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Too Late to Cash In?

Remember that scene in Meet the Parents where Ben Stiller discovers that his fiancee's ex-fiance (played by Owen Wilson) lives in the American equivalent of Versailles and builds ornate altars out of rare wood in his spare time?

I remember it because after showing off his Bolivian wormwood floors, Owen Wilson casually mentions the fact that he "got in early on some wireless IPOs, and the stuff just skyrocketed from there."

"Strong to quite strong"
That's how Ben Stiller describes his portfolio to Owen Wilson. Obviously, it's a lie. But the thing is, even if it were true, he still probably couldn't have afforded to live the way Wilson did. Because, let's face it, most investors can't -- no matter how strong their portfolio is.

That is, unless you somehow manage to find the one stock that changes everything. And we all know that's no easy task.

To make matters worse, even if you do find a world-changing, fortune-making company such as (Nasdaq: AMZN  ) , Microsoft (Nasdaq: MSFT  ) , or Wal-Mart (NYSE: WMT  ) , by the time you get around to buying stock, chances are that the really big money has already been made.

Or has it?
Don't get me wrong. I'm all for disciplined long-term value investing. However, as my colleague Tim Hanson recently pointed out, there's nothing wrong with dedicating a portion of your time and portfolio to finding the next home-run stock.

And that's why I want to introduce you to a world-renowned investor who specializes in finding winning stocks after everyone else on Wall Street says it's too late to cash in, and I want to give you the details on one top stock pick from his Motley Fool Rule Breakers service -- with no strings attached. (All you have to do is keep reading.)

What you don't know could make you a fortune
You may know I'm talking about Motley Fool co-founder David Gardner. And you may also know that America Online soared by some 20,000% after he recommended that investors buy it in the summer of 1994.

But what you may not know is that America Online had more than quadrupled in the year before he recommended it -- and, as a result, lots of Wall Street "experts" were saying it was too late to cash in.

It was the same story with Amazon in 1997, Starbucks (Nasdaq: SBUX  ) and Amgen (Nasdaq: AMGN  ) in 1998, and, more recently, Intuitive Surgical (Nasdaq: ISRG  ) .

David Gardner recommended this maker of non-invasive surgical equipment to his Motley Fool Rule Breakers members back in March 2005, when shares were selling for $44.17. One year before that, shares sold for $17.46 -- and for just $8.68 a year before that.

In other words, it looked like Intuitive Surgical had already had its run.

But it went on to trade as high as $359.59, and it's still sitting at around $250 -- roughly a 460% gain for those who bought in March 2005.

Lucky -- or good?
Contrary to what you might think, David Gardner isn't some sort of Wall Street Evel Knievel who doesn't go near a stock unless its price-to-earnings ratio is north of 100.

Instead, he's calculated and meticulous (if you don't believe me, challenge him to a board game sometime), and he runs every company through a six-point checklist:

1. Is it the "top dog" and "first mover in an important, emerging industry? (Think of Netflix (Nasdaq: NFLX  ) in the DVD-by-mail industry.)

2. Does it have a sustainable advantage?

3. Does it have strong past price appreciation?

4. Is good management in place with smart backing?

5. Does it have strong consumer appeal?

6. Has the media said it's overvalued?

A stock with all or most of these six traits is a Rule Breaker in the making -- and it may well be worth your investment dollars.

A quintessential Rule Breaker
There's a chance you've never heard of Green Mountain Coffee Roasters, but thanks to an economic downturn that has suddenly made frugality fashionable, this backwoods company is starting to give Starbucks a real run for its caffeine crown.

That's because Green Mountain makes the "K-Cup" single-serving coffee machines that are showing up in homes and offices across the country. In the second quarter, it sold 479,000 personal coffee brewers -- a whopping 148% jump from the previous year -- and more than 432 million coffee packets, a 62% year-over-year increase. Similar story for the third quarter.

And not only is Green Mountain the top dog in this industry, but it has also strengthened its foothold by partnering with tea and coffee companies around the world, including Newman's Own Organics, Celestial Seasonings, and Gloria Jean's, which all pay Green Mountain a royalty for each coffee or tea packet sold.

