Israeli stocks show nice growth potential
With more start-up businesses per capita than anywhere in the world, Israel is brimming with tantalizing investment prospects. Moreover, many Israeli stocks trade in the U.S, making it simple for Americans to buy in.
Granted, the risks are substantial. Not only do the country’s businesses grapple with a hostile geopolitical environment, but many are youthful enterprises that have yet to post a profit. Still, for long-term investors who don’t mind assuming some risks, the rewards could be great.
Few companies illustrate the contrast between an ancient land and modern technology better than Caesarstone Sdot-Yam (symbol CSTE; recent price, $60). Caesarstone’s headquarters is located just miles from the ruins of the ancient Roman city of Caesarea.
Caesarstone makes high-end quartz floors and countertops, and thanks in part to the housing revival in the U.S. (Caesarstone’s biggest market), sales and profits are rocking. The stock, which has climbed more than fivefold since Caesarstone went public in March 2012, sells for 27 times forecast earnings — not cheap, but not outrageously expensive in light of the company’s rapid growth.
Israel’s Silicon Valley
The corridor between Tel Aviv and Haifa to the north, nicknamed Silicon Wadi, is brimming with companies that are working on ways to speed and secure Web commerce. Silicom (SILC; $69) makes adapters that serve as building blocks for all sorts of technological appliances.
With an increasing number of consumers speeding through cyberspace, computer networks are finding themselves bedeviled by a familiar problem: traffic jams. Radware (RDWR; $17) makes products to unplug those bottlenecks while maintaining the security of computer networks.
Healthcare companies
Many promising Israeli companies are in healthcare. Consider Compugen (CGEN; $11), located in Tel Aviv, and Jerusalem-based Oramed Pharmaceuticals (ORMP; $15). Neither biotech firm is profitable yet, but both appear to be on the verge of breakthroughs that are likely to put them on the map.
At a time when attention-deficit hyperactivity disorder appears to be reaching epidemic proportions, Alcobra (ADHD; $23) is developing an alternative to traditional ADHD medications that appears to be both effective and less addictive than other ADHD medications.
No discussion about Israel would be complete without a few words about Teva Pharmaceuticals (TEVA; $49), which is by far the largest company on the Tel Aviv Stock Exchange and the world’s biggest maker of generic drugs.
Surprisingly, the stock has been a mediocre performer over the past few years. But William Scholes, assistant investment manager of the Aberdeen Israel Fund (ISL), a closed-end fund, thinks the stock, at just 11 times estimated 2014 earnings and boasting a dividend yield of 2.8 percent, is a bargain.
Kathy Kristof is a contributing editor to Kiplinger’s Personal Finance magazine. Barbara Hoch Marcus is managing editor of the magazine.
© 2014 Kiplinger’s Personal Finance; Distributed by Tribune Content Agency, LLC.