4 Ways to Get In on Israel’s Innovation

by Lawrence Meyers | July 16, 2014 10:55 am

When people think of countries that are always at the forefront of innovation, the ones that often come to mind are Japan and the United States. You might not expect Israel to be high on the list, but companies[1] in technology, healthcare, and telecommunications are the heart and soul of the Israeli economy, and their products have gone global.

BiotechDNA185[2]

More than 100 Israeli stocks trade in the United States, but it’s important to note that political unrest often sends the Israeli stock market into a panic. It’s unfortunate that investors get so nervous considering the country’s resiliency, but the result is that great stocks offer great value during selloffs that are not company-driven.

I think all of the following stocks are worth considering. And it’s worth mentioning that there are also great benefits that come with diversifying your portfolio into international stocks, not just ETFs. Average investors are often fearful of individual international stocks because of the irrational notion that other developed countries aren’t as stable. That can be true on a case-by-case basis, and I’d be more wary of undeveloped country stocks, but with Israel, the businesses are well-managed and well-in-hand.

Here are four Israeli investments worth considering:

Teva Pharmaceutical Industries (TEVA)

TEVA[3]Teva Pharmaceutical Industries (TEVA[4]) is a massive pharmaceutical company that primarily handles generics on a global basis, but also has a few proprietary drugs. One of them, Copaxone, was one of the earlier multiple sclerosis drugs. It has since become famous also for Parkinson’s treatment with Azilect; Provigil and Nuvigil for sleep disorders; and Fentora and Actiq for cancer-related pain. It has got several other drugs, as well, but generics are its bread and butter.

When you include all the companies it has acquired, it has a global workforce of 45,000 people, all working to make the world feel better. It has a billion dollars in cash, and is rather heavy on the debt side with $10 billion. EPS growth has stagnated and there are rumblings about the current Board of Directors lacking in experience. But the productivity of its pharmaceuticals makes it worth looking at.

Check Point Software Technologies (CHKP)

checkpoint 185[5]Check Point Software Technologies (CHKP[6]) operates in an area that Israel knows very well: security. In this case, we’re talking about providing software and hardware for IT security. Some people view 20 years as an eternity, but in the world of technology, I consider it to be the blink of an eye. Somehow, in just 20 years, Check Point has become a global leader in this space with a $12.4 billion market cap. It has settled into what I would call Peter Lynch Stalwart status, growing EPS at around 8% annually.

CHKP has $3.6 billion in cash, short-term and long-term investments (and no debt), which is more than $18 per share, or more than 25% of its market cap. This gives CHKP stock an effective price of $47, so it trades at 13x FY14 estimates. I also note that eight of the top 10 institutional holders are private equity, representing some 21% of outstanding shares. Private equity likes businesses that generate reliable cash flow. CHKP stock does just that, throwing off more than $800 million annually, with less than $10 million in capex.

The ETF Side

ishares[7]If you do wish for broad diversification, look first at iShares MSCI Israel Capped ETF (EIS[8]). The ETF holds 53 stocks, of which Teva is a 25% position. The rest of the portfolio is spread across all major sectors including energy, financials, consumer staples, industrials, telecom, IT and materials. Expenses for EIS run 0.62%, or $62 for every $10,000 invested.

You can also choose Market Vectors Israel ETF (ISRA[9]). It has 102 companies in the portfolio, of which IT and healthcare each represent about 30%. Teva is the largest here as well, though only representing 15% of the holdings. Expenses run a bit cheaper than EIS, at 0.59%. It has about a third of the assets that EIS stock does. Both, however, give broad exposure to the sector.

As of this writing, Lawrence Meyers[10] did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc.[11], which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books[12] and blogs about public policy, journalistic integrity, popular culture, and world affairs[13]. Contact him at pdlcapital66@gmail.com[14] and follow his tweets at @ichabodscranium.

Endnotes:

  1. companies: http://nocamels.com/category/technology-news/
  2. [Image]: https://investorplace.com/wp-content/uploads/2014/03/BiotechDNA185.jpg
  3. [Image]: https://investorplace.com/wp-content/uploads/2010/12/teva.jpg
  4. TEVA: /stock-quotes/TEVA-stock-quote/
  5. [Image]: https://investorplace.com/wp-content/uploads/2013/12/checkpoint-185.jpg
  6. CHKP: /stock-quotes/CHKP-stock-quote/
  7. [Image]: https://investorplace.com/wp-content/uploads/2012/10/iShares185.jpg
  8. EIS: /stock-quotes/EIS-stock-quote/
  9. ISRA: /stock-quotes/ISRA-stock-quote/
  10. Lawrence Meyers: mailto:pdlcapital66@gmail.com
  11. PDL Broker, Inc.: http://www.pdlcapital.com/
  12. written two books: http://www.amazon.com/Lawrence-Meyers/e/B002BMEZ6U
  13. blogs about public policy, journalistic integrity, popular culture, and world affairs: http://www.ichabodscranium.com/
  14. pdlcapital66@gmail.com: mailto:pdlcapital66@gmail.com

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