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The Market's 10 Best Stocks

By Tim Hanson (TMF Mmbop)
October 6, 2006

The greatest stocks of the past decade are not the ones you'd expect. Microsoft isn't on the list. And Apple doesn't crack the top 50. I wouldn't have been able to name any of the top 10 on the spot. That just goes to show you that we probably haven't even heard of the best 10 stocks of the next 10 years. But I'm getting ahead of myself.

Without further ado, here are the 10 top performers.

Company

Current Market Cap*

Return 1996-2005

Hansen Natural

$2,910

24,185%

Chico's

$4,010

17,600%

NVR

$3,050

7,150%

Christopher & Banks

$1,150

6,795%

Meritage Homes

$1,140

5,860%

American Eagle Outfitters

$6,740

4,850%

Comtech Telecommunications

$777

4,315%

Pool Corp.

$2,020

4,090%

Engineered Support Systems**

N/A

3,800%

Jos. A. Bank

$535

3,790%

*In millions.
**Engineered Support Systems was recently acquired by DRS Technologies.
Historical price data provided by Capital IQ, a division of Standard & Poor's.

There are more than a few things shocking about this list. First, these companies are obscure. Hansen Natural -- the greatest stock of the past decade -- has sold all-natural juices and sodas since the 1930s. Chico's sells clothes to women in their 30s, and 10 years ago it had fewer than 250 stores. Pool Corp. -- a company with 45% annual returns -- wholesales swimming-pool supplies and chemicals!

Second, there's only one "tech" firm on the list -- and it's not one of the famous ones. Only six analysts are currently following Comtech.

Ten years ago, none of these companies had a heavy following from the pros on Wall Street. Even more incredibly, some still don't.

Finally, none of these companies was worth more than $200 million 10 years ago. After 10 years of incredible growth, seven of them are still small caps! Only Chico's, NVR, and American Eagle have moved into mid-cap status.

What about the next 10 best?

Company

Current Market Cap*

Return 1996-2005

QLogic (Nasdaq: QLGC)

$3,150

3,310%

Pacific Sunwear

$1,150

3,055%

Penn National Gaming (Nasdaq: PENN)

$3,410

2,970%

Celgene

$14,520

2,810%

XTO Energy (NYSE: XTO)

$14,890

2,705%

American Vanguard (NYSE: AVD)

$380

2,680%

Dell

$52,930

2,670%

Jabil Circuit (NYSE: JBL)

$6,490

2,540%

Multi-Color (Nasdaq: LABL)

$197

2,530%

Daktronics (Nasdaq: DAKT)

$839

2,530%

*In millions. Historical price data provided by Capital IQ.

There are some more notable names in this group, but it, too, skews small. Of the top 20 stocks of the past 10 years, just one -- Dell -- was bigger than a small cap when its amazing run began.

The Foolish bottom line
Of course, some of these stocks have fallen since I measured their returns at the beginning of 2006. Small caps can be volatile. Nevertheless, it remains true that the greatest stocks of the past decade were:

  1. Obscure.
  2. Ignored.
  3. Small.

Now, how many investors are searching for market-beating returns among the Microsofts and Apples of the world? Thirty-four and 20 analysts follow each of these stocks, respectively. But these companies can't beat the market -- they are the market!

So if you want to find the 10 best stocks of the next 10 years, you need to start small -- as in small caps. These are exactly the types of companies we're following at Motley Fool Hidden Gems. We don't care about Microsoft. Instead, we follow Blackboard, a $750 million software firm that supplies more than 2,225 educational institutions and has 90% product-renewal rates.

But a $750 million company is probably still too big to be one of the 10 best when we look back in 2016. That's why we also offer Tiny Gems -- promising companies capitalized at less than $200 million. One of the next 10 best will likely come from there.

To take a look at the 60 small caps we're following and the Tiny Gems we've dug up, click here to join Hidden Gems free for 30 days.

You may not have heard of our companies -- but that's exactly the point.

This article was originally published on Dec. 29, 2005. It has been updated.

Tim Hanson owns shares of Blackboard. Microsoft and Dell are Inside Value recommendations. Dell, American Eagle, and Pacific Sunwear are Stock Advisor recommendations. No Fool is too cool for disclosure.