Six Israeli Companies Benefitting From the Dollar's Recent Strength

In a follow-up to Aaron Katsman’s article last week on the weakness of the dollar versus the Israeli shekel and the dollar’s subsequent bounce-back of over 6%, I’ve been thinking on how to play the apparent weakness. (For a strong backgrounder-type piece, Gary Dorsch had a great article on Seeking Alpha that provides an overview of the macroeconomic drivers behind the movement of the dollar/shekel.)

I think Katsman said it succinctly when he anticipated the recent strengthening of the dollar:

…this Dollar strength has been anticipated, as the Bank of Israel has been doing whatever they can in trying to talk up the Dollar. The BOI has been lowering interest rates, but many analysts feel that they can cut no more. Officially, Israel has been experiencing little to no inflation over the last 12 months, but that is deceiving. The Dollar is a major component in inflation calculations, so the weakness in it has skewed the numbers to next to nothing. Morgan Stanley analyst Serhan Cevik warned that under the radar, inflation is there and it’s strong, running at 4% once linkage to the dollar is weeded out. He counseled the Bank of Israel, not that it asked, to stop lowering interest rates.

General wisdom has it that exporters (from Israel) benefit from a stronger dollar, unlike companies with highly-leveraged balanced sheets (i.e. lots of debt).

So, here’s what ClalFinance had to say in a note to investors regarding some of the stocks we’re following:

Teva (TEVA): The main impact is on the share price denominated in shekels. TEVA’s shares started the week in Tel Aviv trading .6% higher than the U.S.-listed stock.

Ormat (ORA): On the face of it, there is a highly-favorable effect for ORA, which is a company in the dollar-zone, whose shares trade in U.S. dollars. Also, there was a good G-8 meeting.

Partner (PTNR): There are negatives for equipment costs, and the possibility of increased future debt. Another negative comes from the Ministry of Communication's decision to shorten cellular companies’ contracts with customers, from 3 years to 1 year.

Perrigo (PRGO): There was an updraft for shekel-denominated shares.

NICE (NICE): There were two positives here. It saw increased margins from overseas operations, and higher yields for its cash holdings (about $163MM).

Elbit Systems (ESLT): It helps out margins. The company has minimal debt, despite the Tadiran acquisition. Nevertheless, Q2 will still suffer from dollar fluctuations.