During his time with the Fidelity Magellan fund, Peter Lynch made a fortune on profitable businesses with growth engines attached to them -- that is, companies with high sales-growth rates and great margins. Taco Bell, Pier One
High-growth companies, however, can be particularly susceptible to short-term volatility if their earnings reports or quarterly growth figures miss analyst estimates. When these short-term overreactions occur, it can be a great time to buy and rack up a fortune.
Take the turbulent year Coach
Once the market came back to its senses, and worries about U.S. consumer spending faded away, Coach shares surged -- up 70% from their mid-July lows.
Coach isn't the only retailer to have been unfairly cut down this past year.
Just this past fall, shares of drug retailers including CVS
On the flip side, when a company's sales are weak and its margins are contracting, its shares can get knocked down for the count. Look at what's happened to Hot Topic
Making a fortune off mistakes
When searching for great buying opportunities, look for strong companies that the market has treated unfairly. One way to do this is by looking for companies that sustain solid growth rates and margins even during down markets.
Motley Fool co-founders David and Tom Gardner often use this same strategy to find stocks that will beat the market for their Stock Advisor investing service. Altogether, Stock Advisor picks are up 68% on average since March 2002, compared with the market's 29%.
And yes, there are some retailers on the list -- including two with great growth histories that are suffering from temporary difficulties.
To see all of their Stock Advisor picks and research, follow this link for a full-access, 30-day free trial to the service.