Here's a quick quiz: What do Nike (NYSE:NKE), Starbucks, and Southwest Airlines (NYSE:LUV) have in common? Besides being killer stocks, they all prospered by pursuing green fields -- markets that were either nonexistent or largely untapped before their arrival.

Instead of squaring off against competitors in crowded markets, these companies decided to blaze a trail all their own. Rather than offering only high-end running shoes, Nike put innovative yet affordable sport shoes within the reach of athletes in all sports and age groups. Starbucks pioneered the premium coffee business, contrary to the established institution of low-end coffee. And while air travel was historically reserved for the wealthy, Southwest has proved that there are profits in low fares affordable to the everyman.

Investors looking in green pastures have similarly prospered: Putting just $10,000 behind Nike when it said "Just Do It" in 1988 would have you sitting on more than $300,000 today. Spotting Starbucks' open market in the beginning would have you enjoying a 50-bagger with that latte. And investors who picked up shares of Southwest when it began trading on the NYSE in 1977 have earned more than 150 times their money.

Sniffing grass
Looking for green-field stocks is a different game. The 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:

  1. Properly identifying a viable, emerging market.
  2. 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, in 1997 Netflix (NASDAQ:NFLX) was founded to exploit a potentially profitable niche in online subscription movie rentals. Since then, the company has signed up nearly 5 million subscribers for home delivery of DVDs, and its red envelopes have redefined the traditional retail model dominated by the likes of Blockbuster (NYSE:BBI). Since its 2002 IPO, Netflix has tripled in value, while Blockbuster has dropped more than 70% over the same time period.

While these examples showed huge payoffs in hindsight, not all green fields prove profitable, especially early on. Audible (NASDAQ:ADBL), for example, has so far not been able to turn downloadable digital audio content into a consistently moneymaking venture. And Monster Worldwide (NASDAQ:MNST) fell victim to the tech boom and bust in the late 1990s, with long periods of disappointing returns to show for its innovative online recruitment business.

Yet even with the pitfalls, 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 profit potential. Nanotechnology is a 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 soared fivefold from its December 2000 initial public offering. A company working in another niche of the GPS market whose stock has more than doubled in the past two years is SiRFTechnology, a GPS chip maker. Yet even after almost 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 and Garmin. A longtime Fool, he is also author of The Qualcomm Equation . Starbucks, Netflix, and Garmin are Stock Advisor recommendations. The Fool has adisclosure policy.