Here's a quick quiz: What do Starbucks, Qualcomm (NASDAQ:QCOM), and Research In Motion (NASDAQ:RIMM) have in common? Besides being killer stocks, they all prospered by pursuing green fields -- markets that were either nonexistent or largely untapped prior to their arrival.
Instead of squaring off against competitors in a crowded market, these companies decided to blaze a trail all their own. Starbucks pioneered the premium coffee business, contrary to the established institution of low-end coffee. Qualcomm decided to pursue an alternative mobile communications technology rather than compete directly on a common technology platform. And Research In Motion broke new ground in offering wireless email as a means of staying connected.
Investors looking in green pastures have similarly prospered: Putting just $10,000 behind RIM at its Nasdaq debut in 1999 would have you sitting on more than $115,000 today. Spotting Starbucks' open market in the beginning would have you enjoying a 50-bagger with that latte. And for Qualcomm, more than an 80-bagger since its 1991 IPO.
Sniffing grass
Looking for green field stocks is a different game -- analysis is tilted much more toward trends in developing industries as opposed to competitive analysis in a mature market. The secret to success here is twofold:
- Properly identifying a viable, emerging market.
- Backing the leader in the space.
With relatively few companies defining their own markets, part two can be easy, since the list of players is often small. For instance, the biomedical industry offers numerous companies that are pioneering novel treatments and drugs that initially have little competition. PDL BioPharma (NASDAQ:PDLI) is close to breaking new ground with launches of drugs treating heart failure and Crohn's Disease. Elan (NYSE:ELN) is dramatically changing how multiple sclerosis is treated with its Tysabri drug. Intuitive Surgical (NASDAQ:ISRG) is riding high on its dramatic lead in the field of robotic surgical instruments. All of these companies are targeting products to largely untapped markets that have immense potential.
Finding lucrative green fields can be easier than you think. David Gardner and his team of Rule Breakers analysts have earmarked several developing niches with tremendous potential. Nanotechnology is another market where a few radical companies are pushing the boundaries with microscopic devices. David has highlighted two promising stocks here, and subscribers have learned how to spot other profitable green fields.
Navigating an open field
My favorite green field, which I jumped into a few years back, is the Global Positioning System (GPS) marketplace. Once only a military tool, precise-position technology has blossomed to find its way into a litany of commercial applications, including car navigation, outdoor recreation, and flight instrumentation.
The company I've pegged as the leader in GPS devices is Garmin, a stock that has already soared fivefold from its December 2000 initial public offering. A company working in another niche of the GPS market whose stock has increased nearly 200% in the past year is SiRFTechnology, a GPS chip maker. Yet even after nearly two decades, companies supplying the GPS market have only scratched the surface. I see this market as not only immature but also capable of supporting many more companies that exploit profitable niches involving GPS.
Fielder's choice
So if the terms GPS, nanotubes, and antisense technology aren't part of your regular vocabulary, there's a good chance your portfolio is missing some green fields. Understanding wild new technologies is not a prerequisite for investing in green fields, but limiting your vision to mainstream, established markets could make you overlook the next great 50-bagger. Taking a free 30-day test-drive of the Motley Fool Rule Breakers service will help you see what you may be missing.
This article was originally published as "Green Fields Grow 40-Baggers" on Feb. 27, 2006. It has been updated.
Fool contributor Dave Mock has gone green and owns shares of Starbucks, Elan, Qualcomm, and Garmin. A longtime Fool, he is also author of The Qualcomm Equation . PDL BioPharma and Intuitive Surgical are Motley Fool Rule Breakers recommendation. Starbucks and Garmin are Motley Fool Stock Advisor recommendations. The Fool has a disclosure policy.
