Despite political turmoil, several large institutions believe the Israeli market will recover strongly from its current woes. For example, the TA-125 Index, a stock market index that tracks the 125 most highly capitalized companies listed on the Tel Aviv Stock Exchange (TASE), fell 12.3% in 2022, while the S&P 500 Index fell over 20%. This suggests that investors exposed to Israeli stocks fared relatively well last year. Moreover, the TA-125 is down about 5% year to date, providing another opportunity for investors to double down on Israeli stocks.
According to a forecast released in February 2023 by the Central Bureau of Statistics, Israel’s GDP will grow 6.5% in 2022. Although slower than in 2021, growth is still significantly higher than in other Western countries, thanks to a steady increase in consumer spending, exports, and investment. On a per capita basis, Israel’s economy increased at a 4.4% annual rate, compared to an OECD average of 2.6%. Despite high inflation and rising living costs, consumer expenditure increased by 7.5% in 2022, accounting for more than half of all economic activity. Exports increased by 7.9%, and fixed-asset investment increased by 9.3%.
The thriving high-tech industry accounts for 11% of the country’s workforce and 15% of total economic activity, accounting for more than half of Israel’s exports. This positive momentum is expected to propel the Israeli stock market forward this year, with game-changing startups attracting overseas investors’ interest.
In a recent report, Barclays analysts highlighted the banking, real estate, and telecommunications industries as vital sectors in the Israeli market. Below are five companies in these sectors that are likely to grow along with the economy.
G City Ltd. (GCT.TA):
G City, a real estate company with a high-quality portfolio of income-producing retail and mixed-use buildings across the United States, Canada, Europe, Brazil, and Israel, is Barclay’s top stock recommendation in Israel, with an 80% upside potential. The company’s Q4’22 results were strong, with an increase in NOI from identical properties in Q4 2022 of around 14.3% and an occupancy rate of 94.7%. Rents have already risen across Europe, Israel, and the United States, with the average rent per square meter increasing by 7-8% in the last year across all operating regions. The company is well-positioned to benefit from this trend and further expected rent hikes in the coming quarter. G City stock is up 7% YTD.
Bank Leumi (LUMI.TA):
Lumi is one of Israel’s oldest banks, with a long history of supporting the growth of industrial and agricultural businesses in Israel and around the world. Lumi recorded strong results in 2022, with its finance income increasing 28% YoY to $4.1 billion, driven by interest rate hikes and rising inflation. Net income increased 29% YoY to $2.2 billion. To control inflation, the Bank of Israel has gradually increased its benchmark interest rate from 0.1% in April 2022 to 3.25% at the end of 2022. In February, the central bank boosted its key lending rate by 50 basis points to 4.25%. Leumi stock is down 5% YTD.
Bezeq Group (BEZQ.TA):
Bezeq is the largest telecommunications provider in Israel. The company, through its subsidiaries, offers a range of services, including fixed-line and mobile telephony, broadband internet, cable TV, and cloud computing. This is another stock recommendation from Barclays with a 40% upside potential. Bezeq announced positive growth in 2022, with revenue increasing 1.9%, led by robust growth in fiber optics, 5G in cellular, and its IPTV service. The stock is down nearly 20% in 2023, making it a bargain today as the current 5G transformation positions the company for growth.
The Phoenix Holdings (PHOE.TA)
Phoenix Holdings is a leading financial services company in Israel with a diversified business catering to the asset management and insurance sectors. The company manages more than NHS 370 billion assets, making it one of the country’s most prominent publicly-traded asset managers. With interest rates continuing to remain elevated, Phoenix Holdings looks well-positioned to see an expansion in profit margins. Moreover, in the recovery phase of the global economy, the company will benefit as funds flow into its asset management business.
Energean Plc (ENOG.TA)
Energean is a gas-focused energy company with development and exploration assets in the Mediterranean and UK North Sea. This is a relatively new company looking to make the most of the energy transition in the Middle East in favor of sustainable energy sources. The company has plans to achieve its net-zero emissions target by 2050.
In 2022, the company delivered gas for the first time from Karish and also commended liquid hydrocarbon exports from Karish to international markets. The company also completed its first production in Egypt in March 2023, and is on track to meet its 200 kboed production target in 2024. Investing in this fast-growing energy company in its infancy could help investors earn multi-bagger returns in the long term.
Israel is home to some of the most interesting companies in the world. When the global economy faces several headwinds, strategically gaining exposure to the Israeli economy could help investors earn handsome rewards in the long run.
Disclaimer: This is not financial advice. Always do your own research and due diligence. In addition, MarketDaily authors may be active in the markets or the enterprise world and thus may be subject to conflicts of interest.