It's the Market's 10 Best Stocks

It's an email we get all the time from Motley Fool readers like you:

I have a problem. I just came into some money and want to invest it. I have at least 10 years before I expect to need it. What should I buy?

It goes without saying that this is a great problem to have and, even better, there’s a clear answer to the question.

But before I get to the answer, I want to show you why it’s the answer. And to do that, we have to go back in time 10 years.

Fire up the flux capacitor
One of the best ways to learn how to invest successfully is to study how others have invested successfully in the past. This means reading the letters of master investors like Warren Buffett and Bruce Berkowitz as well as studying companies -- such as Apple (Nasdaq: AAPL  ) and Altria (NYSE: MO  ) -- that have produced incredible returns for longtime investors.

It’s with that last aim in mind that, at the end of each year, I compile a list of the top-performing stocks over the trailing 10-year period. By looking at this collection of massive outperformers, I hope to learn where I might find the massive outperformers of the next 10 years.

With that as background, let’s take a look at this year’s list:

Company

Return, 2000 to 2009

Medifast (NYSE: MED  )

9,244%

Green Mountain Coffee Roasters (Nasdaq: GMCR  )

7,342%

XTO Energy (NYSE: XTO  )

6,988%

Hansen Natural (Nasdaq: HANS  )

6,563%

Bally Technologies

5,407%

Southwestern Energy

5,269%

Terra Nitrogen (NYSE: TNH  )

4,752%

Contango Oil & Gas

4,452%

Clean Harbors

4,424%

Amedisys

4,208%

Data from Capital IQ, a division of Standard & Poor’s, through Dec. 15, 2009.

What does the maker of the Keurig coffee machine (Green Mountain) have to do with an energy play recently acquired by ExxonMobil? The answer is not obvious until you see this:

Company

Market Cap, 2000

Medifast

$2 million

Green Mountain

$27 million

XTO Energy

$427 million

Hansen Natural

$43 million

Bally Technologies

$31 million

Southwestern Energy

$165 million

Terra Nitrogen

$93 million

Contango Oil & Gas

$6 million

Clean Harbors

$14 million

Amedisys

$4 million

Data from Capital IQ.

The secret to investing success
What did all of these incredible outperformers have in common when their amazing runs began? They were all very small companies. And where should you be investing at least a portion of your money for the next 10 years? In very small companies.

That’s because despite their growth potential, these stocks are overlooked by analysts, investors, and the media alike. That creates mispricings in the marketplace -- and when you combine mispricings and growth, you get the opportunity for super returns.

So if you want to buy the stocks that offer the best potential returns, you need to look past megacaps like Coca-Cola and dig into the depths of the market to find a former small fry like Hansen Natural -- a stock that was once called “the next Coke.”

But don’t misinterpret me. I don’t want you to go gambling on penny stocks. Rather, I want you to go out and find very small companies that have clear growth strategies and a track record of actually making money for shareholders. Because it’s only by combining potential and quality that you might find one of the 10 best stocks of the next 10 years.

They're out there
This is precisely what we’ve set out to do at Motley Fool Hidden Gems, our small-cap research service, where we put real money behind our top picks. And while I could tell you what those picks are, chances are you haven’t heard of them anyway. That’s because they’re all:

1. Obscure
2. Ignored

And most importantly ...

3. Small

But if you'd like to find out anyway -- no matter how small they are -- you can take a free, 30-day trial of Hidden Gems. Just click here to get started.

Tim Hanson does not own shares of any company mentioned. Apple is a Motley Fool Stock Advisor recommendation. Green Mountain is and Hansen Natural are Rule Breakers picks. The Motley Fool owns shares of XTO. Our disclosure policy is one of the top 10 disclosure policies of the last 10 years on this here Internet.


Read/Post Comments (26) | Recommend This Article (145)

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 December 23, 2009, at 8:08 AM, HidalgoTradingCo wrote:

    To leave Marvel (MVL) Entertainment off this list is downright silly. Exselsior!

  • Report this Comment On December 23, 2009, at 8:42 AM, OutofFavor wrote:

    MVL only returned 1100% in the last 10 years. If this article was written a little later, it would possibly qualify, since it's price dropped dramatically later in 2000 and 1st quarter of 2001.

