(MONEY Magazine) – A funny thing happened on our way to finding the world's best investments: Most of them turned out to be right in our backyard. In fact, two-thirds of our 12 picks are U.S. issues. ''That's not surprising,'' says Michael Metz, chief investment strategist at Oppenheimer & Co. in New York City. ''With our political stability, low inflation and rebounding economy, this country has the clearest and safest investment outlook in the world.'' Indeed, with or without President Clinton's $30 billion stimulus package, the U.S. economy is expected to grow by as much as 3.5% in 1993, vs. an average of 2.3% for the rest of the planet and an anemic 1.2% for Western Europe. Still, most investment pros recommend allocating as much as a quarter of your portfolio to foreign stocks to reduce losses if the U.S. market turns down. All of our picks -- 11 stocks and one mutual fund -- share three characteristics that are essential for conservative, long-term investors: -- The companies' earnings growth over the next five years is likely to beat the average for their industries. -- Their balance sheets are unusually strong, with debt amounting to less than 45% of total capital. -- Their shares trade in the U.S. and can easily be purchased by American investors. All of our foreign-stock picks trade as ADRs (American Depositary Receipts) on the New York Stock Exchange or over the counter. Similarly, our single fund choice -- for investors interested in small, rapidly growing Asian economies -- trades on the NYSE. To find such stellar investments, we canvassed more than three dozen economists, money managers and stock analysts. Here are their top recommendations, starting with the safest domestic shares:


CITIZENS UTILITIES (recently traded on the NYSE at $31.75; 4.7% dividend yield). Talk about financial muscle! The only power and water utility to boast triple-A ratings for its creditworthiness from both Standard & Poor's and Moody's, Citizens is heading for the 48th consecutive year of higher profits and dividends. ''No company I know of can match this record,'' says James Lempenau, an investment adviser in River Edge, N.J. Citizens (estimated 1993 revenues: $635 million) supplies electric, gas, phone, water and sewerage services to customers in 13 states. Profits are expected to advance 7% annually over the next five years, vs. 4% for other utilities, as the company adds customers in such fast-growing states as Arizona and Hawaii. Lempenau thinks Citizens stock could rise to $37 over the next year. With its hefty dividend yield, that works out to a 21% total return. Citizens has two classes of shares -- A and B -- which pay dividends in the form of stock, on which no tax is due until you sell. If you want tax-deferred compounding, stick with the class-A shares. If you prefer cash, buy the B shares. At your request, the company will sell your quarterly class-B stock dividends and pay you the proceeds, net of a 5 cents-a-share commission.

NEWMONT MINING (NYSE, $38; 1.6% yield). Goldbugs have been squashed over the past dozen years as the price of the precious metal plummeted more than 50% to a recent $330 an ounce. A primary culprit was a sharp drop in the inflation rate, from 13.5% in 1980 to 3.2% today. But many investment experts believe that inflation is now as low as it is likely to get and, as a result, some think gold prices could shoot up in the next 12 months. Metz at Oppenheimer, for instance, sees the price jumping to $440 an ounce. Metz's favorite gold play is $565 million Newmont Mining, which owns 90% of Newmont Gold, the largest gold producer in North America, with 1.6 million ounces dug from its five mines last year. When gold prices rise, Metz believes that Newmont Mining's share price could surge 84% to $70 within a year.

KELLOGG (NYSE, $63.25; 2% yield). It's only fitting that the world's largest maker of ready-to-eat cereals ranks among America's heartiest firms. In fact, Kellogg's long-term debt amounts to only 12% of total capital. The company that gave Americans Tony the Tiger roars even louder overseas, where it cooks up 41% of its revenues. In fact, the $6.8 billion food giant accounts for more than half the cold cereal sold outside the U.S., vs. 38% domestically. Gene Walden, author of The 100 Best Stocks to Own in the World (Dearborn, $24.95), expects Kellogg's international sales to fuel 15% annual profit growth through 1997 as the Battle Creek juggernaut starts churning out cornflakes and other favorites at a new plant in Riga, Latvia in 1994 and opens a factory near Bombay, India that same year. Walden thinks Kellogg's stock can snap, crackle and pop its way to $75 within a year, for a 21% total return.

