The Stocks You Should Own

We senior analysts here have a terrible habit of landing ourselves on the opposite side of the table from our boss, Motley Fool CEO and co-founder Tom Gardner.

Tom recently asked several of us to present him with a batch of stock ideas. We proceeded to spend the next week furiously burrowing through piles of quarterly reports, conference-call transcripts, and Fool articles. The result? We produced a small list of well-known, undervalued large caps.

After making a pitch for one of these slow-growing behemoths, Tom asked us a deceptively difficult question: "Say this stock moves up to your estimate of intrinsic value next quarter. What then?"

Though a seemingly simple question, like most of Tom's probing queries, his point centered on an underlying investing lesson.

What we had overlooked
Tom's unspoken point was that sustainable, market-smashing returns are not simply earned from riding large, undervalued stocks back to their fair value. Rather, long-run outperformance is best achieved by investing in growing, well-run companies that consistently increase shareholder value.

The question then becomes where to find such promising companies. For individual investors like you and us, our best shot at thoroughly beating the market is with small-cap stocks.

Before you say it's too risky ...
When it comes to small-cap stocks, we as individual investors have many advantages over Wall Street. One reason is that Wall Street focuses on large-cap stocks because they naturally attract more investor (read: institutional investor) interest, and there's thus greater demand for Wall Street's research.

While the wingtip-wearers upgrade and downgrade the same large stocks over and again to the delight of their customers, they're simultaneously ignoring promising stocks -- small caps -- that their customers don't care to know about.

Right under our noses
Though these are the stocks you should own, some will argue that it's impossible to spot big winners while they're small. We think that's rubbish.

Consider that one of the best-performing stocks of the past 10 years, Green Mountain Coffee Roasters, shared some similar traits with past small-cap winners such as Wal-Mart (NYSE: WMT  ) and Dell (Nasdaq: DELL  ) . Each had:

  1. Dedicated founders with large personal stakes.
  2. A solid asset base with little or no debt.
  3. Dominant positioning in a profitable niche.
  4. Plenty of room to grow.

By limiting our search to small caps that fall into these categories, we can improve our chances of finding big winners. The alternative, of course, is to go head-to-head with the throngs of Wall Street analysts who are all vying to find the best large-cap opportunities where the potential rewards are a bit lackluster.

For example, here are five of the top-performing large caps since April 1998:

Company

Total Return, April 1998 to Present

Oracle (NASDAQ:ORCL)

396%

ConocoPhillips (NYSE:COP)

353%

UnitedHealth Group (NYSE:UNH)

302%

Caterpillar (NYSE:CAT)

278%

Deere (NYSE:DE)

277%

Source: Capital IQ, a division of Standard & Poor's.

Sure, these returns aren't too shabby, but they pale in comparison with the 2,450% return that Green Mountain Coffee posted over the same period. For those of you playing at home, a $1,000 investment in Green Mountain in April 1998 would be worth approximately $25,500 today.

Lost in the desert on a horse with no name
For individual investors without a team of Wall Street analysts doing research for you, the prospect of digging around the financial statements of small-cap stocks may seem futile. It's not. It just takes an extra pinch of effort to uncover these potential winners and a splash of patience to let them grow.

If you need some help getting started on this adventure, our Motley Fool Hidden Gems small-cap team is here to help. They look for promising small stocks that share the same qualities as those we discussed above. Taking that approach led them to commercial-oven maker Middleby in 2003. In Middleby, they saw a growing $170 million business with nearly 50% insider ownership, free cash flow generation, and a solid balance sheet. Middleby shares have since gained nearly 600% for Hidden Gems subscribers.

If you'd like to see the rest of the Hidden Gems picks, a free 30-day trial to the service is yours. Just click here to get started.

Neither of these Fools, Joe nor Todd, owns shares of any companies mentioned in this piece. UnitedHealth, Wal-Mart, and Dell are Inside Value recommendations, and Dell is a former Stock Advisor recommendation. The Motley Fool has a disclosure policy.


