If you want to know how to build wealth -- true wealth that will allow you to lead the type of life you want and ensure your financial freedom for years to come -- the solution is so simple it's mind-boggling: pay off your high-interest debts, build up an emergency fund, live below your means, save and invest regularly.
The last step -- saving and investing regularly -- is where I come in. I've already set up my ideal retirement and growth portfolio for others to follow, but that's for when you're investing a lump sum. In order to help out those that are socking away a little bit each month, I've also started publicly calling out what I'll be investing my Roth IRA money into.
So far, that portfolio has been doing quite well, yielding a return of 18.65% -- which is trouncing the market by about 7 percentage points. This month, I'm shifting my focus a bit. In an effort to swim against the stream and get some exposure to unloved and underappreciated companies, I'll be investigating three one-star stocks as rated by our CAPS community.
Be forewarned, I'm not suggesting you should bet the house on any one of these three companies. I'm investing just one-twelfth of the allowable Roth contribution in one of these stocks. Today, I'm going to focus on the potential upside for all three companies. On Wednesday, I'll let you know more about the downsides, and which one I'll be putting my money into.
Add these stocks to your free watchlist to get up-to-date coverage on each; and at the end of this article, I'll offer you access to a report detailing the world's next great growth stock.
Pandora (NYSE: P )
Without fail, if you walk into my family's home, you'll be hearing music streamed from Internet radio specialist Pandora. Apparently, I'm not unique, either: During the third quarter of 2011, Pandora's 40 million active users streamed 5.5 billion hours of music. The company's Music Genome Project helps to differentiate itself from other players in the space -- most notably, Sirius XM (Nasdaq: SIRI ) -- by allowing users to create their own stations to fit their tastes.
And that's not the only front on which Pandora is creeping up on Sirius. Pandora is also making aggressive moves into both the mobile and automobile realms. The company has in place -- or will soon -- arrangements for its products to be offered in cars produced by Ford, Hyundai, Toyota, BMW, Honda, and others. With active users surging almost 38% in the first three quarters of 2011, this company has a lot of momentum at its back.
Dangdang (NYSE: DANG )
Without a doubt, my favorite play in the Chinese space is Baidu (Nasdaq: BIDU ) , the "Google of China." The company has demonstrated remarkable growth, and is expanding its reach beyond China's borders. Alas, the company isn't a one-star stock, though, so I'm instead opting to check out Dangdang, the "Amazon of China."
The company is really just getting started -- but that doesn't mean people aren't flocking to use its site. During 2011, revenue increased 59%, as the company added roughly 6.6 million new customers to its base. It also saw the need to expand its capacity by building out more fulfillment centers, which are in 10 cities on the mainland.
What's truly staggering about Dangdang's potential is this -- it added only 6.6 million customers last year. With China's population of 1 billion people, the runway for growth is very long. If Dangdang's able to copy what Amazon has done in the United States -- much like what Baidu did with Google -- the sky could be the limit.
LinkedIn (NYSE: LNKD )
Finally, we've got what's commonly referred to as the "Facebook of the business world." Make no mistake about it, though, LinkedIn is going places where Facebook will struggle to follow. The company sports 150 million members, and in the fourth quarter of 2011, the company saw its revenue skyrocket by 105%. It represented the sixth consecutive quarter with year-over-year growth above 100%, a mind-boggling stat.
With three solid lines of revenue -- hiring solutions, market solutions, and premium subscriptions -- a new Talent Pipeline product on the way, and tons of room for growth abroad, LinkedIn may very well be the one-stop-shop for job searchers 10 years from now.
Our next great growth stock
If you're familiar with different Fool styles of investing, you may note that my three picks have a very Rule Breakers feel to them. That's because I'm a big fan of co-founding Fool David Gardner's style of investing.
His team has just come out with a new special free report about the next rule-breaking multibagger. To get the name of the ticker and the details about this revolutionary company, get your copy of the report today, absolutely free!