Daily Gains Letter

This Foreign Market a Hidden Treasure for Growth Investors

By for Daily Gains Letter |

Foreign Market Hidden Treasure for Growth InvestorsWhile the S&P 500 and Dow Jones Industrial Average race to new record-highs, there’s still a sense of caution and vulnerability on the side of investors towards the stock markets here in the U.S.

In fact, a study I read in Bloomberg estimated that around 47% of stocks listed on the NASDAQ stock market are currently in a technical bear stock market, down 20% or more from the highs. On the small-cap Russell 2000, the story is even worse with more than 40% in a bear stock market. And the study shows that the S&P 500 had a mere eight percent of stocks in a technical bear stock market.

There’s even talk of the S&P 500 reaching 2,300 by the year’s end, according to some of the optimistic bulls on Wall Street. I feel it’s pure fantasy that the index will rise by another 15% by year-end.

The reality is that the stock market is stalling. Without any fresh and inviting reasons to buy, I sense the stock market risk is quite high.

An alternative would be to invest in a foreign market, and while I like China, Israel is fast becoming the favorite for growth investors. Israel has produced some top companies in the past, especially in the technology and medical devices sectors.

Israeli stocks are the third most listed stocks on the U.S. stock markets. (China is second.) As a country, Israel may be small, but an excellent investment opportunity can usually be found there. Moreover, the risk for fraud is much lower than with U.S.-listed Chinese stocks. I can’t say that I have ever heard of fraudulent financial statements emerging from Israel.

One of the most well known companies from Israel is biotech Teva Pharmaceutical Industries Limited (NUSE//TEVA), but there are numerous others with excellent potential. Here are three great examples of speculative Israeli opportunities investors should consider evaluating.

In the small-cap technology space, investors may want to consider a company like Israel-based Magic Software Enterprises Ltd. (NASDAQ/MGIC), a provider of information technology (IT) services for more than 30 years. The company has ventures with International Business Machines Corporation (NYSE/IBM), Microsoft Corporation (NASDAQ/MSFT), and Oracle Corporation (NYSE/ORCL). Magic Software is profitable, achieving higher sequential earnings in six straight years from 2006 to 2012, prior to a small decline in 2013. The valuation is decent at 14.66X its 2015 earnings per share (EPS).

Magic Software Enterprises Limited Chart

Chart courtesy of www.StockCharts.com

Another small-cap Israeli tech play U.S. investors may consider evaluating is AudioCodes Ltd. (NASDAQ/AUDC), a developer of advanced voice-over-IP (VoIP), along with converged VoIP and data networking products and applications. The company sells to three major markets: broadband, mobile, and enterprise networks and cable. Delivering consistent revenue and earnings growth will be the key.

AudioCodes Limited Chart

Chart courtesy of www.StockCharts.com

Finally, moving to the healthcare space, Syneron Medical Ltd. (NASDAQ/ELOS), a maker of aesthetic devices with markets in more than 80 countries, is worth a closer look. The devices are used in body contouring, hair removal, wrinkle reduction, skin work, and acne, leg vein, and cellulite treatments. The company is now profitable and set to deliver higher growth.

Syneron Medical Limited Chart

Chart courtesy of www.StockCharts.com

With Israel quickly becoming the stock market of choice for growth investors, these three stocks may be worth a closer look.

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