Big Profits in the 23rd Developed Nation

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With most stocks posting massive gains over the last year investors are starting to wonder if a market top is forming. Old market sayings like 'sell in May and go away' are cute and timely, but don't necessarily convey the reality that there is value in any market, if you're willing to look for it.

In yesterday's issue of Small Cap Investor Daily I discussed three consumer staple small cap stocks that I believe represent a good value for investors right now. Sure, you may not necessarily be dying to load up on pet food, canned fruit, and salad dressing, but companies like Del Monte Foods (NYSEP: DLM) and Lancaster Colony (NASDAQ: LANC) sell products that consumers are likely to buy regardless of what the economy is doing. And these companies have rewarded small cap value investors over the last six months with nice gains like 90% and 18%, respectively.

But there are more exciting places to invest as well, and one of the areas I'm watching lies beyond the borders of the U.S. Emerging market economies have received a lot of attention over the last year. China's dealing with a real estate bubble and monetary policy decisions to keep inflation in check. India is trying to balance fiscal policy aimed at spurring business growth while keeping inflation at bay as well.

Both of these countries are likely to grow by leaps and bounds over the next ten years. Sure, they have challenges to overcome, but their continued path toward developed nation status seems imminent.

There is one country that is already there however, and will be joining the MSCI index of developed nations in the very near future. That country is Israel, and it is home to the second largest concentration of start-up companies in the world, playing second-fiddle only to Silicon Valley, California.

These start-ups aren't producing low-value goods either. Forget about tee-shirts and plastic Frisbees. Most of the Israeli companies that trade on the Nasdaq exchange, and there are 62 of them, are high-tech companies. For a list of all of these companies, click here. Well represented sectors include biotechnology, aeronautics and electronics.

And demand for these companies' products is growing. In fact, over the last five years high-tech exports from Israel have risen by 8.5% annually, totaling $2.1 billion in March.

Right now, many investors are going after emerging market stocks, but there is one major caveat. Much of emerging market growth has been the result of credit expansion. Not so in Israel. In 2009, the country's current account expanded by 243% to reach $7.2 billion. What's more, no large banks needed state assistance since they didn't have any sub-prime exposure. As a result, the economy is more stable than many others around the world.

There is opportunity for the small cap investor in Israel, make no mistake about it. I'll take a closer look at individual companies in Israel over the next couple of days. If there are any that are of particular interest to you, drop me a line. My address is: editorial@smallcapinvestor.com