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.

Until a couple of months ago, these same people would have much rather spent 30 minutes talking about socks than endure three minutes discussing stocks with me. Now, suddenly, they're willing to give up Patriots season tickets and Caribbean vacations to get into the market -- which 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 whether the market can continue along this trajectory without a serious pullback. Second, I'm adding that they should ignore anyone who tells them otherwise.

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 Kimberly Clark (NYSE: KMB  ) , General Mills (NYSE: GIS  ) , and Hewlett-Packard (NYSE: HPQ  ) .

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 such as Waste Management (NYSE: WM  ) and Home Depot (NYSE: HD  ) .

I've even introduced 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. 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 a well-known tech company like Cisco (Nasdaq: CSCO  ) or an oil and gas titan like Petrobras (NYSE: PBR  ) 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 $150 billion and $205 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 ...


52-Week Gain

Market Cap

Diedrich Coffee


$199 million

Pier One Imports


$840 million

Human Genome Sciences


$5.85 billion

Dana Holding Corp.


$1.65 billion

Orient Paper


$143 million

Dollar Thrifty Automotive


$931 million

General Growth Properties


$4.64 billion

Select Comfort


$425 million



$83 million

Avis Budget Group


$1.11 billion

Source: Google Finance.

Notice anything?
Chances are you've only heard of two or three of these companies -- if any. All of them are 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
Along with being small and obscure, these stocks are completely ignored by the Wall Street hotshots, who instead spend all their time covering big names like Cisco and Petrobras.

This means there's 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.

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's 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. Kimberly Clark, Waste Management, and Petrobras are Income Investor selections. Waste Management and Home Depot are Inside Value picks. The Motley Fool is investors writing for investors -- and, as always, we have a disclosure policy.

Read/Post Comments (2) | Recommend This Article (8)

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 March 17, 2010, at 6:37 AM, musclecar7 wrote:

    KMP- $4.20 a share dividend anually for a $65 stocke= a monster dividend? 6.8% yield is good, but how many shares can an average person buy at that price? Maybe 100? How about recommending some quality dividend stocks like CEL, CTL,WIN that are safe, reliable, and have 8-9% yields, where people can really acculmate wealth over time, thru DRIP and great returns. Your high price, high P/E ratio recommendations don't are as wasteful as putting boney in a bank account. How about some realistic stocks for once?

  • Report this Comment On March 17, 2010, at 11:01 AM, renegade1972 wrote:

    LAS VEGAS, March 16, 2010 – Ideal Financial Solutions, Inc. (IFSL) today announced audited financial results for the years ended December 31, 2008 and 2009. Revenue for the year ended December 31, 2009 of $7.3 million, was a 690% increase over $924,000, the revenue for the prior year. Net income for 2009 year was $883,500, which represents an increase of 375% compared to the net loss ($323,000) in the prior year. In addition, cash flows from operations were $736,000, which was an increase of over 900% compared to the prior year of 72,000.

    These financial statements include an increase in total assets of nearly 300% from $179,000 to $752,000, which mainly consists of cash and merchant cash reserves. Total liabilities resulted in a decrease of 25%, which consists of a 190% increase in accounts payable due to increased operations, and decreases in both accrued wages and notes payable of a combined $627,000 or 41% less than the previous year.

    why is this not new this is a company beating the odds

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