As war rages, Israeli stocks may become good buys
If the war between
Israel and Hamas causes the Israeli stock market to plummet, I believe there will be some excellent buys among Israeli stocks.
In broad-brush terms, Israel is a capitalist democracy, like the U.S., France or Japan. Its gross domestic product has increased about 3.5% per year for the past decade. Technology, medicine and military electronics are big industries there.
After the Yom Kippur War of 1973, during which Israel was pitted against Egypt and Syria, Israel's stocks declined about 50%. They made up all of the losses by 1977. This time — barring escalation — Israel is fighting only Hamas, not its sovereign neighbors.
So I expect the economic damage to be less.
More than 100 Israeli stocks trade in the United States, either as direct listing of American Depositary Receipts. Here are five stocks that I would be alert to snatch if the Israeli stock market declines by 20% or more on the war news.
Mobileye Global
Mobileye Global Inc. (MBLY), based in Jerusalem, is developing self-driving cars. Competition is fierce (from Alphabet and Tesla among others), but the market (now about $20 billion) is growing quickly.
Mobileye was founded in 1998. In 2017, Intel Corp. (INTC) acquired it for $15.3 billion. A year ago, Intel spun off its holding, and Mobileye made its initial public offering at $21 a share.
Analysts think the company will show a profit of about 71 cents a share this year, and increase that to $1.24 a share in 2025. Sales this year are running around $2 billion, and analysts expect $3.5 billion in 2025.
No one knows who will win the competition battle in self-driving cars. The stock's at about $41. I would find it an attractive speculation at $32 or less.
Check Point
Check Point Software Technologies Ltd. (CHKP) makes software to enhance cybersecurity for companies and consumers. Over the past decade, it has increased its sales about 11% per year, and earnings at an 8% clip.
As of Oct. 6, the stock sold for about $137 a share, and I think considering the company's high profitability, that wasn't unreasonable. I would consider it a bargain at $110, which would be about 14 times this year's expected earnings.
NewMed Energy
NewMed Energy LP (DKDRF) is an oil and natural gas company with an emphasis on the gas. It has shown a profit in each of the past 15 years, and its return on stockholders' equity has been above 20% in each of the past nine years.
Given that consistent level of profitability, I'm a bit surprised that the stock sells for only seven times earnings. I think part of the reason is that investors figure the energy industry is at a cyclical peak and that renewable energy will replace oil and gas.
My own view is that oil will likely trade above $80 a barrel most of the time for the next few years.
Renewables may eventually replace oil and gas, but I suspect that will take 10 to 15 years. I like the stock at its present price of about $2.92, and would love it at $2.50 or below.
Bank Hapoalim
Bank Hapoalim BM (BKHYY), based in Tel Aviv, operates about 250 branches in Israel, serving individuals and businesses. It also has a presence worldwide, with offices in London, Zurich, New York and the Cayman Islands, among other places.
The bank has been profitable 14 years in a row, and recently hit the profitability mark I prefer for banks — a return of 1.0% or better on assets.
It is not without controversy. In 2020, it paid a fine of $7.6 billion to the U.S. for helping people evade taxes through Swiss bank accounts. It has also been criticized for financing Israeli settlements in occupied territories.
The stock is at about
$43, which is only six times earnings. I think it would be a good purchase at $39 or less.
Ituran
Ituran Location and Control Ltd. (ITRN) makes software and communications products to help fleet operators keep track of their trucks or cars. Based in Azour, it does a lot of business in Brazil. I like its low debt – only 6% of equity – and its high return on equity, recently about 29%.
Ituran shares have performed poorly over the past decade, but have doubled in the past three years. They sell for about $29 and I would strongly consider buying at $24 or less.
Disclosure: I own Alphabet personally and for most clients. I own call options on Intel in a hedge fund I run. One of my clients owns Tesla. I have no current positions in the other stocks mentioned in today's column, but may buy them on weakness.