Four minutes from now, you and I are going to make a bet -- and I can virtually guarantee you will lose.
But first I'm going to tell you something that may shock you, explain how it can lead you to the top 10 stocks of the next 365 days, and give you the names of two stocks our analysts are convinced will trounce the market over the coming year and beyond.
Up to the challenge?
Good. Let's start with a little warm-up exercise I do with anyone who asks me for a hot stock tip. Take the next minute or so to jot down a few stocks you think are among the top 10 stocks of the past 365 days.
Lately, most folks have been listing Research In Motion (Nasdaq: RIMM ) or Apple (Nasdaq: AAPL ) based purely on the fact that BlackBerrys and iPhones continue to fly off the shelves -- but I'm confident you're much smarter than that.
If Ford (NYSE: F ) , Schering-Plough (NYSE: SGP ) , or NetEase.com (Nasdaq: NTES ) made your list, you're on the right track. They were up anywhere between 35% and 63% over the past year -- yet none of them were even close to breaking the top 100 (you'll see why in a moment).
So, what did make the top 10? Let's have a look ...
|
Stock
|
52-Week Gain
|
Market Cap
|
|
HeartWare International
|
4,612%
|
$231 million
|
|
Vanda Pharmaceuticals
|
1,118%
|
$364 million
|
|
Diedrich Coffee
|
1,012%
|
$115 million
|
|
OncoGenex Pharmaceuticals
|
471%
|
$181 million
|
|
Dollar Thrifty Automotive
|
429%
|
$463 million
|
|
Kirkland's
|
384%
|
$263 million
|
|
China Green Agriculture
|
368%
|
$235 million
|
|
Dendreon
|
272%
|
$2.6 billion
|
|
Keryx Biopharmaceuticals
|
259%
|
$68 million
|
|
VocalTec Communications
|
242%
|
$9 million
|
Source: Google Finance.
Shocked?
Most people are. After all, these are companies most investors have never even heard of -- let alone seen on CNBC or read about in Fortune, Money, or Forbes.
Now, you might think this is some sort of anomaly caused by last year's near financial collapse, but it actually holds true year after year after year. That's because, as Motley Fool co-founder Tom Gardner points out, the next home run stock will almost always be:
- Small (market cap of less than $2 billion)
- Obscure
- Ignored
In fact, Tom Gardner launched our Motley Fool Hidden Gems small-cap stock service with one goal in mind -- to uncover well-managed, fast-growing, cash-generating businesses that are simply too small or too obscure for Wall Street analysts to cover.
Two Hidden Gems we're betting on now
Back in March, Tom handed $250,000 over to his two top small-cap analysts and tasked them with building a real-money, best-of-the-best small-cap portfolio.
Of the stocks Seth Jayson and Andy Cross have purchased so far (nine of 11 are in positive territory and three are up more than 50%), two that have particularly caught my eye are Dynamic Materials and Innophos.
Dynamic Materials is a dominant player in the highly specialized explosive metal-working industry. In fact, it's the biggest company of its kind in both North America and Europe -- and because this is a very hard industry to break into, it is highly unlikely major competitors will spring up anytime soon.
Meanwhile, Innophos makes specialty phosphates that are found in everything from sports drinks to toothpaste to asphalt. Like Dynamic Materials, it has relatively little competition. In fact, it controls as much as 40% of the $1.4 billion North American market.
Both companies have seen sales slow recently because of the economy, but are well-positioned to rocket upward once the recovery kicks into full gear.
The big payoff for you
Unlike household names Google (Nasdaq: GOOG ) and Verizon (NYSE: VZ ) , these companies aren't followed by dozens of Wall Street analysts -- meaning there is a much greater chance investors are misjudging their true value.
And whereas it would take another $145 billion for Google shares to double, were either of these small companies to gain even a hundredth of that amount, their shares should soar as much as 450% and 650% respectively.
Granted, I can't guarantee that either of these companies will be among the 10 top stocks of the next 365 days, but I will bet you that not a single large-cap stock (over $5 billion) will make the list.
Want a piece of that action?
If, despite everything I've told you, you're still convinced a big, well-known company will make the list, I challenge you to use the comment function below to tell us its name, ticker, and why you think it will outperform all the rest over the coming year.
I'll run the numbers 365 days from now, and if your large-cap makes the list, I'll write another article telling everyone that you won the bet. In the meantime, I urge you to spend some time searching for well-run, cash-generating businesses that are too small to show up on Wall Street's radar.
If you'd like a little help, you can get full access to all of our Hidden Gems small-cap research and stock picks -- including our real-money small-cap portfolio -- by taking a free 30-day trial.
There is no cost, nor any obligation to subscribe. All you have to do is click here.
Already subscribe to Hidden Gems? Log in at the top of this page.
Austin Edwards owns shares of Apple and Google. Dynamic Materials and Innophos are Motley Fool Hidden Gems recommendations. Apple is a Stock Advisor pick. Google and NetEase.com are Rule Breakers selections. China Green is a Global Gains choice. The Motley Fool owns shares of Dynamic Materials and Innophos. The Motley Fool is investors writing for investors, and has a disclosure policy.
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