Great Stocks You're Overlooking

Some of the best investing returns often come from the seemingly "worst" stocks. When other investors aren't interested or willing to take the time to value a stock, its price is likely to become cheap. That's why it's rewarding to do your digging in out-of-favor or unpopular parts of the market.

Scouring for foreign companies can be rewarding for the same reasons. Plus, there are times when entire countries or regions go out of favor and rock-solid companies get tarnished with all the rest.

Foreign all-stars you may have heard of
One easy way for American investors to start investing internationally is through American Depositary Receipts, or ADRs, listed on the NYSE or Nasdaq. Toyota (NYSE:TM) and China Mobile (NYSE:CHL), for example, are two well-known ADRs that trade in healthy volumes here in the United States. Others, such as intimates maker Wacoal Holdings (NASDAQ:WACLY) are thinly traded and go relatively unnoticed.

Regardless, ADRs can be a great source for profits:

Data provided by Capital IQ, a division of Standard & Poor's.

That some of the best performances of the past year came from two Russian and one Chinese company may not be a huge surprise -- Russia and China are two BRIC members that get plenty of attention. But that the top three performances came from a telecom, a food producer, and an insurance company will probably surprise some. Nowhere to be found are the high-flying Internet companies that get so much attention.

The hidden performers
The NYSE- and Nasdaq-listed ADRs rightfully garner the most attention, but many foreign companies also appear on the Pink Sheets. Several companies listed here are of questionable quality, so a thorough vetting of management is an absolute must. Not all Pink Sheets issues are unsavory, however. Some foreign companies simply don't want to pay the cost of a full ADR listing on the major exchanges or don't feel they need access to U.S. markets to sell equity. Well-known companies such as Nestle, Nintendo, and Heineken can all be found on the Pink Sheets.

But like listed ADRs, Pink Sheets issues can also be quite rewarding:

Data provided by Capital IQ.

These three companies are all much smaller and far less liquid than the three in the previous table. The largest of the three today, Manila Electric, is capitalized at only $1.4 billion. But this obscurity is part of what allows for outsized returns. For a patient investor thinking in years rather than days, it is possible to identify an intriguing opportunity, gradually build up a position, and sit tight. This should only get easier in the future, because exchanges are consolidating and brokerages such as E*Trade are adding global trading access to local markets. In situations where the primary concern is liquidity -- and it is often a concern with small foreign companies -- access to local markets will help remove that barrier.

Foolish final thoughts
In our Motley Fool Global Gains service, we feature these off-the-beaten-path companies each month as "Wildcards." Although we'd be bonkers to expect annual gains such as those in the table above on a regular basis, we know that by digging up opportunities in this less-scrutinized part of the market, we'll find some good companies at great prices.

If you'd like to get a peek at attractive international opportunities both on and off the beaten path, take a free trial of Global Gains. There's no obligation to subscribe, and you'll enjoy immediate access to our research on companies tucked away in countries ranging from Canada to Japan.

Nathan Parmelee is an analyst for Global Gains. At the time of publication, he had no financial interest in any of the companies mentioned. The Motley Fool has a disclosure policy.