I suspect that you clicked this article -- promising one great stock -- because you want to grow your investment portfolio. You want to make money and learn more about the markets. And since you clicked open a Motley Fool article, you probably want to have fun, too.
Make money. Get smarter. Have fun.
That's how Warren Buffett has spent his professional life. Same with Peter Lynch and J. Paul Getty and Bernard Baruch. These investors made millions -- literally, tens or hundreds of millions of dollars -- by seeking profit, pursuing mastery, and loving the game of investing for life.
There is no natural or preternatural law that says you can't do the same. And the fastest route there is to understand how companies achieve competitive greatness. What are the commercial features that help their stocks rise 10, 200, or 5,000 times in value? Here are three of my favorites.
Three principles of commercial greatness
1. Replication. The very best public companies have a replication model that drives growth indefinitely. Consider 10-year market-beaters such as Whole Foods Market (Nasdaq: WFMI ) , Applebee's (Nasdaq: APPB ) , Sonic (Nasdaq: SONC ) , Walgreens (NYSE: WAG ) , and BJ's Restaurants (Nasdaq: BJRI ) . Think about how Starbucks expanded from 1,000 storefronts in 1996 to more than 13,000 today. Simple replication has helped Starbucks rise 10 times in 10 years.
2. Residence. When was the last time you took a rental car through the car wash? Which have you treated better -- the home you own today or your sophomore-year dorm room? We take better care of what we own than what we rent. The same holds true in Corporate America. The greatest companies -- like Kohl's (NYSE: KSS ) , or Berkshire Hathaway -- have leaders who've been there for years and own a ton of stock. Berkshire has risen more than 10,000 times since Warren Buffett became its CEO (and it's not done yet)!
3. Resources. Master poker players know that in a game between entirely even players, the one with the most money will win. The same is true in business. It's why one great investor after another buys cash-rich companies and avoids those with mountains of debt. With more than $4 billion in debt, Citizens Communications lacks the resources to truly reward its investors. The stock has returned a paltry 5.5% per year since 1990 -- including dividends. Ouch!
Your one great stock
In Hidden Gems, we've discovered dozens of small-cap winners. And in a world where most mutual funds lose to the market, we're beating it by 35 percentage points. We've done so by finding overlooked small companies that beautifully demonstrate the key principles of replication, residence, and resources. Such is the case with my "One Great Stock" for you today, which has already more than tripled for us since 2004.
The stock is Buffalo Wild Wings. This company has opened 400 restaurants, primarily in the center states of America (replication). The CEO and CFO have run the company for more than a decade, and the chairman owns a ton of stock (residence). And today -- unusual for restaurants -- Buffalo Wild Wings is expanding out of its own cash flows. It sports more than $70 million in net cash on its balance sheet (resources).
I believe Buffalo Wild Wings will nearly triple over the next five years.
And yet there's one Hidden Gem I like even more. Take a free trial, with no obligation to subscribe (I promise), and you can view our four dozen holdings, ranked in order of how well we like them, including my favorite small cap in the world.
This article was originally published on Dec. 1, 2006. It has been updated.
Fool co-founder and Hidden Gems analyst Tom Gardner does not own shares of any company mentioned. Whole Foods, Starbucks, and Berkshire Hathaway are Motley Fool Stock Advisor recommendations. Berkshire Hathaway is also an Inside Value pick. Citizens Communications is an Income Investor recommendation. The Motley Fool has a disclosure policy.