The Stocks With the Most Potential

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You gotta hand it to U.S. stocks -- they sure put in a strong showing.

Stocks like Apple (Nasdaq: AAPL), Green Mountain Coffee Roasters (Nasdaq: GMCR), and Celgene (Nasdaq: CELG) have delivered 10-year annualized returns of more than 25% a year -- even while factoring in the recent market tumble.

But after posting the past century's highest gains, it's unlikely their streaks will continue. Or, as John Maynard Keynes poetically said, "trees don't grow to the sky." Even in the midst -- or coming out -- of this bear market, U.S. stocks are starting to look like the trees, while stocks in China and Brazil appear to be mere saplings.

Higher growth ... and higher returns
If there's a bright side to this volatile market, it's that it unraveled the misconception that every country's economy is coupled with the United States'.

It's simply not so.

Sure, countries like Mexico -- and, with it, companies like Cemex (NYSE: CX) that are inherently tied to the American economy -- will suffer and prosper alongside us. Not to mention debt-mired Eastern Europe, which will struggle to emerge from this crisis.

But you simply can't write off the emerging economies in countries like Brazil and China.

Stock market powerhouses
While U.S. gross domestic product (GDP) is expected to fall in 2009, the World Bank forecasts that China will grow by an astonishing 7.2%. Looking out to 2010 -- when only the most optimistic U.S. forecasters predict noteworthy domestic growth -- China is slated to grow another 7.7%

Not only is this good news for China, but it's also good news for Brazil. The Economist reported that China "recently overtook the United States as Brazil's biggest export market." So as China sees rising demand for its goods, Brazil will see rising demand for the commodities it lays claim to.

If you want direct exposure to foreign economies, there are two basic ways to play this trend:

1. You could buy a mutual fund or an exchange-traded fund that holds a diverse basket of foreign stocks. The iShares MSCI Emerging Markets Index ETF, which holds more than 325 stocks, is a good choice.
2. Or, you could cherry-pick best-of-breed foreign stocks, researched by analysts who have met with the executives, scoured the tricky financials, and have their own hard-earned money behind many of their picks.

You certainly won't go wrong with the first option -- it's a great way to profit from the overall emergence of these economies.

But the second option is the way to go if you're a do-it-yourselfer interested in finding stocks with the potential for much higher gains. And guys like Tim Hanson and Nate Parmelee, co-advisors of Motley Fool Global Gains, are two of the brightest minds seeking out the world's next stock success story.

And the best part -- they just recently returned from a trip around rural China doing just that.

Some have labeled them insane to venture outside of China's top cities like Beijing and Shanghai, but they believe that "the farther we get outside tier 1 cities ... the more likely we are to discover our next great investment idea."

Uncovering the world's gems
Granted, there's no such thing as a risk-free stock, but you're much better off with recommendations uncovered by a team that has actually taken the time to meet with the company at its headquarters, talk with the executives one on one, and then still recommend the stocks.

One of the companies the Global Gains team visited was American Oriental Bioengineering (NYSE: AOB) -- a Chinese pharmaceutical company that has the potential for expansion akin to Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE) during their rapid-growth phases. And it's possible -- AOB is capitalized at just more than $400 million compared to $160 billion and $110 billion, respectively, for the other two.

Another company at the top of their list is a stock that's up more than 200% since they first recommended it in October 2008. But they believe gains like this are far from over. The company has a clean balance sheet, is growing rapidly, and is selling at a discount to their estimates of its intrinsic value.

You can see this company's ticker -- as well as all the other companies they uncovered -- completely free with a guest pass to Motley Fool Global Gains. Just click here for more information and, when you're in, look for the "One Winner We Still Like."

Adam J. Wiederman owns no shares of the stocks mentioned above. The Motley Fool owns shares of Cemex and AOB. AOB is both a Global Gains and Hidden Gems recommendation. Apple and Cemex are Stock Advisor recommendations. Green Mountain Coffee Roasters is a Rule Breakers recommendation. Pfizer is an Inside Value recommendation. Johnson & Johnson is an Income Investor recommendation. The Motley Fool's disclosure policy has a lot of potential.