The Market's 10 Best Stocks Revealed

As investors, we want the best stocks for our portfolios.

That's why I look back, at the end of each year, at the best stocks of the previous 10 years to find out what we can learn from them.

Incredibly, the market's 10 best stocks teach a clear lesson -- and it's the same lesson year after year after year.

See the best
Take a look at this year's list:

Company

Return,
1998-2007

Jan. 1, 1998,
Market Cap

Hansen Natural

19,449%

$16.5 million

Asta Funding

7,856%

$3.1 million

Celgene

6,472%

$129.0 million

Apple

5,937%

$1.7 billion

Comtech Telecommunications

4,189%

$11.3 million

Green Mountain Coffee Roasters

3,389%

$24.7 million

Daktronics

3,294%

$23.1 million

Clean Harbors

3,209%

$15.8 million

Innodata Isogen

3,013%

$3.1 million

Immucor

2,893%

$70.0 million

Data from Capital IQ, a division of Standard & Poor's.
Includes only U.S. stocks listed with verifiable stock price histories on major exchanges
.

Be the best
Hansen Natural remains the top stock. It held that honor last year, as well as the year before that.

And although the retailers from last year's list have dropped from the top 10, they've been replaced by names such as Asta Funding and Green Mountain Coffee Roasters, which drive home the exact same takeaway!

Buy the best
This list makes one key investing lesson explicit. If you want to buy the best stocks of the next 10 years, you need to look today at stocks that are:

  • Obscure.
  • Ignored.
  • Small.

Those were the traits of these 10 best stocks when their remarkable runs began, and it's the same lesson we see over and over again. Ten years ago, Green Mountain was a boutique name from Vermont with more than $40 million in annual revenue. Today, it's a $385 million-per-year business that counts ExxonMobil as a customer.

Even Apple wasn't a big name at the beginning of 1998. Although Steve Jobs had just returned to help restructure the company, it was years away from the iPod or iPhone. Most of the market had lost interest in the stock.

Big ain't the best
But look at how many Wall Street analysts search for market-beating gains in Apple today. Twenty-eight analysts cover the company, even though it's become a $140 billion behemoth.

Where were they 10 years ago?

They were covering mid- and large caps -- the stocks with enough volume and liquidity to be worth Wall Street's time. But look at how the 10 biggest stocks at the beginning of 1998 performed over the past 10 years (including dividends):

Company

Return,
1998-2007

Jan. 1, 1998,
Market Cap

General Electric (NYSE: GE  )

169%

$240 billion

Unilever

148%

$211 billion

Tyco (NYSE: TYC  )

260%

$179 billion

Microsoft (Nasdaq: MSFT  )

228%

$156 billion

ExxonMobil

362%

$151 billion

Altria

228%

$110 billion

Toyota

118%

$109 billion

Procter & Gamble (NYSE: PG  )

209%

$107 billion

IBM (NYSE: IBM  )

201%

$102 billion

Wal-Mart (NYSE: WMT  )

332%

$89 billion

Not bad in some cases, but not nearly as good. So you don't need to play that game. Make serious money by finding stocks today that, again, are:

  • Obscure.
  • Ignored.
  • Small.

Start small in 2008
Uncovering these winners also happens to be our goal at Motley Fool Hidden Gems. Rather than track Apple, we're following the likes of Nuance Communications -- a company with voice recognition software that has the potential to drive the next technology boom.

Yet even Nuance -- a $4.3 billion company -- is probably too big to be one of the market's 10 best a decade from now. That's why we also highlight Tiny Gems -- companies capitalized at $200 million or less.

To look at all of the small-cap stocks we recommend today, click here to try Hidden Gems free for 30 days. You may not have heard of our companies; that's exactly the point.

This article was first published Dec. 26, 2007. It has been updated.

Tim Hanson does not own shares of any company mentioned in this article. Nuance Communications is a Hidden Gems pick. Apple is a Stock Advisor selection. Tyco, Microsoft, and Wal-Mart are Inside Value picks. Unilever is an Income Investor recommendation. The Motley Fool has a disclosure policy.


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