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 Coca-Cola (NYSE: KO  ) , Wal-Mart (NYSE: WMT  ) , and Johnson & Johnson (NYSE: JNJ  ) .

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 Philip Morris International (NYSE: PM  ) and Kraft (NYSE: KFT  ) .

I've even gone so far as to introduce them to master limited partnerships like Kinder Morgan Energy Partners, which pay 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 Apple (Nasdaq: AAPL  ) or an oil and gas titan like ExxonMobil (NYSE: XOM  ) will surely be the next stock to blast into the stratosphere.

So I explain that while each of these is a good company -- and potentially a good investment -- they would have to pack on roughly $182 billion and $306 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.

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

Stock

52-Week Gain

Market Cap

Diedrich Coffee

7,656%

$199 million

Select Comfort

2,539%

$340 million

Orient Paper

2,447%

$145 million

Dollar Thrifty Automotive

2,202%

$599 million

ValueVision Media

1,880%

$120 million

Dana Holding Corp.

1,653%

$1.5 billion

Avis Budget Group

1,606%

$1.3 billion

Valassis Communications

1,591%

$1.2 billion

Netlist

1,495%

$69 million

Pier One Imports

1,434%

$700 million

Source: Google Finance.

Notice anything?
Well, chances are you've only heard of two or three of these 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 share one other trait: They're completely ignored by the Wall Street hotshots who spend all their time covering big names like Apple and ExxonMobil.

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 promising 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 owns shares of Apple, Coca-Cola, and Philip Morris International. Autoliv is a Motley Fool Hidden Gems recommendation. Coca-Cola and Johnson & Johnson are Income Investor selections. Apple is a Stock Advisor choice. Coca-Cola and Wal-Mart are Inside Value picks. Philip Morris International is a Global Gains pick. Motley Fool Options has recommended buying calls on Johnson & Johnson. The Motley Fool is investors writing for investors -- and, as always, we have a disclosure policy.


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  • Report this Comment On February 18, 2010, at 3:17 AM, maxvalues wrote:

    how about CASH until the market comes down to earth and the US Government confirms they are not broke. if Social Security is halved then all them broke entitlement lovers will stop spending. thats 25% of the population. go LONG CASH go SHORT LIFE :)

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