3 Winners You Don't Know About

It's time once again to play the role of lab rat and win some cheese: Which investment yielded the biggest gain over the past five years?

1. Software giant Oracle?
2. Networking behemoth Juniper Networks (Nasdaq: JNPR)?
3. Or cement and wallboard maker Eagle Materials (NYSE: EXP)?

If you answered Oracle or Juniper Networks, you get a mild electric shock and a trip back to the cage. If you sensed a trick question or happened to be the astute investor who picked Eagle Materials, a nice chunk of cheddar awaits.

Blowout returns for the boring
The business of mining and processing gypsum for builders in the United States has been good for Eagle Materials and its investors. The stock has risen 287% -- or 31% annually -- over the past five years.

Oracle has continued to execute its business well, turning in double-digit growth in revenue over the past several years. Investors who timed the tech sell-off in 2000-2002 well and got into Oracle when pessimism was high have handily beaten the market with a 120% gain over the past five years. But even getting a piece of the database-software king near its multiyear low pales in comparison with the gains from Eagle Materials.

Likewise, investors who jumped at Juniper in 2002 following the telecom meltdown have fared well. Yet while the networking company has returned to the days of spectacular year-over-year growth and now generates substantial cash flow ($756 million in operating cash flow in 2006), it still can't surpass the gains of a boring building-materials supplier. Juniper Networks still comes in a distant second, with a 135% gain over the past five years.

Examining five-year returns is purely backward-looking, of course, but the point is that the most popular stocks aren't necessarily the best investments. Often, investors equate popularity and glamour with momentum and growth. This mindset can backfire, because stock popularity often makes shares outrageously expensive, leaving even good companies vulnerable to painful downturns.

Sniffing out the good cheese
The notion that investors have a better chance of finding killer stocks where few people go looking is not new. Though it seems to be seldom practiced, I hear it preached a lot by Fool co-founder Tom Gardner and longtime Fool analyst Bill Mann. In their Motley Fool Hidden Gems small-cap service, the duo has singled out several big winners operating in mundane yet profitable niches such as insurance, mattresses, and paper pulp.

And if you're still not convinced that there's big money in the boring, here are three more examples to get you going.

1. Clean Harbors (Nasdaq: CLHB) has shown that even the dirtiest of jobs can be big business. The Massachusetts-based company provides a broad range of hazardous-disposal, recycling, and environmental-cleanup services that have experienced increased demand over the past several years. With more focus on environmentally friendly methods of handling chemicals and toxic materials, Clean Harbors has nabbed many contracts.

Clean Harbors has managed to keep the top line growing while managing expenses in the past few years, yielding big improvements in operating income -- up 55% in 2006. Though the company is still carrying debt, it is now profitable, and investors see the trend continuing. The stock has returned investors an amazing 359% -- or 36% compound annual growth over the past five years.

2. Shiloh Industries (Nasdaq: SHLO) is proof that there's profit in the less exciting sectors. The $150 million company specializes in sheet-metal blanks, complex stampings, and related assemblies for automobiles and heavy trucks. Even with heavy reliance on the automotive sector, the company has been able to keep a lid on expenses through down cycles in automotive production. Delaware-based Shiloh has returned more than 353% for investors over the past five years -- that's 35% compound annual growth from a small, boring metal-fabrication company.

3. Marine Products (NYSE: MPX) is a little-followed maker of recreational sport-fishing boats and other types of power boats. It generates income from subsidiaries that make its two most popular boat brands, Chaparral and Robalo. An efficient operation structure and a good sense of its target markets have allowed the company to grow its share of the market each of the past five years.

Marine Products also has several things investors like -- a strong balance sheet with no debt, high insider ownership, share buybacks, and even a regular dividend. Tom Gardner was impressed enough to make Marine Products a Hidden Gems pick back in 2004. Even with its dependence on a sometimes cyclical market, Marine Products has given investors a 111% return on their money over the past five years and 419% since its IPO in March 2001.

Get in the know
Little-known, well-run companies such as restaurant operator Buffalo Wild Wings (Nasdaq: BWLD) -- a three-time Hidden Gems pick that's returned 242% since its original recommendation in July 2004 -- can do wonders for your portfolio. Go hunting for them in the market's more mundane sectors, and you can get boring to work for you. If you'd like a little help getting started, click here to join Hidden Gems free for 30 days, and check out the entire lineup of small-cap stock recommendations.

This article was originally published on June 27, 2006. It has been updated.

Fool contributor Dave Mock runs the rat race every day, but he rarely gets the cheese. He owns no shares of companies mentioned in this story. The longtime Fool is also the author of The Qualcomm Equation. Marine Products and Buffalo Wild Wings are Hidden Gems picks. The Motley Fool has a disclosure policy.