These Will Be the Market's Next Big Movers

Lately, everyone from my best friend to the French woman who cuts my hair has been asking me what I think they should do with their money.

And these are the same people who, up until a couple of months ago, would have much rather spent 30 minutes talking about socks than having to listen to me talk about stocks for even three.

Now, suddenly, they're willing to give up Patriots season tickets and Caribbean vacations to get into the market -- and that shows me that people are finally starting to believe that buying stocks can build wealth again.

So what am I telling them?
First off, I'm saying that I'm no expert, and that there's no telling if the market can continue along this trajectory without a serious pullback. Second, I'm adding that anyone who tells them otherwise should be ignored.

And finally, I'm saying that although he's lost his title as the world's richest man, I still believe in Warren Buffett and the process that made him rich -- buying great companies when they're selling at good prices.

That's why I recommend that people who don't own any stocks take the time to check out steady-as-she-goes stalwarts like American Express (NYSE: AXP  ) , McDonald's (NYSE: MCD  ) , and IBM (NYSE: IBM  ) .

Each has a rock-solid, world-renowned brand, has already weathered severe recessions, and will be around for decades to come.

Even better ...
As you can tell, I'm a big fan of companies that pay you to own them, which is why I'm recommending that these folks look into other dividend payers like Merck (NYSE: MRK  ) and Bristol-Myers Squibb (NYSE: BMY  ) .

I've even gone so far as to introduce them to master limited partnerships like Kinder Morgan Energy Partners and Magellan Midstream Partners, which are paying out monster dividends and have major tax advantages over regular dividend payers.

Swinging for the fences
Of course, like me, most of the folks asking for my advice are on the younger end of the investor spectrum and, for better or worse, they all want to know which stocks will make them rich beyond their wildest dreams.

Again, I start by telling them that I'm no expert. Then I tell them that I think they should build a solid core portfolio before venturing on to riskier investments. Finally, I drop this pearl of wisdom on them: The market's next big movers are almost certainly small companies that they've never even heard of.

At first, they usually blow me off, arguing that some tech giant like Research In Motion (Nasdaq: RIMM  ) or an oil and gas titan like Chesapeake Energy (NYSE: CHK  ) will surely be the next stock to blast into the stratosphere.

So I explain that while each of these are good companies -- and potentially good investments -- they would have to pack on roughly $36 billion and $18 billion in market cap, respectively, just for their shares to double!

Granted, large companies can provide safer growth, but their size also limits that growth.

Next, I pull up a list of the top 10 percentage gainers of the past 52 weeks ...

Stock

52-Week Gain

Market Cap

Diedrich Coffee

5,263%

$198 million

Orient Paper

2,715%

$171 million

Select Comfort

1,903%

$302 million

Dollar Thrifty Automotive

1,840%

$612 million

Netlist

1,461%

$97 million

Vanda Pharmaceuticals

1,413%

$285 million

Valassis Communications

1,318%

$920 million

Avis Budget Group

1,310%

$1.3 billion

Human Genome Sciences

1,254%

$4.9 billion

Cell Therapeutics

1,246%

$672 million

Source: Google Finance.

Notice anything?
Well, chances are you've only heard of one or two of those companies -- if any. Secondly, they are all small companies. And this is no isolated incident. Just take a look at the top 10 best-performing stocks of the past 10 years.

Now you can see why my Foolish colleague Anand Chokkavelu says small-cap stocks are the stocks Warren Buffett wishes he could buy, and why I tell everyone who asks that small caps are your shot to score big.

The nail in the coffin -- and your key to riches
Of course, along with being small and obscure, these stocks also share one other trait: They're completely ignored by the Wall Street hotshots who spend all their time covering big names like Research In Motion and Chesapeake Energy.

This means there is a much greater chance that the investing world misunderstands the true value of small caps, giving you a shot to secure some amazing gains once everyone else begins to catch on. It's also exactly why Motley Fool co-founder Tom Gardner started Motley Fool Hidden Gems -- our signature small-cap investment service.

Among its more recent finds is Autoliv, a Swedish manufacturer of seat belts, electronic safety devices, and airbags. Besides being a proven cash-flow generator, it sports an extremely shareholder-friendly management team that has turned it into the undisputed leader in its field.

If you'd like to see all the stocks the Hidden Gems team is recommending and follow along as they invest $250,000 of real money in a portfolio of today's top small-cap stocks, I invite you to take a free 30-day trial.

As always, there is no obligation to subscribe. Simply stick with us if you like it; pay nothing if you don't. To get started, all you have to do is click here.

This article was originally published April 24, 2009. It has been updated.

Austin Edwards doesn't own shares of any of the companies mentioned. Autoliv is a Motley Fool Hidden Gems recommendation. Magellan Midstream Partners is an Income Investor selection. American Express and Chesapeake Energy are Inside Value picks. Chesapeake Energy is also a Fool holding. The Motley Fool is investors writing for investors -- and, as always, we have a disclosure policy.


Read/Post Comments (2) | Recommend This Article (11)

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 January 18, 2010, at 8:51 AM, Abitegeka wrote:

    Am Abitegeka John.i recieved your telling me that i have woned [one Million Dollars]but you did not tell me how to get them.the information was toiking about the way how to ge that money.it was about canadian Lottery Draw Promotion.

  • Report this Comment On January 18, 2010, at 8:52 AM, Abitegeka wrote:

    so what can i do about that

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1086427, ~/Articles/ArticleHandler.aspx, 12/19/2014 2:22:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement