Stop me if you've heard this one. The one stock you must buy is ... the next Oracle (NASDAQ:ORCL), the next Best Buy (NYSE:BBY), the next Starbucks (NASDAQ:SBUX), and the next Nike (NYSE:NKE) all rolled into one.

That's a pitch I'm sure you've heard some semblance of at cocktail parties, golf outings, weddings, and, of course, on the Internet.

And it's a pretty appealing pitch. After all, Oracle, Best Buy, Starbucks, and Nike are some of the stock market's greatest success stories. These companies have earned early investors simply mind-boggling 1,000% to 25,000% returns.

The secrets of success
So the question is: Does that one stock you must buy exist? Of course it does. But can you find it? That's a different matter.

Here, however, is a litmus test to gauge every stock tip you come across. Simply ask: Does this company bear any resemblance at all to Oracle, Best Buy, Starbucks, and Nike before they were big names?

That's not to say that that one stock will be a tech superstar or a coffee purveyor. Rather, Oracle, Best Buy, Starbucks, and Nike all share a set of remarkable traits that characterized them when their stock market runs began. All were:

  1. Small.
  2. Led by a dedicated founder.
  3. Fiscally conservative.
  4. Profiting from a wide market opportunity.

If the next stock that's pitched to you doesn't possess these traits, then you're probably better off passing.

A case study
Consider, for example, the cases of Research In Motion (NASDAQ:RIMM) and Baidu.com (NASDAQ:BIDU) -- two stocks that are often pitched to me at cocktail parties, golf outings, weddings, and of course, on the Internet.

Are they small? No. Research In Motion is capitalized at nearly $25 billion; Baidu at nearly $4 billion.

Are they led by dedicated founders? Yes. Both companies have longstanding leadership teams in place.

Are they fiscally conservative? Somewhat. Both companies show profits and strong balance sheets, though they're not quite as efficient investors might hope in generating free cash flow.

Do they have wide market opportunities? No. Folks may disagree with me here, but I think both companies operate in extremely competitive and mature industries.

The Foolish final word
I'm not here to be negative about either Research In Motion or Baidu. Both could make for good investments going forward. I don't, however, think either one has the core traits that made companies like Oracle, Best Buy, Starbucks, and Nike such incredible investments and that we look for at our Motley Fool Hidden Gems small-cap investing service.

Again, we believe that tomorrow's big winners will start off:

  1. Small.
  2. Led by a dedicated founder.
  3. Fiscally conservative.
  4. Profiting from a wide market opportunity.

If you'd like to take a look at the companies we've found that meet the four criteria mentioned above and have put our service 25 percentage points ahead of the S&P 500 since 2003, click here to join Hidden Gems free for 30 days.

This article was originally published on Oct. 19, 2006. It has been updated.

Tim Hanson does not own shares of any company mentioned. Starbucks and Best Buy are Stock Advisor recommendations. Baidu.com is a Rule Breakers recommendation. The Fool's disclosure policy assures you that no stocks were harmed in the penning of this article.