Net sales grew by 52% in 2007, 46% in 2008, and, despite a tough economy, another 51% in the most recent quarter. Earnings soared by 125%. So it should come as no real surprise that between February 1999 and February 2009 -- the month Green Mountain was featured in Rule Breakers ­­-- shares climbed by more than 3,500%. Nor should you be shocked that it's risen by another 150% since then.

Too late to cash in?
David Gardner and his team don't think so. But you can judge for yourself by taking a free 30-day trial of Motley Fool Rule Breakers. You'll get access to detailed research write-ups of every stock on the Rule Breakers scorecard -- including Green Mountain Coffee Roasters.

You'll also get David Gardner's two top growth-stock picks for new money now and 24-hour access to a community of dedicated investors who consistently prove that Wall Street doesn't always know best.

There is no risk, nor any obligation to subscribe. Stick with us if you like it; pay nothing if you don't. To learn more, simply click here.

Austin Edwards, although not a male nurse, does own shares of Intuitive Surgical. Amazon, Netflix, and Starbucks are Motley Fool Stock Advisor recommendations. Intuitive Surgical and Green Mountain Coffee Roasters are Rule Breakers selections. Microsoft and Wal-Mart are Inside Value picks. The Fool owns shares of Starbucks. And, no, you can't milk The Motley Fool's disclosure policy, no matter how hard you try.

Read/Post Comments (12) | Recommend This Article (84)

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 October 28, 2009, at 6:31 PM, minifesto wrote:

    I thought you were going to write is it too late to cash out after the glorious ride to the market.

  • Report this Comment On October 28, 2009, at 6:33 PM, TMFAEdwards wrote:

    And what do you think, is it?

  • Report this Comment On October 28, 2009, at 9:09 PM, thisislabor wrote:

    I guess, I think it is a little bit wierd to use a 6 point questionaire to determine if a stock is a good stock or a bad stock. But, now that I think about it, I don't have a better method of determining myself. I just read the 10K and sit and think about like every aspect of the stock for a while... maybe visit the company stores.... and I just get a good general positive or negative impression. I guess a 6 - point questionaire is a little bit more technical of a method. Meh.... *makes mental notes to self for future reference*

    Thankx guys.

  • Report this Comment On October 29, 2009, at 7:20 AM, tprice8558 wrote:

    Or you could just start your own investment advice service and charge folks for your tips. This way, you'll be compensated even if you're wrong. Kinda like a weather man.

    This sounds like the best chance of living like Owen Wilson.

  • Report this Comment On October 30, 2009, at 1:30 PM, crepinginflation wrote:

    the bulls break through 5500...i'll never forget that day when my accountant called me and said that the book value for the market was at an all time high ...FUNNY NOW THAT THE GOVERMENT HAS FIGURED OUT CASH FLOW ....we have to come up with something new ...a great place for a honeymoon in meet the parents

  • Report this Comment On October 30, 2009, at 2:53 PM, LessGovernment wrote:

    I continue to discount the stimulus monies spent on banking, finance, insurance and the like because important as these businesses may be, they do not have the inherent ability to employ large numbers of semi skilled, and unskilled workers. To do that, you need construction – heavy construction - infrastructure improvements. If these types of projects are significant in number and shovel ready, then surly, there should be signs of strengthening in engines used for construction equipment, tires used to haul stuff, and cranes used in construction. Right?

    Well, here is what I find.

    Cummins, Inc. - the company expects low demand through the first half of 2010.

    Good Year Tire - has warned of coming losses due (partly to unique issues and partly to materials costs. However, nothing in their report reflected an increase in demand from coming infrastructure projects.

    Manitowac Co., Inc., - the manufacturer of large industrial cranes reported a 52% drop in crane sales.

    If these kinds of large manufacturing companies are not yet seeing an increase in demand, then there is not yet a significant stimulus in the pipe, therefore no orders for new equipment, therefore no orders for engines and tires, and cranes. I have also seen these same announcements from other manufacturers. This leads me to fear 2010.

    So now, let’s all say hello to the 800 pound gorilla in the room – which is holiday sales derived from consumer spending – which is supposed to be 65% of our economy. If holiday sales are a bust, the economy will most likely slip back into the hole we have been trying to climb out of, because if holiday sales are a bust, commercial real estate is going to be in even more trouble (if that is possible), which will put even more pressure on local and regional banks, which will effectively dry up a significant amount of credit for small businesses, putting more people out of work.

