1 Shocking Way to Find Your Next Big Winner

Even though we're long-term investors at The Motley Fool, it's human nature to want to see results more quickly.

And although buying -- and holding -- the market's best stocks for decades is undeniably the best way to get rich, that doesn't mean long-term investing and seeing huge returns more quickly aren't compatible.

Which is why I'd like to share with you the unmistakable way to find companies that can hand you huge returns on life-changing investments (as part of a long-term investing strategy) -- if you correctly identify them -- in a much shorter timeframe.

I'll even share with you two up-and-comers that I think have the potential for that today.

It's something these three companies have in common
If I were to rattle off the names eBay (Nasdaq: EBAY  ) , Amazon.com (Nasdaq: AMZN  ) , and Netflix (Nasdaq: NFLX  ) , you'd probably think I was talking about online giants.

True. But these companies represent something bigger.

You see, these companies started by creating a niche in their respective industries. And they dominated it.

Then (and this is the really important part), they took advantage of their dominant position and moved into other areas of their industry, challenging corporate giants in ways most investors didn't see coming.

Their dominant position allowed them to write their own playbook and operate a virtual monopoly of the market they created, as well as ancillary markets they entered.

Which is why, even after mind-boggling historical growth -- and similar success in the stock market -- these companies still remain attractive investments today.

Here's what I mean
eBay created an online marketplace for private transactions to take place throughout the world. It took off, benefiting from network effects, i.e., the "value" of eBay became stronger the more the network grew.

The network effect also holds true for PayPal, a company that processes online transactions, and which eBay wisely acquired in 2002. (As eBay's commissions from auctions slowed, the growth from PayPal has soared, making up for the difference.)

Through it all, eBay's network continues to grow and becomes stronger by the day -- and even while I'm not too optimistic about the auction business, its online payment platform (PayPal) is quickly becoming the norm for paying for goods and services online -- giving eBay an incredible number of options for the future.

Amazon.com began as an online bookstore and gradually moved into all aspects of retail. Food, toys, shoes -- you name it, Amazon.com's got it.

Now that it's mastered its core competency, it has begun branching out, first by creating a complementary selling platform through its Kindle store. This platform also enables the company to act as publisher -- allowing it to dominate the front side of the book process, and opening a world of new opportunity.

Lastly, Netflix revolutionized the movie rental business by making it mail-based and eliminating nuisances like due dates and late fees. As its popularity grew, it was able to build out the infrastructure and a library of digital movies that it could stream to customers.

Now, Netflix is expanding into content creation, producing movies and miniseries all of its own. Like Amazon, this gives it the possibility of dominating the front side of the movie process. And coupled with its priceless database of customer ratings, it should have a good idea of concepts that would be successful, giving it a remarkable advantage over its competition.

Again, all of these companies started by carving out a niche for themselves within an industry. Then this platform enabled them to expand even further into that industry.

And their stocks have had similar success
eBay is up 1,900% since its 1998 IPO. Amazon.com is up 10,500% from its 1997 IPO, and Netflix is up over 1,150% from its 2002 IPO.

Although it may seem difficult to search out companies doing similar things today, I'd like to share with you two candidates that quickly come to mind.

The first, OpenTable (Nasdaq: OPEN  ) , has the potential to revolutionize aspects of the restaurant industry. It currently sells electronic reservation software to restaurants and has a growing online reservation-taking platform that syncs up to a restaurant's books.

As the network of restaurants -- and diners -- grows, OpenTable's network becomes stronger (much like eBay's and PayPal's have over time). This network will also unlock all sorts of additional options that most investors can't quite envision today.

The second company, Rackspace Hosting (NYSE: RAX  ) , was an early pioneer in managed server hosting. Now, it's successfully added on to that by offering cloud hosting as well.

It has differentiated itself through "Fanatical Support," which is crucial when dealing with such an important aspect of its clients' business.

As these companies' experience, expertise, and reputation grow, they'll no doubt expand even further to meet customer's needs (and their customers trust that they will meet their needs), as the industries themselves evolve.

That's regardless of their shocking multiples -- OpenTable trades at 47 times earnings and Rackspace at 99 times earnings -- and irrespective of analysts who clamor that they're overvalued.

The same was true for eBay, Amazon.com, and Netflix. Yet each has continued to grow, and to expand into unexpected territories -- all while their stocks have continued to rise.

Now let me give credit where it's due
This approach is one of the ways Motley Fool co-founder David Gardner (who also serves as advisor of two stock-picking newsletters -- Motley Fool Stock Advisor and Motley Fool Rule Breakers) seeks out companies. It's what led him to recommend eBay, Amazon.com, and Netflix to his readers -- with huge success. And it's what makes him confident about OpenTable's and Rackspace's future.

For the first time ever, he's going to enter the realm of real-money portfolio advice, focused on stocks like those I shared with you today. To secure yourself an invitation when he launches, or simply to find out more about David Gardner's approach to investing, drop your email address in the box below. I promise we won't spam you. Our aim is to share with you even more helpful investing advice.

Adam J. Wiederman owns no shares of the companies mentioned above. The Motley Fool owns shares of Amazon.com and OpenTable. Motley Fool newsletter services have recommended buying shares of Rackspace Hosting, OpenTable, Amazon.com, Netflix, and eBay. Motley Fool newsletter services have recommended writing puts on eBay. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (47)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 14, 2012, at 11:13 PM, mikecart1 wrote:

    OpenTable will always be a disaster. OPEN and ZIP (Zipcar) are a lot more similar than most people realize. Both assume they can force their business model onto customers. Whereas, AMZN and NFLX for example, took something customers already did (order online or rent movies), OPEN and ZIP assume customers will take out the spontaneous aspect of eating or that customers will modify the way they travel in order to supposedly save money in the long run.

    People aren't interested in reserving times to eat days in advance (which is what is usually needed for any restaurant worth reserving). If they must, they'd rather call the restaurant itself. They usually do this when they are out with friends or on a date. They won't be trying to find out how to use OpenTable to reserve some time.

    People aren't interested in doing one step below leasing a car - which is what ZIP is. You are basically putting money into a car you don't even own but share with others. Might as well take a taxi or bus then.

    Both business models stink!

    :o)

  • Report this Comment On March 15, 2012, at 8:50 AM, chef22 wrote:

    mikecart1probably has not used Open Table. I use it just about every time I make reservations. It has even enabled me to get reservations at popular hard-to-ge-into resturants. And dispite the tough economy restaurants are unbelievably full on a daily basis. I'm a believer and user of Open Table.

  • Report this Comment On March 15, 2012, at 10:27 AM, ytsim321 wrote:

    What is the cost?

  • Report this Comment On March 15, 2012, at 10:38 AM, ytsim321 wrote:

    I AM A SUBSCRIBER TO MOTLY FOOL PROGRAM. iS THERE AN ADITIONAL COST, IS MY QUESTION.

  • Report this Comment On March 15, 2012, at 11:10 AM, ytsim321 wrote:

    You haven't ansered my Question as what is the additional cost.

  • Report this Comment On March 17, 2012, at 1:57 PM, shamapant wrote:

    I think OpenTable is free for all diners, they make their money from the restaurants.

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