4 Healthcare Favorites from Israel

04/21/2014 10:00 am EST

Focus: STOCKS

Kathy Kristof, of Kiplinger’s Personal Finance Magazine, looks to Israel to uncover some favorite healthcare and biotech favorites, including plays on oncology, insulin delivery, and ADHD treatment, as well as a value idea in generics.

Steve Halpern: Joining us today is Kathy Kristof, of Kiplinger’s Personal Finance Magazine. How are you doing today, Kathy?

Kathy Kristof: Great, how are you, Steve?

Steve Halpern: Very good. Thank you for joining us. Your latest article for Kiplinger’s focuses on growth stocks that are based in Israel, a country that you point out is only slightly larger than the state of New Jersey. When many investors consider Israel, they think of the risks, but you point to the opportunities there. Can you expand on that, please?

Kathy Kristof: Sure. Israel is a hotbed of technological and biotechnology research and progress. They have a number of young companies that definitely are risky, because some of them have yet to post a profit; but they have great promise.

And a lot of the major technology and biotech companies look at Israel as a place to go and pick up some of these little companies at premium prices, in order to get their, really, record-breaking technology.

Steve Halpern: You mention the healthcare in the biotech sector, which is what we’re going to focus on today. First let’s look at Compugen (CGEN), which is involved in immunology and oncology. Can you tell us a little more about this stock?

Kathy Kristof: Its part of a number of really interesting companies that are looking to cure cancer by getting your own body’s systems to work against those cancer cells.

What they do is, they look for checkpoint inhibitors, which, essentially, block the cancer cells from spreading. They’re doing that by unleashing computer algorithms to find unique ways to stop these cancer cells.

Their technology has been promising enough that the pharmaceutical giant, Bayer AG, last year, said it would commit up to $540 million to partner with them and analysts think that’s just the first partnership that these guys are going to strike. That makes their stock pretty promising.

Steve Halpern: Another player in the biotech field that you believe could be on the verge of a breakthrough is Oramed Pharmaceuticals (ORMP). What’s the story there?

Kathy Kristof: Oramed is interesting in that their working on—it’s not really a new treatment—they are using insulin to treat diabetes, but what they’re trying to do is work on the delivery method. Until now, diabetics have to deal with insulin shots or implants which, of course, are kind of difficult to face on a daily basis.

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Oramed is working on an oral form of insulin and it looks like they may well get FDA approval sometime in the near future and analysts think that if you find a way to deliver insulin to the growing number of diabetics in a way that’s more attractive, the world is going to beat a path to your door.

Steve Halpern: You’ve also pointed to developments at a company called Alcobra (ADHD). What do you like there?

Kathy Kristof: They are developing medications for ADHD and, as we all know, ADHD has become the latest disease to hit an amazing number of kids.

Traditionally, ADHD medications have serious side effects, including addiction, and can create psychotic episodes. Their drug appears to be promising in both treating the disease and in having fewer side effects.

If it is able to get through—and it’s actually already been approved for a rare, related disease called Fragile X, which causes cognitive delays—and so, if they are able to get this approved for ADHD, again, they could have a tremendous boost to their stock price.

Steve Halpern: Now, the three stocks we’ve covered so far all have to be considered along the speculative cap, but another healthcare company you touch on in your article is a large-cap company that is the world’s biggest maker of generics. That company is Teva Pharmaceuticals TEVA. Can you tell us a little about that firm?

Kathy Kristof: Yes. Teva is probably the opposite of everything we’ve been talking about. These other companies are all young, risky, losing a lot of money, but have some promising treatment. Teva is extremely cheap. It’s a value play.

The reason it’s cheap is, where Teva is the nation’s biggest producer of generic drugs, they also have some patented medications, and like so many other companies, their patents are expiring; and so these blockbuster drugs that have been on patent are expiring.

In some ways, that helps Teva because their generic market can grow; but their generics are a lower profit margin business, and so, there’s a lot of worry about these patent expirations for Teva and for others.

That said, they are so cheap right now. They’re selling for about 11 times earnings and they pay a pretty generous dividend, so a lot of analysts look at them and say they’ve just been too beat up, and their patent expirations are probably not as costly as the market thinks they are.

So, they’re a stock that may be worth picking up and just collect that 2.8% dividend yield and you wait for the market to get less scared by those patent expirations.

Steve Halpern: Well, we really appreciate you taking the time. Thanks for joining us today.

Kathy Kristof: Thank you.

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