The World's Finest Stock

It's tempting to think that global stocks are only now "catching up" to our stalwarts here at home. But that's not quite right. The uglier truth is that American stocks, as a group, are underperformers when compared with the wider world.

For example, the world's finest stock of the past 10 years wasn't Celgene (NASDAQ:CELG) -- even though it's had a phenomenal 10-year return.

Who tops them all? Little-known Gammon India, which -- wait for it -- rose more than 2,000 times in value for the investor who bought a position in late 1996. Put more simply: A $10,000 investment made then would have returned more than $20 million today.

Meet Gammon India
Not that you'd have been able to get those sorts of returns. For one, you would have had a hard time finding Gammon India -- it had a market cap of roughly $350,000 in 1996, and it traded on the Mumbai Exchange. Even if you did find it, other intricacies of investing directly on foreign exchanges, such as taxation of capital gains and currency rates, may have significantly affected your returns.

Still, there's a lesson in this 2,000-bagger that applies to any Fool. Gammon India wasn't and isn't some bubble-gum-and-bailing-wire outfit reminiscent of the companies that took off in the dot-com bubble. Instead, it's a civil-engineering company that was founded in 1919. Today, Gammon India is one of its home country's largest construction firms, capitalized at more than 33 billion rupees -- roughly $750 million.

Wide world of gains
In other words, many of the world's best stocks are relatively simple businesses that create extraordinary value.

Sometimes, they're hidden in plain sight, accessible to any Fool. Here's a list of superior stocks from the past decade that hail from other parts of the world. Unlike Gammon India, they all trade on U.S. exchanges.

But these are the exception. More often, you'll have to look to the Pink Sheets or open an account to invest directly in international exchanges, such as London's FTSE, Germany's Xetra DAX, or the Mumbai Exchange.

A guide for going global
Such complexity is what makes international investing both thrilling and dangerous, which makes getting help an excellent idea. There are two ways to obtain it on the cheap. First, you can opt for a low-cost mutual fund with a proven track record, such as Matthews Asian Growth & Income, whose largest investments include HSBC Holdings (NYSE:HBC) and Chunghwa Telecom (NYSE:CHT).

Second, especially if you're in the market for higher returns than a diversified fund might provide, you can opt for a stock-picking guide that specializes in scanning the world for winners. Bill Mann recently launched such a service, dubbed Motley Fool Global Gains. Click here to try it free for 30 days and get access to the team's complete roster of picks. You'll also receive a short report on brokers with international investing capabilities and a discussion board that covers the same topic in depth.

If you want to go it alone, invest in a good screener and look for the same sorts of characteristics that the Global Gains team uses to define a great stock. Among the list: positive and rapidly growing free cash flow, multiples to earnings and cash flow that appear cheap when compared with the industry in general and rivals in particular, a clean balance sheet, and tenured management.

Stalking the 10-bagger overseas
Peter Lynch has famously advocated for buying what you know, right here in the good ol' U.S. of A. But even Lynch spent time overseas studying foreign stocks that others wouldn't buy, such as Volvo. That's a key reason why he earned better than 29% average annual returns while leading Fidelity Magellan.

Could similar returns be in your future? Maybe, but you'll never know for sure if you ignore what's over there in favor of what's here. So don't. Instead, get globetrotting and give your portfolio a chance to earn the 10-bagger returns it deserves.

This article was originally published on November 29, 2006. It has been updated.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. Chunghwa Telecom is an Income Investor recommendation. The Motley Fool's disclosure policy is at home anywhere your portfolio wishes to travel.