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. Leading microprocessor maker Intel (Nasdaq: INTC)?
2. Network computing company Sun Microsystems?
3. Or mining equipment supplier Joy Global (Nasdaq: JOYG)?

If you answered Intel or Sun Micro, 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 Joy Global, a nice chunk of cheddar awaits.

Blowout returns for the boring
Selling underground mining machines has been good for Joy Global and its investors. The stock has returned investors a whopping 1,200% -- or 67% annually -- over the past five years.

Meanwhile, the once-unstoppable Intel has had trouble keeping a lid on competitor AMD (NYSE: AMD) while struggling to successfully capture alternative markets such as wireless communications. The company has started to show some momentum again, but it's disappointed investors with a paltry single-digit increase over the past five years.

And several years of flat sales have left Sun Microsystems, a company that in the 1990s was growing faster than weeds in my garden, in a belt-tightening mode that is finally seeing some benefits. Still, Sun Micro is up only 15% in the past five years, well short of the returns of the broader market.

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 mind-set 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 from longtime Fool analyst Bill Mann and his team at the Motley Fool Hidden Gems small-cap service. The Hidden Gems team 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. USG (NYSE: USG) manufactures and distributes building materials around the world. Primarily dealing with gypsum and plaster materials, USG has been a controversial investment recently, haunted by the specter of asbestos liability. In addition to sporting products that are hardly as exciting as superconductor technology, going through Chapter 11 bankruptcy has kept many investors away as well.
   
   Despite all the turmoil in the past five years, though, selling drywall has been good for USG and its investors. The stock has returned more than 750% to investors -- or 53% compound annual growth. That comes even after a 50% drop in the stock in early 2006!
   
2. American Vanguard (NYSE: AVD) is proof that there's profit in the mundane. No one tends to get excited about companies that develop bug-control products such as insecticides and fungicides. But American Vanguard has turned deer repellant and snail bait into a major growth business. The company has managed to grow the top line in excess of 16% the past five years and has returned investors nearly 310% during that time, not even accounting for the twice-annual dividend the company pays.
   
3. Mine Safety Appliances (NYSE: MSA) is a maker of health and safety products that Tom spotted for Hidden Gems members back in 2003. Founded back in 1914, MSA supplies respirators, gas detectors, and fire helmets, among other things, to protect military, fire, and other workers. The company has seen strong sales due to the increased focus on homeland security in the United States. This led to a 120% gain before Tom recommended that members sell the stock after delays in domestic orders for fire and military equipment in 2006 caused the company to lower future growth expectations.

Get in the know
Little-known, well-run companies such as the now acquired Alderwoods Group (selected twice in Hidden Gems) and petroleum-products supply chain manager TransMontaigne -- a Bill Mann Hidden Gems pick that returned more than 60% in seven months before being acquired -- 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 shares of Intel. The longtime Fool is also the author of The Qualcomm Equation. Intel and USG are Inside Value recommendations. The Motley Fool has a disclosure policy.