Kornit Digital (KRNT), Ceva Inc. (Nasdaq:CEVA); LSE:CVA), Radware Ltd. (Nasdaq: RDWR), and Orbotech Ltd. (Nasdaq: ORBK) are the four Israeli stocks recommended by Barclays in its review of US emerging technologies for 2016. The four are rated "Overweight". Allot Communications Ltd. (Nasdaq:ALLT; TASE: ALLT) on the other hand receives an "Underweight rating". (As far as two other Israeli technology stocks generally covered by Barclays are concerned, Mellanox and EZchip, the bank is prevented from providing recommendations because it is advising EZchip in the merger of the two companies).
In general, Barclays takes a Neutral stance on the technology sector in the US, because of the mixed outlook for the various end markets. "We believe that a selective approach focused on value and company-specific growth/catalyst stories will perform best in 2016 given the environment and valuations," analyst Joseph Wolf writes, adding, "Balance sheets are healthy, and we expect an outsized focus on M&A and buybacks."
The mostly highly recommended stock in this area for 2016 is US telecommunications equipment company Arris (ARRS), among other things because of its low market valuation. Corning (GLW) is also mentioned for similar reasons.
As far as Israeli stocks are concerned, Wolf points out that semiconductor design technology company Ceva and PCB and FPD inspection equipment company Orbotech were the best technology stocks that Barclays covered in 2015 (Ceva posted a return of 28% and Orbotech 49.5%). "We anticipate continued outperformance in 2016," he writes, "In 2015, both diversified their revenue base and continue to have runways for growth in these newer opportunities." For Ceva, the opportunities lie in the move to 3G and LTE smartphones, while for Orbotech it is in the contribution by SPTS, acquired eighteen months ago. "We expect a PCB market rebound and forecast 10% growth after two years of contraction. Despite the 51% increase in 2015, we view Orbotech as still the cheapest stock we cover," Wolf's review states.
Ladenburg Thalmann has also upgraded its recommendation for Ceva, from Neutral to Buy.
On Radware, Wolf writes, "The long-term thesis is straightforward growth in cyber security, strong gross margins and capital allocation. However, the near-term environment is challenged and the shift from hardware to subscription services has implications for the model in 2016."
Allot provides bandwidth management and optimization solutions. Wolf describes it as "a company in a transition phase as its core DPI business slows and its focus shifts primarily to value added services (VAS)," and says, "Given stock performance in 2015 (a fall of 36.6% - Sh. H-W), our UW rating reflects our continued pessimism regarding the telecom end market and is a relative call on the end market exposure more than a view that the shares will drop significantly."
Published by Globes [online], Israel business news - www.globes-online.com - on January 11, 2016
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