NEW YORK (FORTUNE) - Even for adventurous investors, Europe seems like a better place to vacation than to put money. But the European stock markets are hot.

Europe may have slower economic growth than the U.S. and Asia, but its stock markets have left the Dow and the S&P 500 in the dust this year.

Companies across Europe are seeing profit growth that would make their U.S. rivals envious. After double-digit returns in 2003 and 2004, European bourses took off again in 2005: Britain's FTSE 100 is up 15%; France's CAC 40 is up 22%; and Switzerland's SMI is up 33%. (The S&P 500, by contrast, is up a measly 4.3%, not including dividends.)

"This has been the great paradox—very successful European equity markets surrounded by a lukewarm economic environment," says Philippe Brugere, manager of the Franklin Mutual European fund, which has scored a 21.5% annual average return over the past three years. "It's the opposite of the U.S."

So why are European stocks so hot? For starters, CEOs have been aggressively restructuring their companies and cutting jobs. "The strength in European earnings is the result of a tremendous rise in productivity," says Brugere.

And demand from Asia and the U.S. has stimulated export-driven manufacturers like Siemens in Germany and Philips in the Netherlands.

Low interest rates and a strong housing sector have enabled banks in Britain and across the Continent to rack up handsome profits. (The benchmark rate in the eurozone is 2.25%, compared with 4% in the U.S., which makes stocks more attractive than competing investments such as bonds or savings accounts.)

Finally, valuations remain compelling: European indexes typically trade at 12 to 13 times next year's earnings, compared with 15 times for the S&P 500.

Despite these bullish signs, given the run of the past few years it's unlikely European bourses will see double-digit gains again in 2006, says Clas Olsson, who manages the AIM European Growth fund.

Instead, we've selected companies will keep surging, while the broader markets move ahead in a more muted way.

Our picks are all large caps—they have the wherewithal to take advantage of global growth, while being flexible enough to cope with challenges like the fluctuating dollar and volatile oil prices. Most of the companies trade as ADRs (American depositary receipts) in New York City, so buying them is easy as scooping up shares of General Electric or IBM. One trades mainly in Switzerland, but most brokerages or online platforms should be able to accommodate orders.