The Market's 10 Best Stocks Revealed

As investors, even in volatile times like these, we want to put the best stocks in our portfolios for the long term.

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And although the retailers from last year's list have dropped from the top 10, they've been replaced by names such as Asta Funding and Green Mountain Coffee Roasters, which drive home the exact same takeaway!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, Hansen was a boutique drink maker with little more than $40 million in annual revenue. To find its products, you generally had to shop at your local natural foods store -- if you even had one. Today, it's a $1 billion-per-year business that has a distribution deal with Anheuser-Busch (NYSE: BUD  ) and sells its products nationwide through big names such as Costco (Nasdaq: COST  ) , Kroger (NYSE: KR  ) , and Safeway (NYSE: SWY  ) .

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. Thirty-three analysts cover the company, even though it's become a $77 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 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

169%

$240 billion

Unilever (NYSE: UL  )

148%

$211 billion

Tyco

260%

$179 billion

Microsoft

228%

$156 billion

ExxonMobil

362%

$151 billion

Altria (NYSE: MO  )

228%

$110 billion

Toyota (NYSE: TM  )

118%

$109 billion

Procter & Gamble

209%

$107 billion

IBM

201%

$102 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 turf-maintenance-equipment maker Toro.

Yet even Toro -- a $1 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. Toro is a Motley Fool Hidden Gems pick. Apple and Costco are Stock Advisor selections. Tyco and Microsoft are Inside Value picks. Unilever is an Income Investor recommendation. The Motley Fool has a disclosure policy.


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