The Best Stocks You've Never Heard Of

What stocks were the best performers over the past decade? By taking advantage of the growth in Brazil and rising energy prices, Petrobras has delivered a mighty fine 538% over the first 10 years of the new millenium. 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 -- which put up returns of nearly 5,300% -- and Amedisys, which was up more than 4,200%.

So what allowed the second duo to deliver such clobbering gains? A lot of things are likely at play, not 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 165,000 members of the Motley Fool's 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.

Source: CAPS, Yahoo! Finance, and Capital IQ, a division of Standard & Poor's.

While these aren't formal recommendations, they could be a great place to kick off further research. Let's take a closer look.

Digging in
At the risk of making a bad pun, it's important that Paragon Shipping run a tight ship. The company faces tough competition in the dry bulk shipping industry from larger competitors Diana Shipping (NYSE: DSX) and DryShips (Nasdaq: DRYS). While the company has relationships with companies like agriculture powerhouse Bunge and Korean shipper Korea Line, its competitive advantage is slim, if existent at all.

Why might investors find Paragon interesting? For a start, it has a more conservative balance sheet than many of its competitors, better margins, and a lower valuation. The company could also end up riding a rising tide with the rest of the industry as a recovering economy pushes up demand for shipping services.

Drinking up
The company name Boston Beer may not ring bells for everyone, but the company's flagship product, Samuel Adams Boston Lager, probably does.

So how does a small company like Boston Beer expect to take on industry giants like Molson Coors and Anheuser-Busch InBev? In a word: quality. The company hopes to continue winning over drinkers looking for a higher-quality, more full-flavored beer. Samuel Adams is currently the top domestic brand in the "Better Beer" category of the U.S. brewing industry, which includes craft (small, independent, and traditional) brewers as well as specialty beers and most imports.

There's also a lot to like about Boston Beer from a financial perspective. The company has a debt-free balance sheet, laudable returns on equity, and an average annual earnings-per-share growth rate of 15% over the past 10 years. However, I find it a bit disappointing that with such strong cash flow the company has never paid a dividend. And with a trailing price-to-earnings ratio of 26 or so, it'd be very difficult to say the stock is much of a value right now.

Farming out
The story lately for fertilizer giants PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS) has primarily been about expectations that agricultural demand in China will stoke demand for their potash and phosphate fertilizers. And for good reason. As China's population gets wealthier, they will have more money to spend on grains and grain-fed animals for food. Farmers will try to optimize their yield with fertilizers.

What if we could find a company on the ground in China producing an organic fertilizer? China Green Agriculture is exactly that. The company's primary product is a humic acid-based fertilizer that the company claims can reduce the need for insecticide, fertilizer, and even water, by 50% or more.

With a particularly strong balance sheet, solid free cash flow, and ridiculous growth, it shouldn't be all that surprising that CAPS members are hot on China Green's stock.

The call from CAPS
While all of the stocks above have gotten a strong vote of confidence from the CAPS community, I think China Green could be a standout. The folks at Motley Fool Global Gains have been on top of the China Green story for well over a year, and have watched it skyrocket. But while the heady gains may make some investors pause, it seems like this reasonably valued small-cap company could still have a nice runway ahead.

Early last month, CAPS All-Star marc64 gave China Green's stock a thumbs-up and summed up the opportunity nicely:

This company is about the future of China's internal economy, driven by population pressures, entrepreneurial small farming in rural areas, a hard limit in domestic arable land (and water), and a steady/increased commercial demand tied to the rising standard of living in population centers.

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 165,000 members know what you think about China Green Agriculture or any of the other stocks listed above.

Wall Street misses out on some of the biggest home run stocks by ignoring small stocks like the ones listed above.