HALLIBURTON (NYSE, $35.50; 2.8% yield). As the number of U.S. drilling rigs declined from 1,000 in 1990 to 650 recently, profits at $6.7 billion Halliburton -- the largest supplier of drilling services to the nation's oil and gas industry -- dropped by 55%. But with demand for natural gas growing (today the price is nearly $2 per thousand cubic feet, vs. just over $1 a year ago), analysts predict that another 350 to 450 drilling rigs will go into operation by 1994. When that happens, says Dan Rice, manager of MetLife-State Street's Global Energy Fund, Halliburton's profits will gush. And within a year, he says, Halliburton's stock could hit $56 a share, for a total return of 61%.

PFIZER (NYSE, $59.25; 2.8% yield). Pummeled by President Clinton's attacks on high drug prices, pharmaceutical stocks are down almost 14% since Jan. 1. But Roger Engemann, chairman of the Pasadena Group of mutual funds, thinks efforts to curb health-care costs won't hit drugmakers as hard as many investors fear. He now rates top pharmaceutical companies, such as $7.7 billion Pfizer, as bargains. Pfizer recently introduced six drugs -- including the oral antibiotic Zithromax and the anti-depressant Zoloft -- with the potential for $1 billion in annual sales. Marc Mayer, pharmaceutical analyst for Sanford Bernstein & Co. in New York City, expects Pfizer's profits to rise an impressive 16% annually through 1997. Engemann thinks the stock could increase 52% to $90 by next year, for a 55% total return.

APPLE COMPUTER (over the counter, $53.25; 0.9% yield). While price wars and recession-weakened demand zapped earnings at many computer companies last year, $7.8 billion Apple posted record profits. John Dessauer, publisher of Dessauer's Journal of Financial Markets in Orleans, Mass., says Apple, which has no long-term debt, promises even bigger successes this year, thanks to a record number of new products. They include a color version of the company's PowerBook laptop computers. Apple sold more than 400,000 of its monochromatic PowerBooks at $2,150 to $4,450 each the first year, making them one of the industry's most successful new products ever. To broaden its distribution, Apple plans to start selling its computers by mail later this year. And overseas, where Apple books 45% of its revenues, the computer maker is also expanding; last year, for example, the company sold $500 million worth of PC systems in Japan, a 39% increase from a year earlier. Dessauer expects earnings to grow by as much as 15% annually through 1995, and he thinks Apple's stock will jump to $75 by next year, for a 42% total return.

THE GAP (NYSE, $31.25; 1% yield). With consumer confidence up and retail sales expected to jump 6% to 8% over last year's levels, well-managed clothing stores seem headed for profit rebounds. A likely candidate, says James Floyd, senior investment analyst at the Leuthold Group in Minneapolis, is The Gap, one of the best-run retailers in the country. Indeed, in the fiscal year that ended Jan. 31, 1992, among the industry's most difficult years ever, $3.6 billion Gap achieved record earnings. Yet as The Gap's earnings declined an estimated 11% in the last half of 1992, investors marked down the retailer's share price 44% from a high of $59 the previous January. Value Line Investment Survey analyst Annie Erner expects profits to improve this year as the company emphasizes moderate-priced clothing. Moreover, the savvy marketer is testing a new store concept -- GapShoes -- as an addition to its existing stable of three niche retailers. They include such well-known successes as the 281-store GapKids children's clothing chain and the 164 Banana Republic outlets, which sell higher-priced casual wear. Floyd expects Gap shares to hit $45 by next year, for a total return of 45%.

SHAW INDUSTRIES (NYSE, $36; 1% yield). Helped by declining interest rates, housing starts posted their first increase since 1986 last year. But with consumer confidence still shaky, Mark Tincher, manager of the Vista Growth & Income Fund, says the safest way to play the housing market may be with $2.3 billion Shaw, the country's largest carpet manufacturer. He reasons that if housing starts slump, people who can't afford new homes will spend money to fix up their old ones. In 1987, for example, when new-house construction fell 10%, carpet orders rose almost 4%. Over the past four years, Shaw has bought two of its weaker competitors, Armstrong World and Salem Carpets, and now holds 35% of the U.S. market, vs. 20% three years ago. Tincher, who expects Shaw to weave 20% annual profit gains through 1996, sees the company's stock climbing to $43 within the next 18 months for a total return of 21%.


