When it comes to pharma stocks in Israel, one name does the trick: Teva Pharmaceuticals (NYSE:TEVA). Although shares of TEVA are essentially flat year-to-date, thanks to a rough May, during which beginning-of-the-year gains were completely erased. But forget about that, and listen to this: Teva is the largest generic-drug company in the world. And one of the top 20 pharmas overall.
That’s a pretty good place to be right now, especially considering that generics (which made up more than half of the company’s sales last year) seem to be the future.
A recent report shows that generic-drug versions captured 80% of a brand’s volume within six months of patent loss in 2010 — and that pace and market share have grown since then. In 2011, generics made up 80% of prescription drug sales in the U.S., with sales increasing $5.6 billion from the year before. Simply put, generics bring in big business.
Teva’s sales have proven this: The company has enjoyed 14 consecutive quarters of revenue growth, although it missed estimates slightly in Q2. And its earnings have increased year-over-year so far in 2012, while meeting analyst estimates.
On top of that, it looks like a pretty good deal: Teva has a P/E just over 11, compared to Merck’s (NYSE:MRK) P/E over 20 and GlaxoSmithKlein’s (NYSE:GSK) P/E around 15. The only red flag of late would be that it’s currently undergoing a bribery investigation — but that seems to be common practice recently. Pfizer (NYSE:PFE), Roche (PINK:RHHBY) and Glaxo have all faced similar problems.
And to top it off, Teva hands out a solid dividend that it’s been paying since 1984; it has a current yield of 2.45%. All-in-all, this stock looks anything but generic.
Large Israel ETF
If you like the idea of Teva, or of Israel in general, another option would be to buy into an ETF, namely, the iShares MSCI Israel Capped Index (NYSE:EIS). Teva is actually its biggest holding at around 23%, while Mellanox comes in at just under 4%.
The ETF also gives investors exposure to stocks that they usually wouldn’t be able to make bets on because they’re not traded on a U.S. exchange. Israel Chemicals, The Israel Corp and Israel Discount Bank are just a few plays, all traded on the Tel Aviv Stock Exchange, that are in EIS.
InvestorPlace writer Jonathan Berr talked about the potential of this fund back in March, saying it was a great option if you’ve got nerve — and it was up around 5% at the time. Since then, though, it’s dropped some and is no longer in the black for the year.
But Berr’s thesis still holds true. If you have the nerve, this fund still has the potential. And in the past month, things have been working their way back up, so it could still be a promising pick. Plus, it’s at a low price thanks to its recent drop — considering all Israel has to offer.
The Bottom Line
So if you’re looking for a new region to explore and invest in, Israel may be just it. But that’s not to say you shouldn’t proceed with caution.
The country’s latest discovery nicely sums up what it has to offer. Last December, offshore natural gas deposits were found — a 150-year supply that could lead to Israel’s energy independence or even energy exports. But such a promising find also comes with caveats: The country’s location could mean that such an asset is actually a security threat, and Israeli regulations could deter investors.
As with its natural gas goldmine, the country has lots of potential, but potential that is surrounded by risk.
So, whether you go with a promising company or hedge your bet with an ETF, recognize the uncertainty with Israel. Even its booming economy may slow down: GDP is expected to expand by just over 3% in 2012, for example, as opposed to the 5% rate it registered last year.
But if you do decide to take a chance and try something new, Israel remains a land of opportunity. You just might be rewarded.
As of writing this, Alyssa Oursler did not own a position in any of the aforementioned securities.