Sometimes finding a winning foreign stock is as simple as reciting "A ... D ... R."

An ADR, short for American depositary receipt, offers U.S. investors the opportunity to diversify into international markets without the bother of purchasing shares on overseas exchanges. ADRs are issued by U.S. banks that hold actual shares of a foreign company's stock.

Every day, hundreds of major overseas-based companies -- including mega-cap names such as BP ( BP), Sony ( SNE) and Toyota ( TM) -- see their shares traded as ADRs on U.S. stock markets.

"It's easier to purchase ADRs than to shop on local exchanges," says Mark Coffelt, portfolio manager for the $75 million ( EMCAX) Empiric Core Equity fund. "You don't have to deal with currencies or foreign intermediaries, and there is more than enough of a selection to choose from, with over 800 ADRs on the NYSE alone."

Coffelt can be considered an expert on buying foreign stocks without ever leaving home. More than 60% of his go-anywhere, multi-cap fund is composed of ADRs, and it's a strategy that has served him especially well over the past five years as international stocks have soared past their U.S. counterparts. Coffelt's fund is up 13.7% year to date, over 4.5 percentage points more than the S&P 500, and the fund is up 22.6% annually over the past five years, besting the index by 8.3% per year on average.

Moreover, Coffelt expects foreign stocks to continue their outperformance through the rest of 2007, though it may be a bumpy ride because of recent gyrations in the bond market.

"Risky debt is being repriced, and that has stock market implications because high-yield bonds are often viewed as part of one's equity allocation," says Coffelt. "The increase in volatility will benefit large-cap stocks like the ADRs we own, because they are better capitalized. Plus, even after this huge run, they still have attractively low valuations."

One foreign player that Coffelt likes in particular is Banco Bilbao Vizcaya Argentaria ( BBV), a huge Spanish bank that also has a presence in Latin America.

"It's had superior earnings growth over the past five years and it trades at just 12.5 times trailing earnings," says Coffelt. "The Latin American business is a bonus because it offers emerging-market exposure without too much additional risk."

Similarly, Coffelt owns shares of low-cost steel supplier Posco ( PKX), not only for its strong position in Asian tiger South Korea but for its ability to export to China. The stock is up 91% year to date, helped along by the March disclosure that Warren Buffett's Berkshire Hathaway ( BRK.A) owns a 4% stake in the company.

Want more? Check out TheStreet.com TV video. Gregg Greenberg talks ADRs with Mark Coffelt.

Staying in South Korea, Coffelt also likes Korea Electric Power ( KEP), which he says is an infrastructure play on the basis of the enormous demand for power required by companies such as Posco.

Not all of Coffelt's holdings are ADRs, however (which is why the S&P 500 is debatably the best possible benchmark for the fund.). He has also been buying shares of Dell ( DELL).

"Dell has had problems, but Michael Dell is back and he's been solving them," says Coffelt. "Plus, they have the wind at their back because corporate capital expenditures on technology -- especially PCs -- are on the rise."

Shares of Round Rock, Texas-based Dell have quietly risen 33% since March. Luckily, Austin, Texas-based Coffelt did not have to search too far to pick that winner.
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.