GRAND METROPOLITAN (NYSE, $26.50; 4% yield). One of the biggest liquor producers in the world (J&B Scotch, Smirnoff vodka), this $14.1 billion British conglomerate also owns Pearle, the largest eye-care retailer in the world, premium ice cream maker Haagen-Dazs, and Pillsbury, a leading maker of bakery products. More important, says Vivian Lewis, editor of the newsletter Global Investing in New York City, GrandMet is not dependent on a single regional economy. The company generates half of its sales in the U.S., 23% in the U.K. and 20% in Continental Europe. Lewis believes GrandMet's $5.2 billion drink business will stir 20% annual profit increases in the Far East and Southern Europe over the next three years as the company picks up market share. In GrandMet's $4.7 billion food business, Lewis expects the company to turn around its Green Giant division by repositioning the brand as a premium line of frozen food. She estimates that GrandMet's overall earnings will grow 12% to 14% annually through 1997 and thinks the stock could soar to $35 in the next year, for a 36% total return.

CANON (OTC, $55.75; 0.8% yield). This $16.4 billion camera and copier giant gives investors the chance for a double play -- cash in today on the accelerating economic recovery in the U.S. and catch the eventual revival of the Japanese stock market. As a leading exporter, Canon generates nearly a third of its sales in the U.S. and Canada. And as one of Japan's bellwether blue chips, its stock moves with that country's overall market. To keep its overseas sales hot, the company constantly develops new technology. Consider, for example, its highly successful two-year-old line of bubble-jet printers (about a third of which are sold in the U.S.), which approach laser printers in quality but sell for roughly half the price, $499 vs. $900 for low-end models. Analyst Richard Ozaroff at Value Line thinks those printers will account for $1 billion in worldwide sales this year. When will Japanese stocks rebound? Within 18 months or so, says Rick Holbrook, global strategist for Bailard Biehl & Kaiser in San Mateo, Calif. He expects the three-year bear market to end as Japan's economy, fueled by $85 billion in new government spending and falling interest rates, resumes the 4% annual growth it enjoyed in the 1980s. Holbrook thinks Canon shares could reach $71 within a year, for a 28% total return.

TELEFONOS DE MEXICO (NYSE, $50; 1% yield). Want to invest in something like American Telephone & Telegraph, circa 1900? Take a look at Telmex, which could climb in step with its sprinting national economy, just as AT&T did at the turn of the century. Over the next five years or more, Mexico is expected to grow at least a third faster than the U.S. economy, spurred in part by the North American Free Trade Agreement. % Author Walden thinks Telmex can boost its profits 20% annually for the next five years as it upgrades Mexico's telephone system, which now has only seven phone lines per 100 inhabitants, vs. nearly 50 in the U.S. The business- friendly Mexican government has treated Telmex favorably and will likely continue to do so, regardless of who succeeds President Salinas after next year's elections. Walden thinks the stock could jump to $70 by next year, for a 41% total return.

ASIA PACIFIC FUND (NYSE, $13.25). Fueled by go-go economies in Hong Kong, Indonesia, Malaysia, Thailand and other countries, the Pacific Rim is expected to post average growth of more than 7% a year through 1997, vs. about 3% for large industrialized economies. Global strategists say the safest way to play the region is through a diversified mutual fund. Michael Porter, Smith Barney's country fund specialist, recommends the Asia Pacific Fund, a closed-end fund that has posted 22% average annual returns for the past five years. Currently, manager David Brennan has about a third of the $126 million fund invested in Hong Kong, whose economy is expected to expand nearly 6% next year, despite current political uncertainty. The fund's Hong Kong holdings include Swire Pacific, an aviation and property development company, and real estate developer Hong Kong Land Holdings. Asia Pacific's shares sold at a premium to the value of the securities in the fund's portfolio last year. Lately, however, the fund has been selling at par, which Porter attributes to investor worries about Pacific Rim markets. Indeed, investors in this fund will need strong nerves. Says Porter: ''You take on a lot of risk when you invest in young economies. But you can also end up with a lot of profits.''