Peter Lynch's book One Up On Wall Street argues that the average person doesn't have to look far to find knockout investments; we can begin by looking around in our day-to-day life. Applying this street-sense mentality, he offers the following example:

"You don't have to work in Kodak's (NYSE:EK) main office to learn that the new generation of inexpensive, easy-to-use, high-quality 35mm cameras from Japan is reviving the photo industry, and that film sales are up. You could be a film salesman, the owner of a camera store, or a clerk in a camera store."

The 35mm cameras reference shows the book's age; it's copyrighted 1989. But his point is timeless -- we need only to look around us to locate potential market-beating stocks.

Fast-forward to 2006. Film-based cameras are going the way of the Stone Age. In this new digital age, camera enthusiasts like myself can focus in on Canon (NYSE:CAJ), SanDisk (NASDAQ:SNDK), and Adobe Systems (NASDAQ:ADBE) -- companies benefiting from this revolution in photography -- and see what they might offer as potential investments.

The hardware for film buffs
When it comes to cameras, two names stand out above the rest: Canon and Nikon. Anyone interested in researching these products should check out Digital Photography Review, which highlights the cameras and manufacturers that attract the greatest interest from its visitors. Nikon and Canon lead the way in both categories -- the latter receiving a whopping 26.6% share of online customers' traffic.

Canon's camera division, which includes video cameras, digital cameras, film cameras, and lenses, continues to be a source of strength for the company. In its recently released 2005 results, revenues from this unit increased by 15.2% compared to the same period a year ago; digital cameras grew sales by 18.9%. The ultra-compact and super-cool PowerShot SD-series Digital ELPH, which I bought in 2005, is just one of many Canon models raking in the dollars. In the fourth quarter alone, camera sales increased 18.4%, surpassing the company's estimates of 14% growth.

Operating margins in the camera division are also expanding. In the fourth quarter of FY2004, this metric sat at 15.8%. Management projected operating profits to be 18.5% of sales in the latest period. Instead, this division achieved 21.2% operating margins -- a very robust improvement, year over year.

Accelerating sales and improving margins are usually a good recipe for investing success. Canon's stock is no exception, increasing approximately 19% over the past year. The company does face stiff competition, including Nikon in premium cameras, Sony (NYSE:SNE) in mid-priced products, and cell phone manufacturers like Nokia (NYSE:NOK) on the low end. But if you're looking to invest in the hardware side of this industry, Canon has to be high on any wish list of a paparazzi-informed investor. Trading at just 15 times 2006 projected earnings, and offering a 1.4% dividend yield, this stock may still offer some upside if the company continues to experience high-teens growth.

The memory behind it all
When One Up On Wall Street was written, 35mm cameras needed a company like Eastman Kodak to produce the film. Must-have Kodak film led to a solid Eastman stock for a good portion of the 1990s. Today, SanDisk and its flash memory cards have replaced Eastman Kodak and its film in the photography world.

While Eastman Kodak's stock has fallen from $45 to $25 over the past five years, SanDisk has increased nearly sixfold over the same period, due largely to demand for its flash memory cards. The company manufactures these cards for a wide assortment of products, including MP3 players, cell phones, and digital cameras. When I purchased the aforementioned Canon camera, I also plopped down a chunk of change for a SanDisk memory card -- and I wasn't the only one. Through three quarters of FY2005, the company hauled in $1.6 billion in sales, a 26.6% increase from the year-ago period.

Fool analyst Seth Jayson believes SanDisk is just getting started, making key strategic moves to help secure its long-term position in the market. With the recent weakness in its stock, this investment definitely warrants further consideration for any paparazzi investor.

The software to zoom in on
We've focused on Canon and SanDisk, but no photo production is complete without the powerful tweaking abilities provided by Adobe Systems' digital imaging solutions. Its Photoshop and Creative Suite have helped it carve out a strong position in the industry.

In its just-released annual 10-K filing, we find that Adobe's digital imaging and video software division contributed 22% of the company's overall 2005 sales. Revenue growth in this unit was stagnant, however, increasing by only 1%; digital imaging software grew sales by 3%. The company did benefit from its high-end Creative Suite offerings, made for professional photographers and designers working on web and print projects. This unit witnessed 21% growth in sales, making up 38% of net revenues.

In addition to another year of double-digit growth in total sales, Adobe's profit margins continue to improve. Its cost of sales as a percentage of net revenues fell to 5.7% in FY2005, down from 6.2% in 2004 and 7.2% in 2003. And like Canon, strong sales and improving margins have fueled this stock, which has risen from the low teens three years ago to the $38 range today. Fool contributor Stephen Simpson looked into Adobe recently, and concluded that while the stock isn't cheap, he wouldn't be surprised to see it continue to pull off acrobatic feats in the years to come.

Focus on what you know
Although the subject matter of my photographic fervor is limited to my poor yellow Labrador retriever, my streetwise approach to investing has led me to these three market-beating companies. We could also talk about Hewlett-Packard (NYSE:HPQ), which also benefits from the digital photography revolution by making a tidy profit on printer cartridges. But ultimately, when I think of digital photography, Adobe, SanDisk, and Canon emerge as this market's dominant players. Each deserves further consideration from snap-happy investors.

Fool contributor Jeremy MacNealy does not own shares of any companies mentioned. The Motley Fool is investors writing for investors.