The World's 10 Best Stocks

To make money in the stock market, we must study the past to identify what strategies will work well in the future. That's why my colleague Tim Hanson has spent years evaluating the U.S. market's best-performing stocks.

While this environment has been tough for all of us, it's important to remember a few things. I conducted a five-year study for the years 2004 through 2008, and even over that rough period, there were 23 non-microcap multibaggers. Studying such success stories is our best way to learn how to make money in the future.

Of those 23 stocks, these were the top 10 performers:

Source: Capital IQ, a division of Standard & Poor's. Companies capitalized at more than $300 million as of Dec. 31, 2003.

That's a fairly select group, and some heady performance for this environment. But it turns out we can do better.

With these stocks
While there were just 23 domestic multibaggers over those five years, there have been more than 100 foreign ones. In fact, all but three of the top 10 stocks in the world came from abroad.

Here's what that top-10 list looks like when we include foreign stocks:

Sources: Capital IQ, a division of Standard and Poor's, and company websites. Includes companies capitalized at more than $300 million on Dec. 31, 2003, with verifiable stock-price histories.

The contrast is enormous when, for instance, we compare the five-year performance of Grupo Elektra, the Mexican banking and electronic retail giant, with those of its U.S. counterparts, Bank of America (NYSE: BAC) and Best Buy (NYSE: BBY).

While Bank of America continues to struggle -- the company posted a $1 billion dollar loss over the past 12 months and the extent of its exposure to the foreclosure fraud scandal remains to be seen -- Grupo Elektra's finance division doubled from 2006 through 2009. Best Buy has continued to grow over the past several years, though even it owes the majority of its top-line growth to international operations.

The lesson is clear: If you restrict yourself to the U.S., you are going to miss out on many of the world's best stocks.

How come?
Many investors such as Warren Buffett note that our economy is too large and mature to enjoy the same growth rates that we have in the past. But that's not true of smaller, emerging economies.

That's one of the reasons why domestic blue chips like Intel (Nasdaq: INTC) and Coca-Cola (NYSE: KO) that operate in somewhat mature domestic industries often rely on their foreign operations to generate most of their growth.

Intel, which does more than 90% of its business abroad, has depended heavily on sales growth in Taiwan in recent years. While it experiences weakness in North America and Europe, which have seen shrinking sales volume in recent years, Coke has been relying on Eurasia, Africa, and Latin America, and the Pacific regions to fuel its growth.

And when we compare the United States' GDP growth with those of the economies represented above, we see that fast-growing markets can produce tailwinds for investors:

Sources: The World Bank and Yahoo! Finance.

According to The World Bank, emerging markets like these will continue to grow faster than developed economies. And you can bet these sorts of dynamic economies will yield some fantastic investments.

Here's one example
Take MercadoLibre (Nasdaq: MELI), the Latin American eBay (Nasdaq: EBAY). While eBay has grown sales at an 8% annual rate over the past three years, MercadoLibre's business is up a whopping 40% annually.

While the number of Internet users in the United States doubled from 2000 to 2009, South American Internet use rose by more than 600%. Only about one-quarter of the continent's population has access to the Web, so there's still plenty of room for growth.

Our team of analysts at Motley Fool Million Dollar Portfolio agrees with Buffett that many of tomorrow's best profit-making opportunities will come from abroad. While they consider MercadoLibre overvalued valued these days, it's just one example of the sort of opportunities they're seeing right now.

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