The Market's 10 Best Stocks Revisited

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Like you, I want to find the market's best stocks.

That's why last year I was working on a column just like this one. I wanted to know the names of the greatest stocks of the past decade, and I wanted to know what we could learn from them.

The results surprised me.

Taking stock of great stocks
The top 10 performers from 1996 through 2005 were all:

1. Obscure.
2. Ignored.
3. Small.

While I expected names like Apple and Starbucks, my research revealed Hansen Natural (Nasdaq: HANS) and Pool Corp.

But what about the 10-year period from 1997 through 2006? Without further ado, the top 10 performers:

Company	1997 Market Cap	Return, 1997-2006
Hansen Natural	$10 million	25,538%
Chico's (NYSE: CHS)	$34 million	8,773%
American Eagle (NYSE: AEO)	$78 million	7,884%
Daktronics (Nasdaq: DAKT)	$17 million	7,328%
Celgene (Nasdaq: CELG)	$111 million	6,118%
4 Kids Entertainment	$3 million	5,447%
NVR	$191 million	4,871%
Comtech Telecommunications	$7 million	4,653%
Best Buy	$460 million	4,082%
Frontier Oil (NYSE: FTO)	$85 million	3,616%

Data provided by Capital IQ.

Still what they used to be
Hansen Natural and Chico's remained the top two stocks -- even as Chico's was cut in half in 2006.

Even if the results are less shocking, the takeaways are the same. The best stocks were all small companies 10 years ago, and they were ignored by most of Wall Street. Best Buy, for example, was just a $460 million retailer in 1997. It had 272 stores, did $7.8 billion in revenue, and became the first national retailer to sell DVD hardware and software.

Today, the company has more than 1,100 stores. It will do $40 billion in revenue in 2007. Talk about a great small-cap growth story.

Look where Wall Street won't
Now, how many investors are searching for market-beating gains in Best Buy today? Twenty-five analysts cover the company, even though its best growth days are behind it.

But where were they 10 years ago?

They were covering large caps. That's because large caps are the only stocks with enough volume and liquidity to make research worthwhile for firms that have a lot of money to invest.

The Foolish bottom line
You, however, have the opportunity to make serious money by identifying and investing in stocks that are:

1. Obscure.
2. Ignored.
3. Small.

Some of these may even become the best 10 stocks of the next 10 years. Uncovering those winners is precisely our goal at Motley Fool Hidden Gems. Rather than concentrate on Best Buy, we unearth small retailers such as the $790 million Zumiez.

But a $790 million company is probably still too big to be one of the best when we look back in 2017. That's why we also find Tiny Gems -- promising companies capitalized at less than $200 million.

To take a look at all of the small and micro caps we're following, click here to try Hidden Gems free for 30 days. You may not have heard of our companies, but just like last year, that's exactly the point.

This article was first published Dec. 29, 2006. It has been updated.

Tim Hanson does not own shares of any company mentioned. Starbucks, American Eagle, and Best Buy are Motley Fool Stock Advisor recommendations. Best Buy is also an Inside Value pick. The Motley Fool owns stock in American Eagle. No Fool is too cool for disclosure.