What's Wrong With American Companies?

It's no secret that international stocks have outperformed their American counterparts over the past five years. Indeed, the MSCI EAFE index has outperformed the S&P 500 by more than eight percentage points per year over the past five years.

While traditionally strong American large caps such as International Paper (NYSE:IP), Fifth Third (NASDAQ:FITB), and Verizon (NYSE:VZ) have struggled to break even over this period, international juggernauts such as CNOOC (NYSE:CEO), BASF (NYSE:BF), and Teva Pharmaceuticals (NASDAQ:TEVA) have more than doubled.

A new world order
These aren't isolated events, either. A recent issue of Forbes listed its "2,000 Biggest Companies in the World" and found that, of the stocks in their study, "foreign stocks delivered many of the best short- and long-term stock market values." For instance:

One-Year ...

Five-Year ...

10-Year ...

Although U.S.-based Ultra Petroleum and Chico's were among the top stocks in the study, the rest of the list is dominated by companies hailing from different regions of the world.

Foolish bottom line
You'd be wrong to think these results were out of the ordinary. The United States, and the rest of the developed world for that matter, no longer has a stranglehold on the global economy. This isn't to say there isn't more growth to be found in developed markets, but the rest of the world has been catching up. Rapidly. A recent survey by The Economist shows that emerging-market economies now make up more than half of the world's GDP, and they have an estimated GDP growth rate of 7%, compared to projected 3% GDP growth in developed economies. With this type of growth, it can be reasonably deduced that there are some great investing profits to be had outside the United States.

Caveat emptor
Despite the great growth opportunities to be found abroad, international stocks can be challenging to research. Indeed, added political and economic risks are just two things that make them different from good ol' U.S. blue chips.

But the growth potential and diversification benefits international stocks have to offer are just too good to ignore. That's why we created Motley Fool Global Gains, a new international investing service headed by Fool senior analyst Bill Mann.

If you're interested in taking advantage of the benefits of international investing, consider a 30-day free trial of Global Gains. Even if you just want to take a peek at the Global Gains team's stock recommendations, it's definitely worth your while.

This article was originally published on Nov. 2, 2006. It has been updated.

Todd Wenning does not own shares of any company mentioned in this article. The Fool is investors writing for investors.