What stocks were the best performers over the past decade? By taking advantage of the growth in Brazil and rising energy prices, Petrobras (NYSE: PBR ) delivered a mighty fine 538% return. And Apple, with its back-from-the-dead turnaround, managed an even better 720%.
But these two were nowhere near the top performers of the past 10 years. That list is made up of real rocket shots like natural gas specialist Southwestern Energy (NYSE: SWN ) -- which put up returns of nearly 5,800% -- and home health services company Amedisys, which was up more than 4,600%.
So what allowed the second duo to deliver such huge gains? A lot of things are likely at play, not the least of which are a good business and great execution. But the second two stocks also share something else important in common -- they're tiny and not very well-known.
The fact that smaller stocks that haven't been discovered by Wall Street have a tendency to blow past their larger brethren is something that's well-known by my fellow Fools -- particularly the team at Motley Fool Hidden Gems.
But where do we start if we want to find the stocks that will put up market-annihilating returns over the next 10 years? I've decided to turn to the 160,000 members in the Motley Fool CAPS community. Below I've pulled up five stocks that have a market cap of less than $1 billion and have been highly rated by CAPS members.
|
Company
|
Market Cap
|
Projected Five-Year
Annual Growth
|
CAPS Rating
(out of 5)
|
|
Cherokee (Nasdaq: CHKE )
|
$182 million
|
2%
|
****
|
|
Qiao Xing Mobile Communication (NYSE: QXM )
|
$128 million
|
NA
|
*****
|
|
General Steel (NYSE: GSI )
|
$201 million
|
1%
|
*****
|
|
TBS International (Nasdaq: TBSI )
|
$262 million
|
10%
|
*****
|
|
Immersion
|
$171 million
|
12%
|
*****
|
Source: CAPS and Yahoo! Finance.
While these aren't meant to be formal recommendations, they could be a great place to kick off some further research. Let's take a closer look.
Digging in
With a debt-free balance sheet and a 7.4% dividend yield, Cherokee may seem like a prime pick in this group. I'm not so sure that I'm on board, though.
While that's undoubtedly a juicy dividend, the apparel company has cut its payout in each of the past two years. And with its fiscal 2010 dividend payout well in excess of its free cash flow, it seems like another cut could be in the offing. And as far as the business goes, the brands that the company represents -- principally the Cherokee brand -- are mediocre at best. The company is also highly dependent on the business it gets from Target (NYSE: TGT ) : In fiscal 2010, Target represented 41% of Cherokee's total revenue.
As an owner of some Qiao Xing Mobile shares myself, you might think I'd be a big fan of the company. Not quite. The company is involved in a very cutthroat business -- manufacturing mobile phones in China -- and its results have been absolutely horrendous lately. Qiao Xing's balance sheet does appear to still hold substantial value, but that'll only stay the case if the company can stanch the bleeding on the bottom line. There could be good gains here, but there is also significant potential for heartbreak.
TBS International isn't without risks of its own. In fact, in its most recent annual report, the dry bulk shipping company noted that its very existence is threatened by covenants on its lending agreements. The company has a waiver until the end of this month to work out some agreement with its lenders.
But while TBS International's debt situation may be a bit ulcer-inducing, its stock could be a significant opportunity. The stock trades at half of the company's tangible book value, which compares very favorably to its historical multiple for that, which was as high as 7.8 in 2007.
And the catalyst for the company's turnaround could already be gaining steam. As a shipper focused on transporting products like steel, minerals, coal, and fertilizer, TBS International was heavily affected by the global recession. Now that we're beginning to see signs of life in the global economy, it may start to see its fortunes turn around.
The call from CAPS
CAPS members certainly seem to think that TBS International is worth keeping your eye on. The stock carries a perfect five-star rating, with 1,232 outperform ratings against just 49 underperforms.
CAPS member alabama4606 joined the bullish chorus back in February, highlighting just how cheap the stock is:
I feel that shipping industry has been hit hard due to this economic crisis, and now is a good time to pick up the top companies at a bargain. Although I don't believe that this is one [of] the very best in the industry, I don't think anyone can disagree that this stock is undervalued.
Make your call
The CAPS community is all about getting everyone's opinion into the mix. So now it's your turn. Head over to CAPS and let the 160,000 members know what you think about TBS International or any of the other stocks listed above.
Hungry for even more underappreciated stocks? My fellow Fool Anand Chokkavelu has found 10 outperformers that nobody knows about yet.
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