Read/Post Comments (63) | Recommend This Article (199)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 09, 2008, at 1:04 PM, sfalise wrote:

    If I see an email in my inbox with the title "The Stocks You Should Own" and I open it only to find yet another sales pitch, I get disappointed - when it happens nearly every other day, while my current Motley Fool recommended stocks are languishing, well, I start to get a bit pissed off.

  • Report this Comment On May 09, 2008, at 1:21 PM, marcussba wrote:

    I agree. It's pretty sad that the Fool seems to spend most of their time bombarding me with fly-by-night sounding email sales pitches for yet another expensive "stock picker" membership.

  • Report this Comment On May 09, 2008, at 2:33 PM, lerej wrote:

    While "Stock Advisor" has helped me greatly I would also love to stop getting the pitches day in and day out. Articles are one thing, but the relentless pitch for a service i already bought gets redundant.

  • Report this Comment On May 09, 2008, at 2:57 PM, rmcelhose wrote:

    I agree with lerej, "Stock Advisor has helped me become more educated, but the dayly sales pitches for services I already have is waisting my time. Tone it down..

  • Report this Comment On May 09, 2008, at 3:10 PM, Vermeer14331 wrote:

    I agree, the ads are really irritating and a primary reason I ended a subscription.

  • Report this Comment On May 09, 2008, at 3:35 PM, redduck wrote:

    I agree, even thought I am a new member i am already tired of the sales pitches. Sell me a package deal don't nickle and dime me to death

  • Report this Comment On May 09, 2008, at 3:53 PM, aaplover wrote:

    yup too many sales pitches. Or the sales pitches are priced too high. Make some more discounts for your other unit stock picks like inside value, etc.. Then then the sales pitches become relevant again.

    great wisdom given by fools.

  • Report this Comment On May 09, 2008, at 4:14 PM, DesmondBhimull wrote:

    seriously guys, enough with the sales pitches. Theres more than enough of them and it is getting annoying for those of us who are already paying for a service.

  • Report this Comment On May 09, 2008, at 4:20 PM, Jazzbo1 wrote:

    When I joined Motley Fool I assumed I would be entitled to all your info, not asked to subscribe to further undisclosed info which should be freely available to all members. I intend to let my subscription lapse.

    Ken Irving

  • Report this Comment On May 09, 2008, at 5:11 PM, mhanna327 wrote:

    I totally agree with the above concerning another sales pitch. I too thought I would be privy to some good information with my two (2) subsciptions. Fool me a third time. I don't think so, Fool.

  • Report this Comment On May 09, 2008, at 5:16 PM, nbrskn wrote:

    Let me also vote for less "spam". I subscribed to one of the offerings about 1 year ago and very shortly thereafter cancelled. Since resubscribing recently I now remember why I had cancelled.

  • Report this Comment On May 09, 2008, at 5:20 PM, hcovarrubias wrote:

    I agree with the above. I just joined and can´t keep up with all the sales pitching, only to find out you recommended not one stock.

  • Report this Comment On May 09, 2008, at 5:25 PM, stepmor wrote:

    to many sales pitches,thought i already paid for your services,just the tip of the iceberg

  • Report this Comment On May 09, 2008, at 6:19 PM, XYXOXY1 wrote:

    Good points all...

    I just cancelled my subscription.

    I'm better off with a copy of the Journal and a dart board.

    By the way I have some really good thoughts on some big money maker stocks and for only a small fee I'd be happy to....

    ahh... nevermind.

    I can't even keep a straight face.

  • Report this Comment On May 09, 2008, at 8:05 PM, HA65MPH wrote:

    EVERY ONE IS EXPRESSING WHAT I THINK AS WELL ABOUT 'FOOLS DROOLS''..ENOUGH ALREADY WITH THE NO-RISK SPAM !