    The only way I know whereby we can have slow holiday sales and robust lending to small business is if the Treasury or the Fed (or both) steps in and creates yet another alphabet soup program to attack this specific problem. But this is not a sure thing. For one thing, the problem is distributed over hundreds of thousands of separate businesses. With mid term elections coming in 2010, with bailout fatigue running high on capitol hill, with taxpayers in near revolt at previous bailouts, with deficits at record highs as far as one can see, with the government spending its rapidly declining political capital to bring to life another entitlement program, a rescue by the Fed or by the Treasury is simply NOT a sure thing.

    And finally, since small businesses lack the special interest political clout to pressure Congress to get something like that done, solving the problem of getting loans to small businesses is even less a sure thing.

    I did not fear 2008 or 2009 because I could see through the fog sufficiently to make intelligent choices. But 2010 is totally different. The rules are different. The players are different. Visibility is different and the issues themselves are entirely different. And now, I have convinced myself that large construction projects are not just around the corner, so unemployment is here to stay and will probably get worse, most likely hitting 11% before we bottom. Engines, tires and cranes are not being ordered. Projects are further out than I was led to believe. So where are the jobs to come from, especially if retail cuts back on head count again if holiday sales are slow?

    In full disclosure, yesterday I was a seller, not a buyer. I closed out all my stock positions except one that I closed out this morning before writing this post.

  • Report this Comment On October 30, 2009, at 3:44 PM, salvadorveiga wrote:

    I just hope THIS TIME most of you will have the brains and the discernment to get the hell out of stocks ! you can see all my records. I called the plunge, I called the rebound of 60% in a period of 6-9 months, and I am now calling a decline of 50%...

    Of course I may be wrong, so instead, I advise GO WITH THE TREND, soon the trend will reverse so get the hell out...

  • Report this Comment On October 30, 2009, at 4:12 PM, LessGovernment wrote:

    In case anyone is wondering, I wanted to use CAT in my analysis, but since much of their sales come from outside the United States, and since much of their business is not in business lines that are directly tied to infrastructure such as in mining equipment, I elected to not use CAT.

    However, here is what I fine with CAT. They are recalling 550 workers to somewhere and giving a permanent discharge to 2500 others. Chairman Owens stated "We are pleased that signs of recovery in the global economy allow us to return a selected group of laid off employees to work…" which sounded to me like the recall of the 550 is not here and the 2500 permanent layoffs are, but i am only guessing. Which also makes the forecast for a 10 to 25 percent increase in sales sound as though that too is tied to an overseas market and not here. They are simply too opaque to use for the purpose I intended and I lacked the time to dig much deeper.

  • Report this Comment On October 30, 2009, at 4:41 PM, ttocsmij wrote:

    I noticed Mr. Owens bragging about the 550 folks he's bringing back while 2500 others will have to whistle for their supper. Sigh. I know how they feel. It would be interesting to have a complete demographic comparing the folks recalled vs. the folks rejected.

    Also did you note the Swede's (electrolux) are dumping nearly 1,000 Americans in favor of better profit margins south of our border? I know of two other formerly major companies that did that ... and I've never heard of either one again. :-)

    Back in the day one competed with better designs. Now the big boys just shuffle the blocks around to the lowest labor cost and let the return counter handle the rest.

    I just wish I'd had the kahonies to buy AIG that first week of March. I'd be retired today! Sigh.

  • Report this Comment On January 08, 2010, at 1:35 PM, 64bitfool wrote:

    1. Is it the "top dog" and "first mover in an important, emerging industry?

    2. Does it have a sustainable advantage?

    3. Does it have strong past price appreciation?

    4. Is good management in place with smart backing?

    5. Does it have strong consumer appeal?

    6. Has the media said it's overvalued?

    1: BAC (I've been buying ever week since 10 and am holding 17C February and 30C leaps), WFC (buying every week since 23 with 30C February), AAPL (buying since 101 and have 250C April!!!) Remember, AT&T exclusivity expires in February!

