This interview was published in its entirety for subscribers of our premium newsletter, Israel Opportunity Investor, the only investment newsletter focused on uncovering opportunities in Israeli stocks traded in the U.S.

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Can you tell us a bit about AudioCodes?

Nachum Falek, CFO: AudioCodes (Nasdaq: AUDC) is a telecommunications firm focused entirely on Voice-over Internet Protocol, or VoIP.  We create hardware and systems to connect and secure networks.  We are leaders in feature richness and voice quality and have been in VoIP for 15 years, an extremely long time for this nascent market.  We are a pureplayer in VoIP unlike some of our competitors who still maintain legacy businesses.

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012.Smile (SMLC): “The firm noted that revenue decline reflects a significant year-over-year decline in revenues from hubbing services and a 14% year-over-year decline in the average shekel-dollar exchange rate.” (see article here). Earnings release here. See what IOI has written about SMLC and why some asset managers think it’s cheap.

Voltaire (VOLT): Stock up over 25% this week. Company reported earnings the market liked yesterday. Revenues are up, earnings are up, and margins up a lot. Earnings release here.

Answers.com (ANSW): Stock down big this week off of earnings expectations. They didn’t look too good. Earnings release here. Answers took a $2.0M charge on terminating the Dictionary.com acquisition. Traffic was down sequentially to Answers.com while WikiAnswers seems to be chugging along nicely.

Zoran (ZRAN): IOI Portfolio Member Zoran gets an upgrade from PiperJaffray. The banking firm “predicts Zoran’s growth will bottom out in the second quarter and then rebound as consumers transition to high-definition DVD players and sales of its chips and other products climb.” See our coverage of the firm here.

Ormat (ORA): Israeli geothermal player, Ormat, sells 3M shares this week in a block trade to Lehman Brothers.

NICE (NICE): Anti-rogue trader product unveiled by Israeli security play, NICE.  NICE’s Actimize unit is a leader in employee fraud detection and trading surveillance systems at large global firms and is rumored to have detected the massive fraud at Societe Generale.  See what we wrote about NICE recently. NICE reports on May 14th.

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Someone called us recently to ask about a newish ETF called the SPDR Emerging Middle East & Africa (Amex: GAF). The ETF is heavily weighted around three countries — South Africa (65%), Israel (17%) and Egypt (6%).

There are other ETFs that include exposure to Israel but as far as we know, this ETF currently has the largest exposure.

Israel as a destination

We like Israel (but hey, we’re biased). While Israel is not putting up double-digit GDP growth like China, we are seeing close to 4-5%.

Not too shabby.

Foreign capital is flowing

We’re continuing to see money coming into Israel looking for a home. Canaan Partners just announced another fund that will be targeting opportunities in Israel.

Can Israel do better?

And if you ask Netanyahu [subscription required], we could see close to 8%, if certain pro-market policies are put into place. Even Netanyahu’s detractors credit his cuts in welfare benefits, the removal of remaining currency and capital controls, and liberalization of the banking sector as cutting the way for an amazing economic recovery.

Check out Eze Vidra’s post, “Israel 2008: What the Bulls and the Bears are saying“, for some good forecasts of what various analysts are looking for from the Israeli economy in 2008.

What does the ETF hold?

Check out the GAF’s holdings. What you’ll see is that Israel’s 11% weighting is driven by the fact that Teva Pharmaceuticals (Nasdaq: TEVA) is the ETF’s largest holding at over a whopping 9%. We then see Israel Chemical (2%), Bank Leumi (1.43%) and Bank Hapoalim (1.41%). Elbit Systems (Nasdaq: ESLT) is also in there (1.06%). The rest of the Israel holdings each account for less than 1% of the SPDR Emerging Middle East & Africa Fund.

Investors in Israel from abroad may like the fact that this fund holds locally traded companies that aren’t dually listed or carry a corresponding ADR in the US.

So, what’s an investor interested in Israel to do?

That said, 17% of a fund that has exposure to really different economies may not be enough for foreign investors looking to trade locally-traded Israeli shares. Also, TEVA’s weighting at 9% of the overall fund means that Teva alone accounts for over 50% of the total Israeli exposure.

Teva may be a great company but it’s not indicative of the Israeli market as a whole. I’d like to see more exposure to Israel Chemicals, the Israeli banks, Bezeq, 012.Smile (Nasdaq: SMLC), the Mobile phone carries including Partner (Nasdaq: PTNR) and Cellcom (NYSE: CEL), let alone all the newer, smaller, tech firms listed locally.

What about mobile fixed telecom players like Alvarion (Nasdaq: ALVR) and Ceragon (Nasdaq: CRNT)? Both have taken a worse beating than Britney has received from the paparazzi.

I’d like to see a country ETF also include local retailers like Blue Square-Israel (NYSE: BSI)

Israel investors may be better off weighting for new offerings in the works as we hear that Barclays and another firm has an Israel ETF in registration.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

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Aaron Katsman
www.IsraelNewsletter.com

As IOI fans are aware, last week was my wife’s birthday. After deciding NOT to buy her jewelry, I found 2 Israeli stocks that were the perfect gift. Well wouldn’t you know today happens to be the birthday of none other than my mother in law!  While I could clearly take this post in many directions, as a good son in law, I will be well behaved and present a stock that’s worthy of being her birthday gift. Keep in mind that the name of the stock about to be mentioned should not be taken as a reflection of our relationship.

012 Smile Communications (Nasdaq: SMLC) is an interesting little Israeli communications company.  To read more about them check out the excerpt from our newsletter, as 012 Smile was a top Israeli pick from Stearman Capital’s, Zachary Scheidt.

The company is focusing on strong growth, high margin services. They have 500,000 broadband subscribers and that number is growing, and are the first company in Israel to launch nationwide Voice Over Broadband(VOB) service. The third quarter showed 39% growth in their VOB subscriber base.

As for the tradition voice aspect of the company they decided not to pursue certain hubbing opportunities due to their low margin contribution to profitability. They continue to focus on higher margin product suite to residential and business customers.

For investors looking for exposure to Israeli domestic telecom, this is an interesting company.

As for my mother in law, happy birthday and just Smile! 

Disclosure: Author’s fund has a position and is long the stock of SMLC as of 1/16/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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