3 Israeli Stocks Drumming Up Growth

Despite clashes, Israel is churning out rapidly growing tech companies.

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Here are a few things you may not know about Israel: The nation, which celebrated its 60th anniversary this year, has more companies traded on the Nasdaq than any other country outside of the United States. Worldwide, it ranks No. 1 in investing in research and development as a percentage of GDP. And despite continued attacks on the Gaza Strip and the threat of war with Iran, Israel's stock market has managed to produce returns between 25 percent and 60 percent annually for the past five years. "It's a very resilient country with low inflation and very disciplined fiscal and monetary policies," says Jamia Jasper, manager of the new American Israeli Shared Values Fund.

The former Bank of New York credit analyst, who started the fund in late 2007, invests in stocks of Israeli companies that trade on U.S. exchanges, as well as U.S. companies that do business with Israel. (The country's highly educated workforce has spurred many U.S. companies to set up operations there, including Microsoft, Intel, and Medtronic.) Jasper recently shared with U.S. News three of her favorite stocks:

Elbit Systems (ESLT): This Israeli defense contractor, which specializes in homeland security, has been growing its earnings by more than 20 percent annually, Jasper says. And defense spending worldwide is only going to increase in the coming years. Elbit, which is "increasingly winning a number of contracts outside of their main markets [Israel and the United States], and expanding into India and Far East," she says, has no debt on its balance sheet and plenty of free cash flow.

Teva Pharmaceutical Industries (TEVA): The world's largest generic drug manufacturer also has its hands in generic biotechnology (it has the capability to produce protein-based drugs as opposed to chemicals.) That should provide an additional catalyst to an already fast-growing company, says Jasper: "If you're using a generic right now, there's a 40 percent chance that it's a Teva product." The company also recently reached an agreement to acquire Barr Labs, a U.S.-based generic manufacturer, which should give the company another boost.

NICE Systems (NICE): This tech company captures and converts unstructured data for governments and 75 Fortune 100 companies. This includes facial recognition systems, which are used by the U.S. government, as well as voice-logging systems, which are used by financial companies for compliance purposes. "This is a niche business that's not going away," Jasper says. The company is growing its revenues by 12 to 15 percent annually, has no debt, and approximately $150 million in free cash flow. Jasper says the shares, recently $30, appear undervalued.