The World's Finest Stock

It's tempting to think that global stocks are only now "catching up" to our stalwarts here at home. But that's not quite right. The uglier truth is that American stocks, as a group, underperform when compared with the wider world.

For example, the world's finest stock of the past decade wasn't one of the 10 best on our domestic markets. And that includes 40-bagger Best Buy (NYSE: BBY  ) .

Who tops them all? Little-known Gammon India, which -- wait for it -- rose nearly 1,400 times in value for the investor who bought a position at the dawn of 1997 through 2006. Put more simply: A $10,000 investment made then would be worth almost $14 million as of January.

Meet Gammon India
Not that you'd have been able to get those sorts of returns. For one, you would have had a hard time finding Gammon India -- it had a market cap of roughly $350,000 in 1997 and traded on the Mumbai Exchange. Even if you did find it, other intricacies of investing directly on foreign exchanges, such as taxation of capital gains and currency rates, may have significantly affected your returns.

Still, there's a lesson in this 1,400-bagger that applies to any Fool. Gammon India wasn't and isn't some bubble-gum-and-bailing-wire outfit reminiscent of the companies that took off in the dot-com bubble. Instead, it's a civil engineering company that was founded in 1919. Today, Gammon India is one of its home country's largest construction firms and is capitalized at more than 28 billion rupees -- roughly $710 million.

Wide world of gains
In other words, many of the world's best stocks are relatively simple businesses that create extraordinary value.

Sometimes, they're hidden in plain sight and are accessible to any Fool. Here's a list of superior stocks from the past decade that hail from other parts of the world but, unlike Gammon India, trade on U.S. exchanges.

Company

10-year return

Home country

Arcadis (NASDAQ:ARCAF)

385.6%

Netherlands

SAP (NYSE:SAP)

368.8%

Germany

Grupo Televisa (NYSE:TV)

321.0%

Mexico

Source: Capital IQ, a division of Standard & Poor's.

But these are the exception. More often, you'll have to look to the Pink Sheets or open an account to invest directly in international exchanges, such as London's FTSE, Germany's Xetra DAX, or the Mumbai Exchange.

A guide for going global
Such complexity is what makes international investing both thrilling and dangerous, which makes getting help an excellent idea. There are two ways to obtain it on the cheap. First, you can opt for a low-cost mutual fund with a proven track record, such as Polaris Global Value, whose largest investments include Methanex (Nasdaq: MEOH  ) and Lloyds (NYSE: LYG  ) .

Second, and if you're in the market for higher returns than a diversified fund might provide, you can opt for a stock-picking guide that specializes in scanning the world for winners. Bill Mann recently launched such a service, dubbed Motley Fool Global Gains. Click here to try it free for 30 days and get access to the team's complete roster of picks. You'll also receive a short report on brokers with international investing capabilities and a discussion board that covers the same topic in depth.

If you'd rather go it alone, invest in a good screener and look for the same sorts of characteristics that the Global Gains team uses to define a great stock. Among the list: positive and rapidly growing free cash flow, multiples to earnings and cash flow that appear cheap when compared with the industry in general and rivals in particular, a clean balance sheet, and tenured management.

Stalking the 10-bagger overseas
Peter Lynch has famously advocated for buying what you know, right here in the good ol' U.S. of A. But even Lynch spent time overseas studying foreign stocks that others wouldn't buy, such as Volvo. That's a key reason why he earned 29%-plus average annual returns while leading Fidelity Magellan.

Could similar gains be in your future? Maybe, but you'll never know for sure if you ignore what's over there in favor of what's here. So don't. Instead, get globetrotting and give your portfolio a chance to earn the 10-bagger returns it deserves.

This article was originally published on Nov. 29, 2006. It has been updated.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on foreign stocks, Foolishness, and investing in general may be found in his blog. Best Buy is a Stock Advisor pick. Lloyds is an Inside Value selection. Polaris Global Value is a Champion Funds recommendation. The Motley Fool's disclosure policy is at home anywhere your portfolio wishes to travel.


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