Five Israeli tech cos surviving the Nasdaq carnage

With the end of the first half of 2022 not far away, it looks as though it will be remembered as a tough period for investors, especially for those invested in technology stocks. Since the beginning of 2022, the Nasdaq Composite Index, identified with technology companies, has fallen by a third. The decline in the index began earlier, after it reached a peak last November, when investor taste changed in anticipation of a rise in interest rates.

Israeli stocks traded in New York, most of them of technology companies, have also mostly shown double-digit negative returns since the beginning of the year, as investors switch their money from growth stocks to value stocks.

Nevertheless, in the Israeli technology sector it is also possible to find some surprising stocks that have come through this period with positive returns, some even quite high returns. The stocks in question are of the stable, profitable, veteran companies Check Point (Nasdaq: CHKP), Amdocs (Nasdaq: DOX), and Elbit Systems (Nasdaq: ESLT) (which as a defense company has benefitted from increased defense budgets), and of companies awaiting the completion of deals to acquire them, such as Tower Semiconductor (Nasdaq: TSEM) and Tufin Software Technologies (NYSE: TUFN).

There are also stocks that, although they have fallen along with the general decline, have nevertheless outperformed the Nasdaq index. Among these are solar energy technology company SolarEdge (Nasdaq: SEDG), which has fallen 5.7%, and Radcom (Nasdaq: RDCM) of the RAD group, which has fallen 15.8%.

Check Point: Relegated from the index and beating it

Cybersecurity company Check Point is one of the longest standing Israeli stocks on Wall Street, and the most valuable, with a current market cap of $15.2 billion. Last year, the company, headed by Gil Shwed, underperformed the Nasdaq 100 Index, on which it was listed, and towards the end of the year it was relegated from the index. Since then, however, the trend has changed, and, while the index declines, Check Point has put on 4% so far this year.

Investors see Check Point as a safe, reliable company that posts profits and generates cash quarter after quarter. The profit did fall in the first quarter, but the reason for that was expansion of the workforce with the aim of growing, and for this year Check Point sees revenue growth of 5.6%, a higher rate than in recent years.

Check Point also has a very large cash cushion, amounting to $3.8 billion at the end of the first quarter, almost a quarter of its current market cap. In the past few years, besides a few not very large acquisitions, it has used its cash to buy back its own shares every quarter, to support its share price.

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Amdocs: Still near its all-time high

Another veteran Israeli company is Amdocs, which provides IT systems and services to telecommunications companies. The company, headed by Joshua (Shuki) Sheffer, has a market cap of $9.5 billion, and although its share price has declined in the past few sessions, it is still fairly close to its all-time high, which it reached very recently (adjusted for dividends), and it has posted a 5.6% positive return since the beginning of the year.

Like Check Point, Amdocs too has a single-digit growth rate. It forecasts revenue growth of 5.2-7.2% this year, and it too buys back shares every quarter. In the first quarter, it bought back shares to the tune of $130 million.

In addition, Amdocs pays a quarterly dividend. At the end of its second fiscal quarter (to the end of March), Amdocs had $856 million cash. It recently announced the acquisition of a British company for $188 million cash.

Elbit Systems: Share price rise hurts results

Elbit Systems’ share price rose sharply in the first quarter, to the extent that this negatively impacted its results. The first quarter profit was lower than expected, because the company spent $35 million on employee compensation programs. Because part of the compensation paid with the aim of retaining employees was in the form of phantom options, the rise in the share price obliged the company to make provisions to cover them.

The share price rose 26.6% in the first quarter, and although it has fallen back since then, Elbit Systems still presents a 12.1% positive return since the beginning of the year.

Elbit Systems, headed by Bezhalel Machlis, has, as mentioned, been benefitting from a rise in defense budgets, particularly in Europe and NATO countries, following the Russian invasion of Ukraine, and in the Asia-Pacific region, because of fears of China’s growing military power.

The company’s orders backlog at the end of the first quarter was $13.7 billion. It recorded revenue of $1.35 billion in the quarter, and posted a net profit (non-GAAP) of $54.3 million.

At the end of the quarter, Elbit Systems had $277 million cash, and it has long-term debt to bondholders. The company pays a quarterly dividend. Incidentally, another Israel defense with a positive return for the year to date is RADA Electronic Industries (Nasdaq: RADA), which has risen 22.7% to a market cap of $575 million.

Tower Semiconductor: Sale to Intel creates certainty

Chip-maker Tower Semiconductor of Migdal Ha’emek, headed by Russell Ellwanger, has a positive return of 17% for the year to date, and 67% in the past twelve months. In February this year, it was announced that Intel would buy Tower for $5.8 billion ($5.4 billion excluding its cash), and at the end of April Tower’s shareholders approved the deal, which is now awaiting fulfilment of all the conditions for its closure.

The sale to Intel creates certainty for investors, and Tower Semiconductor’s share price has fallen a great deal less than the prices of other shares in the sector. All the same, while it was traded at a price close to the deal price ($53), it is now about 12% below it, reflecting some degree of uncertainty over whether the deal will be completed.

Tufin: Awaiting sale completion

Another company that has been sold and is awaiting completion of the deal is Tufin, which specializes in data security policy. The company, founded by Reuven Kitov and Reuven Harrison, announced at the end of April that it would be sold for $570 million to US investment company Turn/River Capital, in a deal due to completed within the next few weeks.

Tufin’s share price in the deal is $13, lower than its IPO price on the New York Stock Exchange in 2019, which was $14, but reflecting a 44% premium on the share price on the day before the announcement. Tufin’s current share price is $11.50, after a slight decline in the past few sessions, about 11.5% below the acquisition price.

Published by Globes, Israel business news – en.globes.co.il – on June 16, 2022.

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