The Stocks to Buy in 2007

You've got money, you've resolved to make this a banner investing year, and with prices coming down in the past few weeks, you're champing at the bit to buy.Patience.

The problem with free advice
You're going to read a lot (and probably already have) about U.S. large-cap growth stocks. Indeed, Legg Mason (NYSE: LM), Schlumberger (NYSE: SLB), TD AMERITRADE (Nasdaq: AMTD), and Texas Instruments (NYSE: TXN) have all seen their earnings multiples contract significantly. So if these companies see a reversion to the mean, their stock prices could spike.

And while pundits are predicting that a comeback is in the cards for these names, each continues to face competitive operating environments and trades at a premium to the market average.

So while they could do well, you can do better.

Last year's laggers
Even more disconcerting is that U.S. stocks had a great 2006. Led by Big Lots (NYSE: BIG), up 91%, and OfficeMax (NYSE: OMX), up 98%, the S&P 500 returned a rousing 15%. That's five percentage points better than its historical average.

So if these growthy giants weren't high-flying in an otherwise strong year, what will make them high-flying going forward? After all, economists aren't expecting our economy to grow any faster than the 2% or so we're getting accustomed to.

Get thee behind me, prediction
It's tempting to get caught up in these shortsighted crystal-ball games. We read about them in the news, and we pass judgment based on otherwise quite random 12-month periods.

But if you're eager to put your money to work, remember that you're putting it to work for more than a random 12-month period. If your aim is to get rich, you're putting it to work for the next decade or more.

That's why I was heartened to read The Wall Street Journal advising investors, "2007 may be the year that the rest of the world helps pull up the U.S. stock market." Why? Because "Every major emerging economy is booming."

And that's true. The world's best returns last year made our own bull market appear puny indeed.

The emerging trend in emerging markets
But 2007 won't be the first year that emerging global economies help pull up U.S. investors. The global MSCI EAFE index has outperformed the S&P 500 annually since 2002.

This trend has continued in 2007, and U.S. investors should expect it to be the case for the next decade or more.

Countries such as India, China, and Slovenia have advantages such as younger workforces, greater population growth, or economies with more significant upside potential. In other words, unlike U.S. large caps, the stocks in these countries have significant tailwinds.

Buy these stocks this year
Unfortunately, the recent outperformance of international equities has driven up their valuations -- making the ETF route a little less appealing, and the process of finding superior international stocks trading at great prices a little more difficult.

But if you want an investment strategy that will enrich you for the next decade, you must add superior international stocks to your portfolio in 2007. That's why we launched our new Motley Fool Global Gains international-investing service, where our goal is to help more American investors earn the great returns that international stocks have to offer. In fact, our team recently returned from a research trip to India, China, Macau, Mongolia, and Taiwan with several promising ideas.

© 2007 Universal Press Syndicate.