  • Report this Comment On May 09, 2008, at 8:20 PM, bjam3b1g wrote:

    I can get better advice watching you know who on tv for free. Advise me stock advisor.

  • Report this Comment On May 09, 2008, at 9:30 PM, jackandjetta wrote:

    Amen.

  • Report this Comment On May 09, 2008, at 10:11 PM, RstUrJaws wrote:

    Thinking maybe the "Jester" is running the show. I haven't seen much in original thinking, guess maybe expecting the advisor to be as good as the hype was a little -- FOOLISH-- .

  • Report this Comment On May 09, 2008, at 10:17 PM, TYLERCLAYT wrote:

    Lets get some solid recommendations rather than endless sales pitches. It is time to earn all the money you are making.

  • Report this Comment On May 09, 2008, at 10:25 PM, TonyB007 wrote:

    Seems I'm not the only one tired of the special tips if I join...I already have and would rather get real info and guidance on where to look for good investments.No more sales pitches,please...

  • Report this Comment On May 09, 2008, at 11:26 PM, faustrl wrote:

    Amen Again!!!

  • Report this Comment On May 10, 2008, at 12:13 AM, Vesta108 wrote:

    Please offer us a package deal and no more endless e-mails. I run out of time to study investing, because the time is spent combing through your e-mails to find out which of them lead to the real information and which are just another teaser enticing me to buy another newsletter I can't live without. The truth is: I would love 3-4 of them, but can't do so at the full price.

  • Report this Comment On May 10, 2008, at 12:35 AM, lorjim55 wrote:

    Just clicked on the link below re: 2 stocks. Now I know, being a new subscriber, what everyone above is talking about!! I already paid for the subsrp. and I still do not get the names of those two stocks.

    VERY FRUSTATING!!!

  • Report this Comment On May 10, 2008, at 12:53 AM, WIN22 wrote:

    Unlike most postings, I have benefited from the Fool's recommendations. I choose stocks to invest in mostly based on the product or service they provide as long as their market is expanding. I select those from the Fool's suggestions knowing the Fools have checked out the details

  • Report this Comment On May 10, 2008, at 1:57 AM, Inn2orbit wrote:

    sfalise et al- Yes, I must agree with all of you. I am a new member (trial basis)and hoped to be impressed enough to continue after the 30 day trial, but am as annoyed as all of you with the constant pitches to buy other products; more so because of the way they back into the pitch for yet another 'must have' product for building a successful portfolio. The 'teaser' mention of past choices in the product, then saying "to see more" of these-sign up for yet another 'free trial' leaves one with a feeling of being 'had'.

  • Report this Comment On May 10, 2008, at 7:13 AM, plawson382 wrote:

    Enough, I have MDP And Hidden Gems, can't keep up. Daily sales pitch for additional services. Thought that's why I paid for...................

  • Report this Comment On May 10, 2008, at 10:27 AM, dpfsharkbait100 wrote:

    I agree with the majority. The 5 page sales pitch is really annoying, especially to those of us already spending money for their services. People with active, paid subscriptions should be able to opt out of the ads, or at the very least have the ads "earmarked" to identify them as ads. I can't even tell when I get an e-mail that has real "paid for" information in it anymore.

  • Report this Comment On May 10, 2008, at 11:32 AM, dean37 wrote:

    I would appreciate your not sending so many advertisements, including your invitation to Hidden Gems. Regarding this new commodity, it annoys me that you should separate ANY recommendations from Stock Advisor.

  • Report this Comment On May 10, 2008, at 2:52 PM, rongs41 wrote:

    second time I subscribed. will be the second time I cancel my subscription. I don't need all the sales pitches, I thought i would be getting worthwhile advice. Again i am not satisfied with the information which is shared. I don't want to buy any more products

  • Report this Comment On May 10, 2008, at 2:54 PM, donklenzman wrote:

    MF was a source of education and specific information, a source of tips; now a source of teasers which one may see for a fee.

