This column was originally published on RealMoney on Feb. 7 at 12:57 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

"Israel, Who Knew?" is the slogan for a new commercial airing on TV in America put out by Israel's Ministry of Tourism. This commercial is significant as there has not been a televised advertisement for Israel in America for some time now.

In economic terms, it didn't make sense to advertise in prior years because Israel was perceived to be a war zone and nobody would come anyway. But according to Israel's Central Bureau of Statistics, tourism to Israel increased by 26% in 2005, so in light of that, I decided it was time to go with the slogan Great Investments in Israel, Who Knew?

While I have invested in Israel for many years, many people have an aversion to investing there. Before I give you my picks for an Israeli index, I'm going to lay down the foundation of why Israel is a great place to invest.

First, Israel is a democracy, which is a necessity in the capitalist system and even more important when it comes to the markets.

Second, education is valued greatly in Israel. The country has an estimated literacy rate of 99.5%. Also, 24% of Israel's workforce hold university degrees ranking it third in the industrialized world, after the U.S. and Holland and 12% hold advanced degrees. (Notably, many Israelis speak English, while I don't know the statistics I estimate it to be above 65% of the population.)

Many of Israel's universities have joint programs with top American schools such as the Kellogg-Recanati International Executive MBA Program, a joint program through which students earn an MBA from Kellogg Graduate School of Management at Northwestern University and the Recanati Graduate School of Business at Tel Aviv University.

Economically, Israel is on sound footing. The country has an excellent credit rating from all three major ratings agencies, and 2005 was a great year for the Tel-Aviv Stock Exchange; the TA-25 (Ma'of), which is made up of the 25 largest stocks by market capitalization, climbed 25%.

Unemployment is trending lower. The short-term interest rate is 4.91%, which is very business friendly. The chart below illustrates a declining unemployment rate, which bodes well for the labor market, which in turn improves the general economy. The more people working, the more vibrant an economy can become.

Also, Stanley Fischer took over as the Governor of the Bank of Israel this past May. Previously, Fischer was vice chairman of Citigroup and former deputy managing director of the IMF. In regards to a recent IMF report on Israel, which has shown significant improvement over time, Fischer stated: "In my past role in the Fund I saw many of the IMF's reports and even represented the Fund on the other side of the table. I am therefore in a position to state that this is one of the Fund's best reports."

Click here for larger image.
Source: Ministry of Finance
For further proof, take a look at the chart below. Investors are beginning to pour money into Israel once again.

Click here for larger image.
Source: Ministry of Finance

No discussion about Israel or its economy would be complete without mention of the upcoming March elections.

With Ariel Sharon currently incapacitated, Ehud Olmert has taken the top spot in Kadima. Whether Sharon recovers to lead Kadima or Olmert takes over the reins full time, the polls show Kadima winning over Likud and the Labor Party.

As Israel is a strong democracy I do not believe the markets are in jeopardy no matter the outcome of the March elections. In regards to Sharon's illness, Fischer noted Israel has a stable economy in which investors have confidence. The proof, he said, was seen in the "impressive" market, which he said, "spoke of the stability and maturity of the economy."

In regards to Hamas' recent win, there should be no "real" negative effect on the Israeli economy. There has been and there will continue to be immense pressure on Hamas to disarm or lose funding, and as we know, money makes the world go round. Israel is an extremely safe country despite media reports that show otherwise.

I have made an index of Israeli companies that trade on the Nasdaq. All of the companies are profitable and carry little or no debt loads.

Aladdin Knowledge Systems ( ALDN) is a digital security firm that provides solutions for Digital Rights Management and Internet security. One of its products, eToken, allows a user to generate and provide secure storage for passwords, digital certificates, secure strong authentication, digital signing and encryption. eToken provides data security based on Smartcard technology but requires no special readers.

