The Next Hot Emerging Market: Israel


A lot of global investors are snatching up stocks in China and Latin America lately, but there’s one emerging market that investors can’t overlook — Israel.

While I still invest heavily in these regions, the fact of the matter is that many stocks in Asia and South America have already seen dramatic run-ups in share price. That means investors who are arriving late to these booming markets need to be very carefully they are buying quality stocks and not yesterday’s winners that have already topped out.

One nation that’s still under most investors’ radar right now is Israel. This nation is quietly building a dramatic economic recovery and benefiting from favorable currency exchange rates, and stocks there are really starting to take off as a result.

That’s because the country’s currency, the shekel, has strengthen in the wake of the Bank of Israel’s raising its benchmark interest rate in the past two months to 1.25%. Israel is a very entrepreneurial country in general, with a highly educated workforce and great relationships with Western powers to allow for very profitable trade deals.

Israel is still classified as an “emerging market” by many analysts — though some like Morgan Stanley plan to change the country to “developed” status later this year. Once the country wins widespread status as a stable and developed economy, you can expect an influx of capital boosting stocks in this region.

One of my favorite stocks in Israel is Teva Pharmaceuticals (TEVA), and I expect this company to be one of the largest beneficiaries from growth in Israel.  Based in Jerusalem, TEVA is the largest generic pharmaceutical company in the world. The company makes generic versions of hundreds of brand-name antibiotics, heart drugs and heartburn medications. Teva’s U.S. generic products include equivalents of such blockbusters as antidepressant Prozac and osteoporosis drug Fosamax. The company also develops and manufactures proprietary drugs, including multiple sclerosis treatment Copaxone, Parkinson’s disease treatment Azilect and many women’s health treatments. Since prescription drug spending has remained quite strong despite weak overall consumer confidence, TEVA has weathered the recession very well and is ready to ramp up growth in 2010.

But as you know, I place a priority on earnings — so let’s see how TEVA stacks up.

On February 16, the company posted its Q4 and full-year results. TEVA’s 2009 sales totaled $13.9 billion to set a new record for the company, up 25% over the previous year. Operating income jumped 41% quarter-over-quarter. On the proprietary drug front, sales were also impressive with record global sales of Copaxone that totaled $2.8 billion in the year ended 2009, up 25% in the fourth quarter and for the full year compared to 2008.

Clearly TEVA has the numbers to prove that it is one of the best stocks in the world right now. The fact that it is in a booming market with a great currency exchange rate helps make this pick a lock for any portfolio.

Tell us what you think here.

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