How Dozens of Unknown Small-Caps Crushed Apple in the Heyday of Its Growth

Apple crushed the market and created millionaires in the new millennium. But nearly 100 stocks could have made YOU richer, even in Cupertino's glory days.

Apr 25, 2014 at 7:35PM

Aapl
Apple has made a ton of millionaires. But you -- yes, you -- could have made money even faster in nearly 100 smaller stocks.

If you bought shares of Apple (NASDAQ:AAPL) at the turn of the millennium, then held on for dear life through all its monstrous gains and the occasional sudden crash, you're feeling rich today. That's a 1,930% return, or more than 20 times your original investment. If you had $49,300 to invest in Apple back then, you're an Apple millionaire today. The chart makes the S&P 500 look as flat as a Kansas horizon.

AAPL Chart

AAPL data by YCharts.

Yes sir, Apple has created plenty of millionaires over the last decade and a half.

But did you know that you could have done better? I mean a whole lot better, as in making Apple look frozen by comparison?

For example, what if you had had the impeccable fashion sense to recognize the long-term value in Deckers Outdoor (NYSE:DECK) in that brisk winter air? Here's what you'd get for investing in this even steeper growth story:

AAPL Chart

AAPL data by YCharts.

With returns like these, you'd only have needed to invest $21,400 to be a Deckers millionaire by now.

Oh, but it gets even better.

A rare handful of stocks actually made Deckers look slow. The absolute king of the hill is Keurig Green Mountain (NASDAQ:GMCR), formerly known as Green Mountain Coffee Roasters. A mere $3,150 invested in early 2000 and left untouched would have grown to $1 million by now:

AAPL Chart

AAPL data by YCharts.

And of course, the instant-coffee revolution shot through the roof. The stock even bounced back from a near-fatal plunge in 2011, when the Keurig K-Cup pantents were on the verge of expiring and the whole single-serve craze suddenly seemed as hip as pet rocks and 8-track tapes.

These are not the only stocks to have beaten Apple in the new millennium -- not by a long shot, in fact. A Capital IQ screen found no fewer than 95 stocks that outperformed Apple during this wealth-building period.

But Apple holds the largest market cap in the known world! How is it even possible that nearly 100 stocks outperformed this market champion over 14 years?

The answer is actually quite simple. Even though Apple stood at death's door in 1999-2000 and needed help from a longtime enemy to survive another year, the company still came with an $18 billion market cap. Only five of those 95 Apple-beaters even broke the $1 billion mark, and none passed the $2.5 billion level.

Excluding Apple, the average market cap among these rocket stocks was just $212 million. The median market-cap size was even smaller at $56 million. Both Green Mountain and Deckers Outdoor fell below the $30 million mark.

And if you plot the real wealth-creation in terms of market cap value rather than share price percentages, you'll get a dramatically different picture -- and Apple is clearly the king of building massive market caps:

AAPL Market Cap Chart

AAPL Market Cap data by YCharts.

That's the truly impressive part of Apple's recent growth. Anybody can double, triple, or quintuple a penny stock with a market cap counted in the tens of millions. Pulling the same trick with an $18 billion starting price? That's not so easy.

On the flip side, the minnows in the pond can often grow much faster than even the hungriest shark. Warren Buffett might need to look for big, established businesses that could move the needle for his investing empire, but we individual investors can do better by focusing on smaller stocks -- lesser-known names, spring-loaded growth opportunities where the growth-limiting law of large numbers doesn't apply.

Of course, this end of the market pool is also fraught with risks, and the massive growth stories are balanced out by countless failed or struggling micro-caps.

Yeah, but how can I do that?
For example, how could a Foolish investor have figured out where Deckers Outdoor and Green Mountain were going, using the information that was available in early 2000?

At the turn of the century, Deckers was not an attractive stock. The maker of fashionable footwear had launched an IPO in 1993, far above its true value. Share prices fell a terrifying 88% by the end of the twentieth century. It became a true penny stock, trading for $0.87 per share.

And yet things were starting to look up for Deckers.

Sales were growing, and free cash flow was turning positive again after dipping into negative territory for a couple of years. These are early signs of a successful turnaround. We're not talking about bulletproof, back-up-the-truck signs, but a good start that warrants a deeper look -- and maybe a tentative investment in the "experimental" portion of your portfolio.

DECK Chart

DECK data by YCharts.

Granted, there's no way to predict a game-changing moment like Oprah Winfrey featuring Ugg boots in her "Favorite Things" TV feature, which was the real breakthrough for Deckers. But luck favors the prepared. As alpine skiing legend Ingemar Stenmark once said: "I know nothing about luck. But the more I practice, the luckier I get." And Deckers Outdoor was already doing almost everything right.

I'm sure that the meticulous Oprah and her research staff would have backed away from featuring a Deckers product if she wasn't convinced that the company could handle the spotlight. And Deckers had already seeded the Hollywood elite with Ugg boots by then, making sure the boots had the cool factor it takes to impress Ms. Winfrey.

Foolish analyst David Meier recommended Deckers Outdoor to our Hidden Gems subscribers in August, 2004. "Great things happen when the income statement and the balance sheet improve in tandem," David said.

Green Mountain provides that new "new"
Keurig Green Mountain showed even fewer signs of obvious greatness in 2000. At first glance, it was just another run-of-the-mill coffee-producer in a packed field of competitors. The crucial buyout of the Keurig K-Cup single-cup coffee-brewing business was still six years away, and Green Mountain didn't buy K-Cup bean pod specialist Diedrich Coffee until 2009.

But the company was already building the cash reserves that would allow it to make those game-changing buyouts later on. And Wall Street wasn't paying attention.

GMCR Chart

GMCR data by YCharts.

Everybody wants the full 33,000% megareturn, of course. But you could have jumped on the Keurig story in 2005 or 2010 -- many moons after those crucial buyouts -- and still eclipsed Apple's returns in the iPhone era.

Like Deckers, Green Mountain soared on a singular event that nobody saw coming. Unlike Deckers, this company made a conscious decision to bet the company on a brand-new opportunity, rather than depending on a moment of marketing magic.

And do you know who experienced a similar fundamental pattern before the stock took off? That's right -- Apple suffered through cash crunches and misanagement until Steve Jobs came back and breathed new life into his baby with the iMac and iPod product lines. The cash created in those early years formed the launching pad for the iPhone and iPad revolutions. And the rest, as they say, is history.

AAPL Chart

AAPL data by YCharts.

The big, Foolish takeaway
There ain't no such thing as a free lunch, and the huge rewards available to microcap investors also come with big risks. As the examples above show, sometimes you need a decent helping of luck alongside a fundamentally strong business. And it doesn't always work out. If you invest this way, or devote a portion of your portfolio to the itty-bitty, high-growth style, you'll need to do your homework and accept a few losses along the way.

But as much investor wealth as Apple has created over the years, there are many ways to beat the market. Sometimes that involves finding the next big thing before all of Wall Street finds out about it.

Six stock picks poised for incredible growth right now!
Finding the best hyper-growth small-caps isn't easy. It's also not impossible when you have a genius doing the stock picking. They said it couldn't be done, but David Gardner has proved them wrong time and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, one of his favorite stocks recently became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Apple and Keurig Green Mountain. The Motley Fool also owns shares of Apple. Try any of our Foolish newsletter services free for 30 days.

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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers