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These Are the Market's 10 Best Stocks

The best stocks? Is that really what I'm going to write about, after a year in which the S&P 500 dropped by nearly 40%?

It is, actually. You learn pretty rapidly in this business that the best way to make money in the market is to invest for the long term, and you recognize that volatility is part of the ride. And when you commit to the long term, you quickly discover that the stocks that offer the best returns today aren't well-known, widely owned names.

But I'm getting ahead of myself. Before I can get to the takeaway, I have to show you the data. This is a simple list of the top-performing stocks of the past 10 years. I compile this list at the end of every year, and every year, it yields the same fascinating insight:


Return, 1999-2008

Jan. 1, 1999, Market Cap

Hansen Natural


$53 million



$252 million

Quality Systems


$26 million

Clean Harbors


$16 million

Green Mountain Coffee Roasters


$19 million

Deckers Outdoor


$19 million

Almost Family


$9 million

Southwestern Energy


$187 million

FTI Consulting


$16 million

XTO Energy


$343 million

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

The trait that sets these stocks apart
What does an energy-drink maker (Hansen) have in common with a biotechnology leader (Celgene)? A home-nursing practitioner (Almost Family) with the makers of Ugg boots (Deckers)? A natural-gas driller (XTO) with some guys who sell java (Green Mountain)?

On the face of it, not much. But if you look closely, you'll see that these were all very small companies when their amazing stock market runs began.

To see just how important it is to start small in the market, take a look at the returns that the 10 best large caps offered over the same period of time:


Return, 1998 – 2008

Jan. 1, 1999, Market Cap

China Mobile (NYSE: CHL  )


$20 billion

BHP Billiton (NYSE: BHP  )


$16 billion



$19 billion

Royal Bank of Canada


$15 billion

Southern (NYSE: SO  )


$20 billion

Bank of Nova Scotia


$11 billion

ConocoPhillips (NYSE: COP  )


$11 billion

Rio Tinto (NYSE: RTP  )


$16 billion

Nike (NYSE: NKE  )


$12 billion

ExxonMobil (NYSE: XOM  )


$178 billion

*Data from Capital IQ and is adjusted for dividends.

Even after giving these companies credit for their hefty dividends, their returns still don't stack up.

Here's what's special about very small companies
And although companies such as Celgene and XTO are big-cap market darlings today, tracked and owned by big institutions such as Goldman Sachs and TIAA-CREF, and the New York State Common Retirement System, the next Celgene and the next XTO are being ignored and undervalued -- just as Celgene and XTO were 10 years ago! That's because companies like these are too small and too obscure to be worth Wall Street's "valuable" time.

So if you want to buy the best returns, you have to look at stocks today that are:

1. Ignored.

2. Obscure.

And, most of all:

3. Small.

That was the case at the end of 2005, 2006, and 2007 as well.

They're out there
At Motley Fool Hidden Gems, these are precisely the types of companies we spend our time looking for. Rather than tracking $22 billion Celgene, we follow Natus Medical, a $200 million maker of health screening products for newborns, in the health-care space.

Though Natus is small, we believe it's well managed, cash-conscious, and poised to take advantage of enormous market opportunities. That last point, after all, spurs the best small companies to grow big, and that's what we believe our Hidden Gems recommendations can do for your portfolio.

Your New Year's resolution
So take this lesson from the market's 10 best stocks, and put it to work in your portfolio this coming year by buying small caps. If you'd like some help doing just that, you can see all of our Hidden Gems research and recommendations by joining the service free for 30 days.

Click here for more information.

This article was first published Dec. 24, 2008. It has been updated.

Tim Hanson does not own shares of any company mentioned. Natus is a Motley Fool Hidden Gems recommendation. Quality Systems is a Stock Advisor pick. Southern and Bank of Nova Scotia are Income Investor choices. Hansen Natural is a Rule Breakers selection. This is the Fool's best disclosure policy.

Read/Post Comments (2) | Recommend This Article (34)

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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 22, 2009, at 3:08 PM, prginww wrote:

    This analysis simply looks 10 years back wilthout having made investment choices at that time. It's thus no surprise that the smallest super-companies, usually unidentified at the time, will outperform A more meaningful analysis would take the universe of small stocks 10 years ago and see what percentage of those outperformed vs the universe of large caps 10 years ago. Had we invested in an index of both universes back then, one would think that the large caps would have creamed the small! Better yet, how did M/F's 10 yr old small picks do vs its large cap picks?

  • Report this Comment On March 10, 2010, at 10:06 AM, prginww wrote:

    See my article on this subject for additional information;

    Other than low stock price .......stocks with greatest percentage increase over many years tend to share the following basic characteristics;

    (1) Business actually makes and sells a product or service for which there is already high demand in general. They find a way to offer a better product or service or offer the same product / service at lower price. This is different than many companies that have only conceptual ideas for products or services.

    (2) An appealing story line......highlighting even greater potential....... that attracts investors..... and speculators. Of course such attraction can easily result in high (inflated) stock price that skips way ahead of the fundamentals, followed by the predictable "correction".

    (3) Ability to bounce back from corrections due to fundamental demand for their product / service and sound management that remains focused on the fundamentals.

    As with any high reward potential........there is high risk of failure. Many (probably the vast majority) very-low-price stocks do not take off.......or end up at zero....which should be carefully considered by any investor.

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