Fundtech shares and was forced to sell at any price. And it could have been all three factors together.

Anyone who thought Citi would scale down its business with Fundtech because of the recent meltdown in its sub-prime portfolio, was wrong. Half of Fundtech's revenue from Citi derives from annual maintenance contracts that are unlikely to be abandoned. In addition, as a bank set to introduce massive job cuts, it will need more software-based banking solutions than manual ones. This is precisely Fundtech's field of expertise.

Investors may not be aware of this, but there are hundreds of small and mid-sized banks in the US and the world in general which genuinely need solutions of the type that Fundtech provides. They stayed well away from the sub-prime market. They refused to touch investments like this, unlike Israel's Bank Hapoalim [LSE: BKHD; TASE: POLI], whose entanglement in investments like this is now coming to the surface .

Fundtech's business model is designed so as to give it 70% forward visibility at the beginning of every year and 90% at the start of every quarter, and the fact that it has announced a date for the upcoming quarterly report is, I feel, proof that nothing untoward has happened there.

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

Comments

[JohnIsOld:]

"... the fact that it has announced a date for the upcoming quarterly report is, I feel, proof that nothing untoward has happened there."

This is proof of nothing.


You could have also said the following which is also without meaning: " the fact that the sun will rise and the company is required by SEC regulations to comply ...".

2008 Jan 19 09:14 PM