Get Defensive With Elbit Systems

War is never something to get excited about. However, many smart businesses and entrepreneurs have made money from war -- on both the winning and losing sides.

A conflict is now escalating in Israel between the Israelis and Hamas, the majority party in the Palestinian National Authority. Elbit Systems (ESLT - commentary - Cramer's Take), an Israeli defense contractor, is poised to benefit greatly from this military engagement and beyond. The company is traded in ADR form in the United States or in ordinary form on the Tel Aviv Stock Exchange (ESLT.TA). The conversion ratio between the ordinary and ADR is:

ORD ÷ 100 ÷ ISL = ADR

where ISL is equal to the Israeli shekel to U.S. dollar cross rate (at last quote, 3.8635). To get up-to-date quotes on the Tel-Aviv Stock Exchange and its indices such as the Tel-Aviv 100 (TA100), go to the exchange website.

Elbit develops, manufactures and integrates advanced high-performance defense electronic and electro-optic systems. The company acts as a contractor for land, air and sea defense platforms. Some of its major product lines include:

• unmanned or drone vehicle systems (UAVs), including the world-class Hermes line;
• homeland security systems;
• helmet mounted systems;
• electronic warfare; and
• signal intelligence.

Its customer base is not just the Israeli Defense Forces -- recently Elbit received an $87 million contract from the Turkish air force, an $80 million airborne upgrade contract from European customers and a $10 million contract by an Asian nation for a live training system.

For the nine months ended September 30, 2008 (all financials are in U.S. dollars), Elbit generated $1.94 billion in sales, a 40% year-on-year growth vs. the nine-month period in 2007, while gross profit margins rose from 25.9% to 20.1% in the same period. EPS for the first nine months of 2008 were $2.31 vs. $1.06 in the same period in 2007.

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At the time of publication, Rothbort was long ELST, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.