Investment Manager Recommends Stocks 'Like Buying a Bunker'

Eitan Etzioni did not start his path in the financial world through family tradition. Both his parents are sociology professors, one brother is an AI professor, and another is a surgeon. "I decided to go into the world of practice and not the world of academia," he says. "In the academic world, you write papers and don't know if you are right or not. In the capital market, you know very quickly if you were right."

After a bachelor's degree in economics at Tel Aviv University and a master's degree at the University of Pennsylvania, he arrived on Wall Street. At first, he worked as a portfolio manager at Oppenheimer and Lehman Brothers and left there even before the collapse during the 2008 crisis. "They collapsed not in my time and not my fault," he laughs. Later, he returned to Israel and managed the risks and nostro of Bank Discount. 20 years ago, he founded the Etzioni investment house, a boutique investment house that, according to him, manages 2.3 billion shekels and has 10 employees.

"We don't try to predict which way the wind is blowing"

"I have been in the market for over 30 years. Our philosophy is value investing like Warren Buffett. We look in Israel for stable, profitable companies, strong brands, high barriers to entry for competition, and strong management, with a preference for basic consumer goods. That is, companies that will profit in a year or two as well, and not chasing the current passing fashion. This is also true for bonds; we don't need the rating companies, they don't prove themselves anyway. We saw that IDB went bankrupt despite an AA rating."

When we ask Etzioni to address the macroeconomic situation, he refuses firmly. "We don't try to predict where the sun will rise or where the wind is blowing from. These are things we have no control over. To create excess return, you need an insight that others missed. I don't know better than others if Donald Trump will attack Iran tomorrow or not. Everyone who follows the media knows the same thing."

"Oasis": The investment that jumped by 1,900%

Etzioni offers a solid investor an exposure of 18% of the portfolio to stocks in Israel, and another 12% to stocks abroad, "including Israeli companies whose main activity is abroad." The remaining 70% he allocates to "bunker" company bonds — stable government companies that give a slightly higher yield than government bonds. Among them, he suggests the water company Mekorot, Israel Electric Corporation, Israel Ports, and alongside them bonds of banks and insurance companies.

For an aggressive investor, he suggests exposure to stocks at a total rate of 70%, "Warren Buffett says 90% in stocks, but 70% is also good." For stocks in Israel, he allocates 42% of the portfolio and for stocks abroad (including Israeli ones with activity abroad) another 28%. As for bonds, he looks for companies that provide high yields of 6%–9%, such as, for example, the real estate company Geshem "which is a profitable company with popular apartments throughout the country" and Leonardo, as well as bonds of Nextcom, which operates in the communications infrastructure sector and recently also energy. "I am not looking for companies like Azrieli, whose bonds give a yield of 4%, let's leave that to the big investment houses."

This statement of his is also relevant to stocks. According to him, "a significant part of our portfolio is invested in small companies under the radar of the institutional ones. In large companies, it is hard to find bargains because there are 100 analysts covering them and it is hard to find something that others missed, but in a small company covered by two or three analysts, if you have done in-depth work, there are bargains." One of his successes, he says, was the printed circuit board company Telsys. "We identified it when it was worth 150 million shekels. It was an 'oasis', it was not known and did not understand that it needed to talk to the market. We built a position and today the company is worth more than 3 billion shekels."

Recommends Fiby stock: "Tzadok Bino is no sucker"

To phrase it in one sentence, Etzioni prefers companies with a low P/E ratio. "I suggest companies that are at a P/E of 10 and even less and they are super attractive for investment." Thus, he suggests investing in the Fiby company, the parent company of the First International Bank. "Fiby is at a significant discount relative to the value of its holdings." This is true for all holding companies, but according to him, "unlike most holding companies that spread out into all sorts of fields, Fiby is a clean pipe that transfers dividends to shareholders. There are no debts at the headquarters level and no unnecessary activities. The expected merger process will close the discount. And this is the most conservative and cautious bank in lending, Tzadok Bino is no sucker. It's like buying a bunker."

He also suggests investing in the non-bank credit company Opal Balance, which deals in check discounting. "They proved themselves with low exposure to a single borrower and low provisions for credit losses and a P/E ratio of 8." Alongside it, he marks the insurance company Libra (P/E 10) because he "appreciates Eti Elishakov who proves herself. And this is the insurance company that is growing the fastest and biting from others and this is a good place to be."

He also mentions the leasing and car rental company Eldan (P/E 8) and explains that "this is a P/E when there are no tourists. When they return to Israel, it will earn more. They are traded at 80% of equity."

Beyond all these, Etzioni also marks the cleaning company Raga Services, which provides cleaning services to municipalities and local councils, the defense company Smart Shooter ("a lot of potential"), the renewable energy company Phinergy, Gilat Telecom ("the telecom company that is growing the fastest and is also in the defense field"), and the canning company Zanlachel ("growing nicely, managed excellently, and there are high dividends. Super profitable and at a P/E of 14 when Strauss is at 30"). In addition, he identifies an opportunity in the residential real estate company Azorim: "It dropped by 40% in recent months and is traded at a deep discount relative to equity and expected profits from projects under construction. They sold it in an 'overshooting'."

In the field of companies affected by AI concerns, Etzioni recommends the software company for service centers Nice, which "is traded at a P/E of 10 after a sharp drop; although AI will hurt it, it is stable and growing and there are high barriers to entry for competition." Alongside it, he mentions the IT company Hilan because "every large company will not open Claude and tell it to build me a new operating system. This will not happen, so they will need them. It is an essential integrator for large bodies."

When we ask for a company from abroad, Etzioni mentions the memory giant Micron, which "is traded at a P/E of 18 and it is growing and exploding and still at a relatively low price. And this is compared to a P/E of 100 for the Israeli chip company Tower."