    OK occasionlly, but every e-mail message, come on!

    This will eventually become counterproductive as your messages will be treated as spam and your source of revenue will be renewals from current subscribers.

    Don - exsubscriber.

  • Report this Comment On May 10, 2008, at 4:02 PM, kyddfool wrote:

    It's ok up to a point; I (have) subscribed to one or two of the MF subscriptions; and have done well with those recommendations. I don't expect alot of something for nothing. On the other hand, cut the number of what you offer and lower the price so we can all afford to have fun together!

  • Report this Comment On May 10, 2008, at 4:24 PM, GlenAdvocate wrote:

    The Motley Fool radio show was the single most helpful element in giving me the confidence and courage to build my own portfolio. Current events impact on investments, interviews and especially questions from other 'Fools' to which I could relate were enormously helpful.

    It seems to have disappeared some time ago, with the promise to revamp and restore it. To my way of learning, it was the best thing you guys had going for you.

    -Glen Advocate

  • Report this Comment On May 10, 2008, at 8:18 PM, ilangovan wrote:

    Motely Fool Has become another one of those money making for themselves outfit.

    All your criticisms of others have come to haunt you and people who have been fooled already are running away from you as fast as they can.

    Make all the money fast before every one realizes you too Brutus!!!!

  • Report this Comment On May 10, 2008, at 10:25 PM, adammmk wrote:

    i can't stand the constant adds! and some of these stocks i picked for the caps thing...and my score suxs now....jerks...

  • Report this Comment On May 10, 2008, at 11:42 PM, babared wrote:

    I agree with so many others. My MF picks are sinking, and it is annoying to receive the relentless pitch for yet another MF product. I remember when it was free and then came the email pitch that offered the free trial....include my credit card to be billed...blah blah.

    Funny how a MF picked stock is not mentioned in their "picks" any more.....

    I am disappointed.

  • Report this Comment On May 11, 2008, at 1:47 AM, etihwttam wrote:

    Yes, I agree, too. I'm a long time Fool and a huge fan of TMF. I followed their radio show religiously and really appreciated the down to earth, fair advice for non-experts like me. However, there has been a shift to hype and over-advertising in the last few years. I'm still a MF fan, but don't appreciate all the ads. I've told them so several times. Maybe it will help to be as repetitive with my pleas as they are with their pitches.

  • Report this Comment On May 11, 2008, at 11:13 AM, sfalise wrote:

    For another good example of what has happened to the fool lately, look at the ad that immediately precedes this comments section "Special Offer for Motley Fool Members...". Anyone who's been around here for more than a month knows that the "Million Dollar Portfolio" is no "One Time Opportunity"!! They have been hard-selling this "opportunity" for the last couple of months! I don't like being treated like a SUCKER by a company which, in the past, I've trusted to provide a professional service. I am going to show my disapproval of these tactics by canceling my Rule Breaker's subscription on Monday morning.

  • Report this Comment On May 11, 2008, at 12:01 PM, wordmerchant wrote:

    I agree with all of the above--specially the Russky

  • Report this Comment On May 11, 2008, at 2:06 PM, qfactor wrote:

    Yes ... too many sales pitches. Us members subscribe to minimize our time invested to make sound decisions in investing. Having to sort through all the sales pitches is counter to the logic used to join the Fool.

  • Report this Comment On May 11, 2008, at 2:07 PM, Dylanmom wrote:

    Hmmm, wonder if the Fools and Jesters even read these e-mails to know of their customers's dissatisfactions.

    I do believe there is a way to opt out of these e-mails, and I intend to do it today.

  • Report this Comment On May 11, 2008, at 8:44 PM, onehopefulone wrote:

    I do believe that the Motley Fool does a complete disservice to all of the members when you advertise a particular stock that you are not willing to recommend as part of any premium service. You shold be ashamed. If in fact there is a disclosure policy, should it not include information regarding any payments that your recieve for pitching any particular stock!