    2: Yes

    3: Wow, yes

    4: Debatable

    5. No, No, Yes

    6. Every time Cramer has said to buy, I have sold. Every time Cramer has said to Sell, I have bought and made money (lots of it) every time. I bought Puts at the end of yesterday (predicting the profit taking today!! Woo hoo!) and will buy more shares of all of these in an hour of so when they bottom out and I cash in my puts).

    I have no idea why people have been reluctant to rebuy financials as they MUST move up to at least what they were before the meltdown, now especially with market dominance by the elimination of all of the little guys. Any fool should simply look at the numbers (and the increased CAPS ratings) and do the math.. Growth. As for apple, it continues to move in the right direction. I could not disagree with the author more about MSFT. This is dead weight from 2009 forward. The future of the IT world is Linux (or other Open Source platforms) and everyone in IT knows it. (If you haven't tried running Linux on your laptop or home computer lately, you should!)

    I guess this is why I have dumped so many of my long interests in favor of the riskier, but (this year) cheaper and more rewarding financials and "known asset" technologies that will grow. If you hadn't bought into those X-ray machines a couple of years ago... oops, you are too late. Such is the situation with Tech.

    With BAC and WFC, it seems that you will at least reap the benefits of the stock decline and subsequent (partial) recovery now by getting out from under TARP restrictions (at the expense of the taxpayers)... hey, it's business.

    They will (at least in the foreseeable future) be a strong buy on number of shares to $ value alone though BAC being now .. (ahem) .. a tad watered down after raising so much cash in the form of new stock to bail themselves out. WFC seems stronger to me now (read my old reviews) because they don't seem to be doing the same things that got us in trouble in the first place (credit default swaps \ new securities) to the same extent of BAC (Wow, look Merrill securities offerings following the TARP Payoff).

    I may just be another fool, but shouldn't the real article about using these standards apply everywhere, and how do you gauge fiscal reality from "wishful thinking". Who can raise the money they need, when they need it and what are the costs to doing business?

    Given the banks are controlling the money, I'd have to say that for the next quarter or two they are a strong buy, if only to allow the regular markets to adjust to reflect "real world" unemployment and GNP growth projections. This combined with the incredible FED rates and who will reap the biggest benefits.

    Will people want to buy from the companies mentioned in this article if things get worse? Again, my feelings lean back to business of "What people want versus what people need". If Innovation is where it is at, another fool might also look to smaller companies that are bringing profits to add-ons to the major players. (Ewww... Consultants). I feel dirty talking about them, but there is money there.

    The GOOG battle over the "phone" seems funny only in the sense that of one question, "Does Google seriously believe that they can out 'hardware' Apple? Wow, it has a better camera and a much faster CPU, but only runs at 2g and hey, let's face it... we all want a slower online experience!

    I'm no raving fan of the Iphone myself because I can't buy one! I'm using an LG "Dare" on Verizon (my vendor of choice).

    In that same breath, I'm also assuming that Apple executives are not idiots in wanting to sell me a phone and double their profits, so I'm predicting a new Iphone with a faster CPU and a better Camera that will appear real soon (hopefully) for Verizon!

    Regarding "current terms" of locking and vendors, does any seriously believe that Apple and AT&T will remain in an exclusive agreement after the current one expires (in February)?

    Historically, Apple will act in the best interests of Apple. I think the big banks are the same way and will ensure they recover (and show a dividend!). Either way, think about it, when was the last time you could get OUT of the big Google and Microsoft, Oracles and others and into any of these stocks that are in this known growth situation?

    If so, let me know! One fool to another, I'm still waiting for ANYONE to show me that they HAVEN'T made money in these stocks exactly when I have said in the past 10 months!

    Idiots (not fools) on TV seem to be in this for their own short-term (daily options) interests and NOT us investors! Ignore them! Look at the stock, what is going on and remember the Golden Rule.

  • Report this Comment On February 06, 2010, at 3:46 AM, denkab wrote:

    There are a lot of smart folks out there. Take Sequoia Capital with their frantic manifesto as October 2008 was unraveling. Which was nothing but asserting conservative point of view... almost one year too late! Almost commendable.

    Now that DJIA retests 10k, will they sound off at 9200 or 8750?

  • Report this Comment On February 24, 2010, at 2:19 AM, 11492der wrote:

    buy AHC Be happier

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