The company has two headquarters, one in Tel Aviv and another in Arlington Heights, Ill. Its customers are worldwide, including major corporations such as Exxon Mobil, Adobe and governmental agencies such as the Department of Defense. The company has no debt and $73 million in cash on the books, and over the past 12 months Aladdin has generated $12.5 million in operating cash flow.

Check Point Software Technologies ( CHKP) is another Internet security firm. Its products include enterprise firewalls, personal firewalls and VPN markets. Headquartered in Ramat-Gan, Israel, and in Redwood City, Calif., Check Point has been somewhat beaten up over the past year but remains a heavyweight in the Internet security business. I am confident that with more than $1 billion in cash and zero debt, Check Point will figure out a way to expand successfully going forward.

Fundtech ( FNDT) provides software services that facilitate payments, settlement and cash management by enabling businesses and their banks to electronically manage cash, process payments and transfer funds. Its clients include Bank of New York, Bank of America, Deutsche Bank and National Australia Bank to name a few. The company also has partnerships with Microsoft ( MSFT), Sun Microsystems ( SUNW), IBM ( IBM), Oracle ( ORCL) and many others. The company generated $5.13 million in cash flow over the past 12 months and its balance sheet is clean with zero debt and $32.28 million in cash.

Given Imaging ( GIVN) is a health-care company that has developed innovative imaging technology. Given Imaging's flagship technology is the Given Diagnostic System, featuring the PillCam Capsule Endoscope. It is currently marketed in the U.S. and in 60 other countries for visualizing the small intestine and has benefited tens of thousands of patients worldwide. This product is ingested and glides naturally through the digestive tract and is naturally excreted. Along the way through the GI tract it detects abnormalities of the small intestine used to diagnose gastrological problems such as Crohn's disease. This is a major breakthrough in noninvasive procedures. Currently, the company has more than 260,000 patents worldwide. Given Imaging generated $19 million in operating cash flow over the past 12 months and it has more than $58 million in cash and less than $50,000 in debt.

Magal Security Systems ( MAGS) is a manufacturer in the field of Outdoor Perimeter Protection worldwide. The company provides systems for borders, airports, industrial sites, military sites, nuclear facilities and other sensitive sites. With today's security concerns it's only logical to assume that the demand for its products will rise. The company's stock recently spiked, so I would wait for a pullback to buy.

Radware ( RDWR) is basically an enterprise software company that builds new technologies that help improve complex networks. It has a great balance sheet with $127 million in cash and zero debt. In an industry that grows with acquisitions this strong balance sheet is a key advantage. They have recently been upgraded from neutral to a buy by Oppenheimer.

Teva Pharmaceutical ( TEVA) is the largest manufacturer of generic drugs worldwide. Along with sounds financials, the company is close to a deal with Ivax Pharmaceuticals ( IVX) that will increase its exposure to the U.S. market. Teva has been increasing revenue year over year, recording $5.17 billion over the past 12 months. While Teva may not have the upside potential that the other companies have, no Israeli index would be complete without it.

Elbit Systems ( ESLT) is a global defense electronics company. Moving forward, expect to see it make some strategic acquisitions in an effort to better place it in an industry dominated by titans.

If you prefer to invest in a closed-ended fund, consider the First Israel Fund ( ISL).

Finally, a little quiz and then some spots to research Israel further:

Which one of these companies has an R&D center in Israel, Motorola ( MOT), Intel ( INTC) or Microsoft?

The answer is all three, and in fact many of the technologies used in your computer, phone and operating system were developed in those research centers. Some good Web sites on the Israeli economy and markets include: And three books on Israeli business:
    1) Spies, Inc.: Business Innovation from Israel's Masters of Espionage
.
    2) Israel in the World: Changing Lives Through Innovation
.
    3) Business Under Fire: How Israeli Companies Are Succeeding in the Face of Terror -- and What We Can Learn from Them .

Please note that due to factors including low market capitalization and/or insufficient public float, we consider ALDN, FNDT, RDWR and MAGS to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
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James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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