    DONALD R. COOK

    onehopefulone

  • Report this Comment On May 12, 2008, at 11:51 AM, comtronix wrote:

    "Fool" is a correct name for this company. I am fed up with the pages of lead in and boasting of how great the recommended company is and then when you expect to finally find out "who" they are talking about, you get the "subscribe here" or "pay here" links.

    The "Fool" is nothing but a 21st century version of the "Pyramid Scheme". Buy MY advice and after you subscribe, you get 10 more "advisors" to say "Buy my advice", etc....etc...

    The only people making any money are the ones selling "advice", hint, hint!

  • Report this Comment On May 12, 2008, at 12:55 PM, windyhill8 wrote:

    We signed up for a subscription to Stock Advisor, expecting Valid Stock Tips.Thank you for a few,Now please continue! If your have us on your contact list, we ALREADY subscribe to you publication.Concentrate on Stock Advising, not Advertising.I can get that for FREE!!

    Windy Hill

  • Report this Comment On May 12, 2008, at 3:58 PM, Paulieherm wrote:

    I agree with the comments regarding the sales pitch we get from MF on almost a daily basis. I subscribe to three of your newsletters and that may be three too many if the sales pitches keep coming.

  • Report this Comment On May 12, 2008, at 6:55 PM, samrock03 wrote:

    years ago when i first joined the fool, i don't believe there were fees for anything the only money wanted was to buy fool books. now it seems as if your getting charged for everything.

  • Report this Comment On May 13, 2008, at 1:37 PM, swantoon wrote:

    I'm especially interested in the comments above this.

    Everything seems to be an "add on".

    Dissapointed.

  • Report this Comment On May 13, 2008, at 3:41 PM, Chgallos wrote:

    I can't believe what I'm reading. You don't have to cancel your paid-for news letter in order to stop the Fool Updates. Holy cow! just look all the way at the bottom and click the "unsubscribe" button. It will take you off the mailing list of "FoolWatch Weekly" or whatever you are complaining about.

  • Report this Comment On May 13, 2008, at 6:31 PM, repo47 wrote:

    I too, am tired of these sales pitches. I don't care about what picks were made in 1998 or what stocks were trading at right after World War II. I want present data, not past history. Tell me something new. I don't care what some lay person is saying about the stock. I want to hear it from the pros. If you all can't do that, then why should I continue with at all. Why don't you just go ahead and cancel my order, come to think of it.

  • Report this Comment On May 15, 2008, at 8:57 AM, jimlamarche wrote:

    i tought if i joined i would have access to a portfolio,i belive i have seen it once and i bought some stock and never seen it agan. i also am interested in your million dollor club but i am not sure i have enough mony to join and would like someones advice.

  • Report this Comment On May 15, 2008, at 10:57 AM, zadnor wrote:

    I can only second, or forty-second, the no-more-sales pitches sentiment. I am inclined to cancel my subscription just so I can put a spam block on Fool correspondence.

  • Report this Comment On May 15, 2008, at 9:55 PM, Kay126 wrote:

    I totally agree with previous comments and I think that this "service" I paid for is not only irritating but practically useless.

  • Report this Comment On May 25, 2008, at 11:49 AM, nafeesalam wrote:

    It is really irritating to get a new sales picth everyday in my mail box. However, I do not get any new information I hardly recieve any new materials with the paid subsciption I have. I do not think I will be renewing my subscription at the end of the term.

  • Report this Comment On July 29, 2008, at 7:17 PM, dunrob wrote:

    I had a sports service that had all kinds of pitches, but no winners? A little disappointed I was taken in by the The Fools hype.

  • Report this Comment On September 09, 2008, at 7:55 AM, globalHOBBIT wrote:

    I agree, here now it's Sept 2008 and the email with the sales pitches are still coming. If I get one more "China.... which stocks to buy to become rich I'll go nuts. Enough.

