Why I Am Adding Sandisk & Ceragon To My Portfolio

Includes: CRNT, JOF, OMRI, S
by: Shlomi Cohen

Follow the director and buy SanDisk.

As I do not believe we are likely to witness a global recession hitting the thriving computer, and handset markets, and in effect anything related to the "industrial revolution" of the current century, i.e. the Internet industry, I am now adding more shares of SanDisk Corporation (SNDK), which has once again slumped to a low, to my portfolio, tracked by "Globes", and I am also returning to Ceragon Networks Ltd. (NASDAQ:CRNT), which I dropped from my portfolio when its price topped the $18 level.

These two will replace Omrix Biopharmaceuticals Ltd.(OMRI), and the Japan Smaller Capitalization Fund Inc. (NYSE:JOF), about which I will write at length on a future occasion.

One individual worthy of note where SanDisk is concerned is director Michael Marks, who bought $2 million worth of shares at around $40 each on the open market at the end of October. One seldom sees a director accustomed to receiving tens of thousands of options every year investing his own money on this scale, however wealthy he may be.

Wall Street views this event as a very positive sign for the medium and long-term since Marks clearly was not making a short-term trade based on insider information. He also has a reputation as an active investor with a good sense of timing in the companies on whose boards he sits, such as, for example, footwear manufacturer Crocs Inc. (NASDAQ:CROX), whose shares he sold for $60 each back in the summer. By the close of trading on Monday, Crocs was down to $35.89.

Yesterday Goldman Sachs dropped SanDisk from its prestigious "Conviction List" of stocks, replacing it with Intel Corporation (NASDAQ:INTC). Despite this, it has reiterated its "Buy" rating for SanDisk with a target price of $65. The bank believes that the stock will gain ahead of the company's results for the fourth quarter which, it believes, will be better than SanDisk's own conservative guidance.

Goldman Sachs expects SanDisk to earn more royalties from Samsung Electronics Co. Ltd. [KSX:5930] in the upcoming quarter, even though management indicated in its guidance that these would be unchanged from the previous quarter. Royalties are paid on chip sales in the quarter just ended, and Goldman Sachs expects that Samsung's third quarter results will indicate a 10% growth in royalties received in the fourth quarter. It also anticipates an imminent stabilization in NAND chip prices, as Apple Inc. (NASDAQ:AAPL) ratchets up its purchases ahead of new product launches set for the beginning of 2008.

SanDisk got a further boost yesterday from Citigroup analyst Craig Ellis, who sounded very optimistic about the company's prospects for 2008, and also reiterated his "Buy" rating and $65 target price.

Ceragon's Eastern Momentum

As mentioned earlier, I am returning Ceragon to my portfolio, after it emerged bruised and battered from its recent offering, and had to make do with a price of $13.50 per share as opposed to the high of almost $22 it reached not so long ago. I feel that all the talk about Ceragon being harmed by Sprint Nextel Corp's (NYSE:S) decision to scrap its WiMAX roll-out is far-fetched. I am not sure at all whether this project even featured in Ceragon's guidance for 2008 and if it did then it probably was be a nominal sum.

There is one important fact to bear in mind here. Ceragon provides wireless backhaul equipment in the US to companies that build telecommunications relay stations and lease these to telephony companies. It does not concern itself with the type of communications these stations transmit, be it WiMAX, 2G, 2.5G, 3G or 4G. It is highly likely that Ceragon will still be in the picture should Sprint decide to upgrade its existing networks, instead of rolling out a new WiMAX network.

It is my belief that the launch and runaway success of Apple's latest handset, the iPhone, has had a positive and immediate impact on Ceragon's US business in a far greater measure than the much-vaunted WiMAX project, since this revolutionary handset and its counterparts have prompted the telecommunications companies to upgrade their networks. In addition, Ceragon is also enjoying strong growth in markets in the East, most notably India, where millions of cellular subscribers join local operators every month, requiring the company to deploy tens of thousands of relay stations across this massive country.

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.