  • Report this Comment On December 23, 2009, at 12:54 PM, GigaMistake wrote:

    I don't know why this site is referenced by some "real"

    websites. I bought GIGM based on its recommendation, my bad. Who's writing this site, some comedians?

  • Report this Comment On December 23, 2009, at 1:10 PM, plange01 wrote:

    in spite of a lot of recent publicity it is still very unlikely ford will survive through 2010.the now 11 month old depression in the US is getting worse by the day as seen in the the rise of unemployment,bankruptcys,inflation and energy prices.ford is doing far better than GM and chrysler with both of them sure to close in the next 6 months or less..

  • Report this Comment On December 23, 2009, at 1:45 PM, plange01 wrote:

    rising unemployment has hurt the largest uniform company cintas earnings which are expected to continue to decline as the now 11 month old depression in the US claims more jobs....

  • Report this Comment On December 23, 2009, at 5:31 PM, GooGoo66 wrote:

    plange01,

    "...the sky is falling, the sky is falling..."

  • Report this Comment On December 23, 2009, at 7:48 PM, jbrt wrote:

    SEEMS YOU OVERLOOKED BZ

  • Report this Comment On December 23, 2009, at 8:49 PM, Fool wrote:

    Hopefully when I finally begin to invest these picks will be paying off in ten years.

  • Report this Comment On December 24, 2009, at 12:58 AM, ET69 wrote:

    googoo66,

    The sky just might be falling! Don't be so over confident.

  • Report this Comment On December 24, 2009, at 1:15 AM, jamezparker wrote:

    Hi

    Great information and this collection of massive out performers, I hope to learn where I might find the massive out performers of the next 10 years.

    http://www.bid66.com

  • Report this Comment On December 24, 2009, at 12:15 PM, SylviaBlum wrote:

    What do you do about the perenial Hidden Gems problem of your announcement causing everyone to buy into the stock forcing the purchase price to increase hugely in a few short hours. Unfortunately , your subscribers end up buying your recommendation at a much higher price than you have purchased it for and therefore never achieve the returns that you do.

  • Report this Comment On December 24, 2009, at 9:53 PM, bikingdoc wrote:

    what not's mentioned in this piece of shameless self-promotion is the minor detail is that the vast majority of low-priced, under-followed stocks don't succeed!

    The deception here is cherry-picking some of the few that have done well, while blithely ignoring the denominator!

  • Report this Comment On December 25, 2009, at 12:30 AM, WishToRetire2 wrote:

    Right you are, bikingdoc. We now have the answer to everything as follows "Whatever you wish to do, just make sure you do it successfully." Why it's so simple!! How come I never thought of that before? Why here I was always whenever I invested in something I forgot to get in a time machine to be able to bring back a nice table of stocks that look good in hindsight like the ones shown above. Silly me.

  • Report this Comment On December 26, 2009, at 7:50 AM, kalimon789123 wrote:

    Ooh Ooh - I have a better idea, I think I could get the results of some sports events and and a few horse races from the last 10 years , It's so OBVIOUS looking backwards into the past.

    May I borrow your time machine "WishToRetire2".

    I 'll give it back yesterday.

  • Report this Comment On December 29, 2009, at 5:48 AM, dantefromsomm wrote:

    wow some people obviously have a hard time getting the point of the article.

  • Report this Comment On December 29, 2009, at 6:40 AM, ayaghsizian wrote:

    By subscribing to HIDDEN GEMS, does anyone gain any special knowledge about some stocks that they couldn't find the same info on the regular website.

    Under Armour (UA) for example was a pick on HIDDEN GEMS and it was explained why it was a pick, but I don't know if I actually learned anything about the company that I wouldn't have learned elsewhere.

    Any Opinions???

  • Report this Comment On December 29, 2009, at 8:20 AM, peytie1 wrote:

    I am sooooooooooooooooo tired of the Motley Fool. They remind of the well known concept in history that it was never the gold diggers prospecting for gold that struck it rich. No, the tin panners were a sad lot but the people that sold them the pans, shovels, high priced food, clothing, (ever heard of Levi Strauss)?

