Like you, I want to find the market's best stocks.
That's why last year I wrote a column just like this one. I wanted to know the names of the greatest stocks of the past decade, and I wanted to know what we could learn from them.
The results surprised me.
Taking stock of great stocks
The top 10 performers from 1996 through 2005 were all:
- Obscure
- Ignored
- Small
While I expected names like Apple and Starbucks, my research revealed Hansen Natural and Pool Corp.
Now that 2006 is over, I thought it'd be worthwhile to take stock of another decade: 1997 through 2006. Without further ado, the top 10 performers:
|
Company |
1997 Market Cap |
Return, 1997-2006 |
|---|---|---|
|
Hansen Natural |
$10 million |
25,538% |
|
Chico's |
$34 million |
8,773% |
|
American Eagle |
$78 million |
7,884% |
|
Daktronics |
$17 million |
7,328% |
|
Celgene |
$111 million |
6,118% |
|
4 Kids Entertainment |
$3 million |
5,447% |
|
NVR |
$191 million |
4,871% |
|
Comtech Telecommunications |
$7 million |
4,653% |
|
Best Buy |
$460 million |
4,082% |
|
Frontier Oil |
$85 million |
3,616% |
Still what they used to be
Hansen Natural and Chico's remain the top two stocks -- even as Chico's has been cut in half in the past year.
Even if the results are less shocking, the takeaways are the same. The best stocks were all small companies 10 years ago, and they were ignored by most of Wall Street. Best Buy, for example, was just a $460 million retailer in 1997. It had 272 stores, did $7.8 billion in revenue, and became the first national retailer to sell DVD hardware and software.
Today, the company has more than 1,100 stores. It will do more than $30 billion in revenue this year. Talk about a great small-cap growth story.
Look where Wall Street won't
Now, how many investors are searching for market-beating gains in Best Buy today? Twenty-nine analysts cover the company, even though its best growth days are behind it.
But where were they 10 years ago?
They were covering large caps. That's because large caps are the only stocks with enough volume and liquidity to make research worthwhile for firms that have a lot of money to invest. Unfortunately, the best-performing large caps of the past 10 years simply don't stack up against the small caps:
|
Company |
1997 Market Cap |
Return, 1997-2006 |
|---|---|---|
|
Amgen |
$14,380 million |
403% |
|
Morgan Stanley (NYSE:MS) |
$10,650 million |
392% |
|
Merrill Lynch (NYSE:MER) |
$13,423 million |
357% |
|
Wal-Mart (NYSE:WMT) |
$52,182 million |
306% |
|
Cisco Systems |
$41,311 million |
287% |
|
United Technologies (NYSE:UTX) |
$15,927 million |
278% |
|
Oracle (NASDAQ:ORCL) |
$27,443 million |
270% |
|
Citigroup |
$28,992 million |
268% |
|
Texas Instruments (NYSE:TXN) |
$12,110 million |
261% |
|
Home Depot (NYSE:HD) |
$24,076 million |
261% |
The Foolish bottom line
You, however, have the opportunity to make serious money by identifying and investing in stocks that are:
- Obscure
- Ignored
- Small
Some of these may even become the 10 best stocks of the next 10 years. Uncovering those winners is precisely our goal at Hidden Gems. Rather than concentrate on Best Buy, we unearth small retailers such as $1.1 billion Zumiez.
But a $1.1 billion company is probably still too big to be one of the best when we look back in 2017. That's why we also find Tiny Gems -- promising companies capitalized at less than $200 million.
To take a look at all of the small and micro caps we're following, click here to try Hidden Gems free for 30 days. You may not have heard of our companies, but just like last year, that's exactly the point.
This article was first published Dec. 29, 2006. It has been updated.
Tim Hanson does not own shares of any company mentioned. Starbucks, American Eagle, and Best Buy are Motley Fool Stock Advisor recommendations. Wal-Mart and Home Depot are Inside Value picks. No Fool is too cool for disclosure.
