Great Stocks You're Ignoring

Can you name the company with the largest amount of assets in the world?

If you picked Citigroup (NYSE:C), good guess. But Citigroup is No. 4, behind France's BNP Paribas, the U.K.'s Barclays, and Switzerland's UBS. Yet despite the importance of these three international banks to global markets, Paribas does not trade on a major U.S. exchange, and only three and four Wall Street analysts, respectively, cover Barclays and UBS. Citigroup, on the other hand, is currently being tracked by 17 analysts.

What makes American disinterest in these global banks even more puzzling is that over the past five years, Paribas, Barclays, and UBS have all outperformed Citigroup by 70 to 135 percentage points.

So why isn't Wall Street falling over itself to cover these stocks?

The answer is quite simple
Wall Street doesn't always cover the world's best stocks; it errs toward the stocks its clients want to read about. Until there's greater domestic demand for analysis of these foreign firms, our big research houses won't bother devoting resources to cover them.

So why the American ennui?
Now, if we Americans are known for anything around the world, it's our apple pie and desire to make money. If that's true, why has the American investor for so long ignored some of the great returns that foreign equities offer?

A 2003 study by doctoral students Adair Morse and Sophie Shive, titled "Patriotism in Your Portfolio," set out to answer this question. It concluded that American investors have a strong bias toward buying domestic stocks because they consider it a patriotic duty. "To some," they noted, "the thought of betting against the home team or shorting employer stock may seem disloyal. ... The same patriotism-induced loyalty can be considered for international diversification."

So are American investors really afraid of being unpatriotic by purchasing international stocks? Maybe, maybe not. While it's true that American ownership of foreign equities has been rising in recent years, the following data does show some disconnect between analyst coverage of American companies and their foreign counterparts -- even when the foreign companies trade on major U.S. exchanges:

Foolish bottom line
The next time you're researching a particular U.S.-based company, you may want to consider one of its foreign competitors. If you don't, you might be missing big opportunities. Kenneth Abrams, senior vice president of Wellington Management Company, sums it up well: "If you were looking at the semiconductor market and all you ever considered were U.S. companies, you would never get it right. You need to look at Taiwanese companies, Japanese companies, other Asian companies, and the occasional European company."

If you're interested in learning more about the growth potential of international stocks, consider a free 30-day trial to Motley Fool Global Gains. Headed by Fool senior analyst Bill Mann, the Global Gains team can help you find some international ideas Wall Street hasn't caught onto yet.

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Todd Wenning owns shares of Core Labs. Wal-Mart and Vodafone are Motley Fool Inside Value picks, while US Bancorp is a Motley Fool Income Investor selection. The Fool isinvestors writing for investors.