    That is what the fool does. They have a few winners and anyone could when the Motley Greed, Oops I mean fool became prominent, The Mfool came of age as a result of the stock boom of the nineties. They were getting dangerous. They even wrote a long winded column about what stocks to buy your mom for mom's day. One was Real Networks? Now that was a winner. And the Motley Fool always claims that they beat the market. Well, anyone can beat the market if they can sell their losers quickly and cherry pick the most likely winners. THe market does not do that. The market does not know the difference between winners and losers. When people realize that one, among many glaring fallacies about the MF they will hopefully stop paying these guys so much money. Oh yeah, the Motley Fool also recomended Krispy Kreme Donuts, Resources Connect, MRH, The Knot and so many more stocks that ARE NOW in the dreaded penny stock category.

    SL

  • Report this Comment On December 29, 2009, at 1:33 PM, canadacomments wrote:

    To peytie1

    If you are so tired, why are you here? Surely your time could be better spent, searching all the other sources of information for the best stock picks. No one is ever 100% correct when it comes to stock investing, but I and many others are quite happy with the advice we receive here. (I also investigate stocks using other means, which I suspect most other users of this site do.) Try a more positive outlook on life. It will keep your ulcers under control!

  • Report this Comment On December 29, 2009, at 10:37 PM, Chinastocks55 wrote:

    PUDA: Puda Coal

    China energy blue chip.

    Here is their stock page in the NY Times.

    http://topics.nytimes.com/top/news/business/companies/puda-c...

  • Report this Comment On January 03, 2010, at 6:19 PM, 1caflash wrote:

    I enjoy writing about INVESTING and these fine folks give me opportunities. THANK YOU! Here are Two Ideas. Real Estate Investment Trusts historically try giving shareholders distributions, so I bought into Winthrop Realty Trust within the last two months. Homework was done, my financial advisor said "Good Luck", but I made the investment. "FUR" is performing well and I'll receive my first distribution mid-January. It has under 25 Million Tradeable Shares. E-Future Technology [EFUT] is another Investment I won't sell. Its time will come. There are under 4 Million Tradeable shares. Its Management Team solved accounting problems and the company is helping great INTERNATIONAL Businesses gain market share in the ASIA-PACIFIC! EFUT grew a bit too rapidly before World-Wide Woes hit, however this small firm is poised for SUCCESS. If You Agree with me, then Buy these Investments using Limit Orders.

  • Report this Comment On January 04, 2010, at 7:55 AM, Fool wrote:

    MF is a waste of your hard earned $$$$$. I was paying then big bucks for their picks in their dividend paying service. I had a bundle in one of their picks ACAS. They were recommending it right up to the minute they cut their dividend and went from near $50/share to $2/share.

  • Report this Comment On February 17, 2010, at 7:52 AM, VGFORBES wrote:

    Seems like some sour grapes here, No recommendation is foolproof (no pun intended) the only thing I'd like to see is a more recent snapshot or even a year by year chart of MF performance.

    Also cudos to MF..I dumped Netflix because it's price just kept falling and falling and falling Then a few days after I sold....up she goes like a rocket ,,still dont trust the stock, but thats my choice...I did however take a big swing at apple that was scarey for a few days....

    What do I like vlkay,pk and for a flier something in REE BOTTOM LINE all the research in the world wont change the fact that the stock market is the world's largest legalized gambling game in existance...we're shootin' craps here

  • Report this Comment On March 16, 2010, at 4:49 PM, MotleyFoolster wrote:

    how about the 1,000 small caps that went to $0 for every one of these 10 mega winners?

  • Report this Comment On May 06, 2010, at 5:25 AM, Mstinterestinman wrote:

    Any company has risks thats why the fundamentals and closely following are so vital if you cant actively manage your investments buy an index fund.

  • Report this Comment On January 09, 2012, at 12:38 PM, gslusher wrote:

    @plange01:

    "in spite of a lot of recent publicity it is still very unlikely ford will survive through 2010.the now 11 month old depression in the US is getting worse by the day as seen in the the rise of unemployment,bankruptcys,inflation and energy prices.ford is doing far better than GM and chrysler with both of them sure to close in the next 6 months or less.."

    Well, it's now January, 2012, more than two years after you wrote your prediction. Ford is UP a bit from the date of your post, though it was up even more (more than 80%) in early 2011. GM is still around, as is Chrysler. I hope you aren't making any more such predictions. 0 for 3 is not a good record.

  • Report this Comment On February 18, 2012, at 4:12 PM, Rafinator wrote:

    do yourself a favour and learn how to invest on your own:

    www.cashmoneyinvesting.com

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