Israel has always been a breeding ground for some of the most innovative companies in the world, and for this reason, the country is considered one of the hot spots for growth investors looking for multibagger opportunities. In 2022, TA-125 Index declined 12.3% against the S&P 500 Index which declined almost 20%, suggesting investors who had exposure to Israeli stocks would have done relatively better last year. This year, the S&P 500 has surged almost 3% while the TA-125 has declined almost 4%, which presents a good opportunity for contrarian investors to double down on Israeli stocks. Barclays, in an attempt to explore this opportunity, recently published a report, as covered on Israeli news site “BizPortal”, discussing the favorable outlook for the Israeli banking and real estate sectors and highlighted a few stocks that could deliver handsome returns this year.
G City (TASE: GCT), a real estate company that manages a portfolio of income-producing retail properties spread across the United States, Canada, Europe, Brazil, and Israel, was highlighted by Barclays as their top stock pick in Israel with an upside potential of 80%. Last year, G City underperformed due to investor fears regarding the company’s debt, but most of these fears have been alleviated recently with the help of new capital raises led by CEO Chaim Katzman. Moreover, strategic sales of assets and strong fundamental numbers have helped in launching an initial recovery for the stock alongside a shift in positive market sentiment. According to Barclays, G City will benefit from rent increases in the coming quarters, and the company’s well-diversified portfolio is likely to open many new opportunities to grow. The company’s European subsidiary, Citycon, had a strong end to 2022 and seems well-positioned to grow this year, which could be another reason behind Barclays’ positive stance on G City.
Barclays also sees upside potential in the Israeli banking sector, with Israel Discount Bank (TASE: DSCT), Bank Leumi (TASE: LUMI), and Bank Hapoalim (TASE: POLI) stocks offering more than 50% upside.
Israel Discount Bank provides financial services to both individuals and corporates, including depository services and wealth management solutions. The bank had a record 2022 with net interest income growing 33% aided by credit growth of more than 13%. The bank’s return on equity, an important financial metric that reveals the operating efficiency of a bank, has improved from 4.2% in 2014 to 15.1% today, which is a testament to how the bank has grown profitably over the last few years.
Bank Leumi, on the other hand, is the oldest banking corporation in the country and is one of the largest corporate behemoths in the Middle East region. The company operates more than 250 branches in Israel alone with a footprint in many international locations as well. The bank reported more than 30% YoY growth in revenue last year while lowering its cost base by around 14%, showing impressive results from its cost management initiatives. Net income more than doubled in 2022 as well, and the bank seems well-positioned to grow in the recovery phase of this business cycle.
Bank Hapoalim is another major bank in Israel with its roots going back to 1921. The bank, similar to the others discussed in this analysis, offers both corporate and retail banking solutions. Bank Hapoalim achieved record profitability in 2022 with net income surpassing NIS 6.5 billion, and the ROE notched 300 basis points higher to 14.8%. With a diversified product portfolio, Bank Hapoalim is moving into 2023 with promising prospects for growth.
According to Barclays, the rapid loan growth expected in the coming years and Israel’s resilience to global economic shocks will help the banking sector report stellar ROEs in the range of 13%-17% this year, which makes the leading banking stocks attractive bets today.
Bezeq Group (BEZQ), a leading telecommunication services company based in Israel, is another stock pick highlighted by Barclays in its recent report with an upside potential of over 40%. The company, through its subsidiaries, offers a range of services including telecommunication services, high-speed internet solutions, and PayTV packages. In 2022, Bezeq reported solid growth in each of the main financial performance metrics such as revenue, adjusted EBITDA, and net income. According to Barclays, the ongoing 5G transformation will provide new opportunities for Bezeq Group to grow in the coming years, which makes it a bargain today.
In conclusion, Israel seems to be an attractive place for investors to search for high-growth companies that are valued cheaply. Barclays analysts believe the banking sector and the real estate sector will offer the biggest upside in 2023 while the telecommunication sector can also prove to be a good investment.
Disclaimer: The content above does not constitute financial advice. The recommendations are not by the author but rather a syndication of news/reports published on 3rd party sites covering Barclays’ recommendations. The author is not responsible for any mistakes the 3rd party or Barclays may have made. The stock markets are volatile and risky, and you must always do your own research using objective sources.
Company Name: Global Market News Syndication
Contact Person: Arnold Benjamin
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