  • Report this Comment On November 12, 2008, at 7:23 PM, myoldfool wrote:

    Why doesn't someone just go to the hidden gems and then post them, that would stop all this, what are the 5 stocks, we want to know!

  • Report this Comment On December 12, 2008, at 2:54 PM, integrityengr wrote:

    Agree with the masses - Fool sends WAY too many "buy more" emails and virtually no substantative info - I have virtually quit reading anything from Fool since the email fools me and is nothing more than a long winded sales pitch, with no substance. Disappointing MF aproach. Perhaps all us "fools" should seek a bailout from Fool or at least a refund - MF is definitely NOT a good RoI for us; but, guess it would be nice if we could get folks to pay us for the privilege of getting more leading articles that are disguised as asking for more money ... .

  • Report this Comment On December 30, 2008, at 12:06 PM, AlSoFooled wrote:

    I think the continued endorsement of flops like Whole Foods says it all. Maybe WFM is receiving Foolish endorsements as a kickback for subscribing to every MF-ing service Fool offers.

  • Report this Comment On January 29, 2009, at 11:40 PM, tatooedagain wrote:

    I am new but I already agree with ALL these unhappy investors....Can't you guys see the light??? Everyone wants to "SEE THE BABY" they don't want you telling them about the pains and the morning sickness..we paid (at least we thought) for stocks that you had researched and tell us why after research we could buy a few shares....Your game is like secret fraternity with no benefits You want us to pay more for a secret "WORD' that is not what you promised .....you are close to a scam...signed tatooedagain

  • Report this Comment On March 07, 2009, at 3:09 PM, positivepop wrote:

    I agree with all of the other disgruntled fools that are disappointed in the "value", or lack thereof, in the services that we thought we were purchasing. And the obnoxiously constant "salespitches" that waste our precious time and money. (I truly want to believe, to trust and to prosper, and invest instead of speculate.) But, "I hear what you say, and I see what you do." Greed is as greed does. My beloved grandfather used to say that a man is only as good as his word. So, come on fools, give us true value, and stop insulting us with this no count foolishness.

  • Report this Comment On March 19, 2009, at 9:35 AM, tellsteve wrote:

    Yeah..... I feel like I have purchased to right to be sold an endless supply of advise, extremely ala carte. I love the show but am sorely disappointed with the service. Count me out at the end of my 30 days.

    One price for all advice!

    One price for all advice!

    One price for all advice!

    One price for all advice!

    One price for all advice!

  • Report this Comment On March 19, 2009, at 11:29 AM, catcharlie wrote:

    FRUSTRATION TO BE SURE. WHO HAS TIME TO

    PLOW THROUGH ALL THE EMAILS?? GIVE US

    CONCISE ADVISE!

  • Report this Comment On March 19, 2009, at 12:16 PM, foolishlymeek wrote:

    I am also frustrated with the emails. I do appreciate the articles giving me one or two stock picks, but not at the cost of reading "If you would like more information on . . . ."

    For those who want all the infomation for one price, MF does have a new service called Duke Street. Duke Street allows members to join in on discussions with CEOs, to visit MF in Virginia, and to received ALL newsletters and special reports from all the services. All for one small price - $5,000 a year.

    I was very interested in the service, until I saw the price. MF, if you would just put together a package that allows members to receive all services and special reports, from the above comments, many members would be very interested. (I really don't have a lot of time to visit Virginia or to sit in on converstions with CEOs. I need to earn money to pay for my four subscriptions! :) )

    My stocks are not doing much better than the S&P. Some that MF has recommended are doing very well (Middleby, UNH) but returns do not exceed the price of the premium services.

  • Report this Comment On March 31, 2009, at 10:01 PM, MJ981 wrote:

    I agree with all the above. I am very disappointed because I felt I was buying a service from some folks with integrity. Turns out I'm getting nothing but come ons that feel like greed. I intend to cancel soon.

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