Picking individual stocks can often be a fun exercise for investors, but real long-term returns often depend on the composition of the overall investment portfolio. A key principle in constructing a balanced equity portfolio is diversification, and an important way to achieve diversification is by gaining exposure to quality companies that earn their revenue and operate from different parts of the world.

While there are multiple index funds that offer opportunities to invest in international companies, U.S. investors looking to invest in individual businesses likely won't go wrong considering positions in MercadoLibre (MELI 1.65%) and Adyen (ADYE.Y -2.73%). The performances of these two businesses should put them on investors' radars regardless of their locations, and their geographic diversity just gives an added reason to make them a part of the portfolio. 

1. MercadoLibre: A Latin American leader operating in its own sphere

The world has gone through multiple economic challenges over the past 15 years, but there has been one constant for MercadoLibre's investors: the company's outperformance of the S&P 500 index. The Latin American e-commerce and fintech leader has handily beaten the S&P 500 index over the previous one-year, five-year, and 10-year periods, and has returned over 4,000% relative to S&P 500's 174% since the company's initial public offering in 2007.

MercadoLibre operates in 18 Latin American countries with Brazil, Argentina, and Mexico as its top three markets. The company has become a go-to destination for consumers, thanks to its thoughtful investments in consumer experience, technology, a broad product catalog, and its shipping and logistics network.

From 2019 through 2022, the gross merchandise volume (GMV) -- the total value of transactions performed on the platform -- for MercadoLibre's e-commerce business has grown 2.5 times to $34.5 billion. Its shipping service, Mercado Envios, is shipping packages faster while incurring lower internal cost for the company. In 2022, Mercado Envios delivered 80% of the packages within 48 hours relative to only 44% in 2019.

Additionally, as more consumers visit MercadoLibre's website, the company is earning more in advertising revenue. In the fourth quarter of 2022, revenue from ads reached 1.4% of GMV, which is 5 times larger than three years ago.

A person delivering packages.

Image source: Getty Images.

The company's fintech arm, Mercado Pago, has evolved into an all-encompassing digital financial services provider over the past few years. In addition to its core payment processing services such as the digital wallet for the consumers and mobile point-of-sale devices for merchants, MercadoPago is offering credit cards, savings accounts, asset management, and loans as well. From 2019 through 2022, the total payment volume on the Mercado Pago platform increased by 4 times, and the company's fintech revenue expanded fivefold.

Continuing its superb execution in 2022, MercadoLibre grew its year-over-year revenue by 53% to $10.5 billion. On the profitability front, gross profit margin jumped from 43% in 2021 to 55% in 2022 and operating profit margin rose from 6% to 10%. The company also produced about $2.5 billion in free cash flow.

MercadoLibre continues to separate itself from the competition. The company's continued expansion in newer geographies, capturing of greater share in its existing markets, and growth of its products and services (especially fintech) are broadening its overall opportunity. It's hard to find a more promising business to gain exposure to the growing region of Latin America than MercadoLibre. Shares trading at 6 times price-to-sales valuation are not overly expensive to take a small position for long-term investors.

2. Adyen: A Dutch innovator looking to spread its wings

Adyen, the Netherlands-based provider of payment processing services for merchants, is on a mission to disrupt the payments and related financial services space.

Adyen's modern Unified Commerce platform enables merchants to accept payments across multiple sales channels (online; in-store; buy online, pick up in store; or other variations), in various forms of digital payments, in the currency of their customers' choice, and from any geographic location.

The simplicity and lower costs of integration and operation of Adyen's platform earned it many large customers including Microsoft, McDonald's, and Etsy.

At the end of 2022, Adyen had over 58% of its employees based in Amsterdam, where the company is headquartered. Overall, Europe accounted for 72% of the company's workforce, North America about 14%, while the rest was distributed across Asia Pacific and Latin America. 

In 2022, the Europe, Middle East, and Africa (EMEA) segment accounted for 56% of Adyen's revenue. North America contributed about 25% of the revenue, while Asia Pacific and Latin America picked up the rest. With its primary operations and sources of revenue based out of Europe, Adyen offers U.S. investors a great way to diversify their geographical exposure.

But investors shouldn't let the tail wag the dog, in that diversification shouldn't be the primary reason to consider Adyen as an investment. Adyen is a potentially promising investment opportunity first and foremost because of its business performance and future prospects.

Over the four years from the end of 2018 through the end of 2022, Adyen quadrupled the amount of payments it processed to 767.5 billion euros (about $812.6 billion) and almost quadrupled its revenue to 1.3 billion euros (about $1.4 billion). And the company accomplished that while maintaining over 50% earnings before interest, taxes, depreciation, and amortization (EBITDA). Adyen also turned nearly 50% of its 2022 revenue into free cash flow. It is growing profitably at scale.

Adyen's success is underpinned by its relentless long-term focus, culture of continuous innovation, and fiscal responsibility. While many businesses are desperately cutting costs in the face of a tough macro environment, Adyen, with 6.5 billion euros in cash and equivalents on its balance sheet, is hiring heavily and investing in expanding its infrastructure. The company is fueling its next stage of growth.

Adyen's shares are trading close to their lowest price-to-free cash flow multiple of 18. Now is a great time for long-term investors to take a close look at this winner and diversify the sources of their portfolio returns.