The World’s 10 Best Stocks

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Making money in the stock market requires us to study the past to identify what strategies will work well in the future, which is why my colleague Tim Hanson has spent years studying the U.S. market's best-performing stocks.

While this environment has been tough for all of us, it's important to remember that even over the past five years, there have been a number of non-microcap multibaggers in this country -- 23 to be exact. And studying such success stories is the best way we can learn how to make money in the future.

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

Company	5-Year Return Through 2008
Southwestern Energy	870%
Apple	699%
Intuitive Surgical	643%
Range Resources	446%
Myriad Genetics	415%
Celgene	393%
Monsanto	389%
Immucor	340%
Alexion Pharmaceuticals	326%
Seaboard	323%

*Data from Capital IQ. Companies capitalized over $300 million as of Dec. 31, 2003.

That's a fairly select group and some pretty heady performance for this environment.

But it turns out we can do better.

With these stocks
While there were just 23 domestic multibaggers over the past 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:

Company	Return 2004-2008	Country
Grupo Elektra	877%	Mexico
Southwestern Energy	870%	United States
Doosan Heavy Industries	855%	South Korea
NMDC	826%	India
Japan Steel Works	825%	Japan
Apple	699%	United States
Tullow Oil	669%	United Kingdom
Zijin Mining	664%	China
China Overseas Land and Investment	659%	Hong Kong
Intuitive Surgical	643%	United States

*Data from 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, JPMorgan Chase (NYSE: JPM) and Circuit City, or Zijin Mining with Southern Copper (NYSE: PCU).

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 companies like Starbucks (Nasdaq: SBUX), Wal-Mart (NYSE: WMT), and Microsoft (Nasdaq: MSFT) have enjoyed growing demand in foreign markets, and why, for example, Philip Morris International (NYSE: PM) experiences faster growth than Altria (NYSE: MO).

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

Country	Annual Real GDP Growth 2004-2008	Stock Market Return 2004-2008
China	10.6%	22%
India	8.3%	65%
South Korea	4.6%	37%
Mexico	3.4%	154%
United States	2.6%	(19%)
United Kingdom	2.4%	(1%)
Japan	1.8%	(18%)

*Data from 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, the "Latin American eBay." While eBay has grown sales at an impressive 23% annual rate over the past three years, MercadoLibre's business is up a whopping 69% annually.

See, while the number of Internet users in the United States has doubled since 2000, South American Internet use has risen more than 600%. Only one quarter of the population has access to the Web, so there's still plenty of room for growth.

In addition, the governments of Uruguay and Brazil, MercadoLibre's largest markets, have committed stimulus funding for supplying laptop computers to public schools, while Google and HSBC will provide Wi-Fi to the region. As Internet usage increases and customers do more of their shopping online, MercadoLibre, now a virtual monopoly, will profit.

Our team of analysts at Motley Fool Global Gains agrees with Buffett that many of tomorrow's best profit-making opportunities will come from abroad. While we believe MercadoLibre to be fairly valued these days, it's just one example of the sort of opportunities we're seeing right now.

If you'd like some more stock ideas, feel free to look over our top picks and analysis with a free guest pass to Global Gains. Who knows? You might just see one of tomorrow's 10 best stocks listed there. Simply click here to get started -- there's no obligation to subscribe to anything.

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This article was first published on June 12, 2009. It has been updated.

Ilan Moscovitz owns shares of Apple and Google. Apple, Starbucks, and eBay are Motley Fool Stock Advisor recommendations. eBay, Wal-Mart, and Microsoft are Inside Value picks. Google, Intuitive Surgical, and MercadoLibre are Rule Breakers recommendations. Philip Morris International is a Global Gains recommendation. Motley Fool Options has recommended a bull call spread on eBay and a diagonal call on Microsoft. The Motley Fool owns shares of Starbucks. The Fool's loquacious disclosure policy is among the top 10 disclosure policies in the world.