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The Way to Make Your Fortune

By Tim Hanson - Updated Nov 11, 2016 at 3:55PM

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Find the stocks that will do it for you.

Let's get this out of the way from the get-go: There are plenty of ways to make $1 million. But if you're not about to sign on as spokesperson for an energy drink, or are unwilling to put a felony on your record, some ways may not be accessible to you.

But my way is.

Let back-testing open your eyes
Thomson Financial recently released a research report documenting the shared characteristics of the best-performing companies from September 2001 through August 2007. As someone who's carved out a niche studying the market's best stocks (also see here and here), I was intrigued.

Thomson studied two principal groups over that time: the 100 best performers capitalized at more than $5 billion, and the 100 best performers capitalized from $1 billion to $5 billion back then. Now, because Thomson's study omits the last very volatile year, I've updated the names and numbers through the middle of last week

Best Companies Capitalized at $5 Billion or More

Company

2001 Market Cap*

Return (9/3/01 to 11/25/08)

Apple

$6,508

879%

Gilead Sciences

$5,780

482%

Vale

$7,473

476%

AmericaMovil

$11,421

427%

Monsanto

$8,803

340%

Sinopec

$11,725

313%

Occidental Petroleum (NYSE:OXY)

$10,274

271%

Banco Bradesco (NYSE:BBD)

$6,134

270%

Apache

$5,865

262%

CNOOC

$6,390

259%

*In millions. Data courtesy of Capital IQ.

Best Companies Capitalized Between $1 Billion and $5 Billion

Company

2001 Market Cap*

Return (9/3/01 to 11/25/08)

Research In Motion

$1,261

1,377%

Celgene

$2,095

630%

XTO Energy

$1,743

582%

Potash Corp.

$3,259

466%

EOG Resources (NYSE:EOG)

$3,672

431%

PLDT (NYSE:PHI)

$1,581

374%

Amazon.com

$3,243

372%

LAN Airlines (NYSE:LAN)

$2,884

370%

HudsonCityBancorp (NASDAQ:HCBK)

$2,291

355%

Canadian Natural Resources (NYSE:CNQ)

$3,341

314%

*In millions. Data courtesy of Capital IQ.

Thomson concluded that across these two universes of companies, the best performers averaged revenue growth between 13% and 15% and earnings-per-share growth between 29% and 38%, alongside consistent returns on equity. Those numbers are well above what lesser investments can achieve.

In other words, growth is your friend when it comes to stock market catalysts.

But you can do even better
Thomson made another important observation, one that we beat like a drum at Motley Fool Hidden Gems:

The best-performing companies with a market cap of $1 billion-plus showed on average better growth than those with $5 billion-plus. This should not be surprising, considering that smaller companies can deliver better earnings and revenue growth.

Indeed, over the same time period, the top-performing companies capitalized between $50 million and $1 billion (which also posted high revenue and earnings growth) crushed their larger peers:

Best Companies Capitalized Between $50 Million and $1 Billion

Company

2001 Market Cap*

Return (9/3/01 to 11/25/08)

Sina

$52

2,066%

Southwestern Energy

$315

1,849%

Ultra Petroleum

$361

1,517%

Marvel

$97

1,408%

Terra Nitrogen

$121

1,339%

Bancolombia

$215

1,202%

Chattem

$117

965%

Quality Systems

$71

929%

Cliffs Natural Resources

$170

916%

Range Resources

$303

905%

*In millions. Data courtesy of Capital IQ.

And that's how you could have made your fortune -- by stashing $5,000 in each of these top-performing small companies. You’d have turned $50,000 into more than $700,000, while similar investments in the best-performing mid and large caps would have yielded "just" $313,000 and $249,000, respectively.

Make your own small fortune
Of course, predicting prolonged periods of high growth before they happen is no small feat. At Hidden Gems, however, we look for a number of indicators, among them:

  1. Tenured corporate leaders who own or are buying a significant number of shares.
  2. Growing operations in a profitable and protected niche.
  3. A wide and unrealized market opportunity.
  4. Expanding profit margins.

Our Hidden Gems team is committed to helping more investors find the market's best small public companies. You can take a look at our favorite picks for new money now by joining the service free for 30 days.

Click here to get started making your fortune today.

This article was first published Oct. 11, 2007, as "The Way to Make $1.3 Million." It has been updated.

Tim Hanson owns shares of America Movil. Apple, Amazon, Sina, Marvel, and Quality Systems are Motley Fool Stock Advisor picks. Philippines Long Distance Telephone and LAN Airlines are Income Investor recommendations. America Movil and CNOOC are Global Gains selections. The Fool's disclosure policy cooks ... then chills.

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Stocks Mentioned

EOG Resources, Inc. Stock Quote
EOG Resources, Inc.
EOG
$114.49 (0.84%) $0.95
Occidental Petroleum Corporation Stock Quote
Occidental Petroleum Corporation
OXY
$65.73 (0.06%) $0.04
Canadian Natural Resources Limited Stock Quote
Canadian Natural Resources Limited
CNQ
$56.29 (0.81%) $0.45
Banco Bradesco S.A. Stock Quote
Banco Bradesco S.A.
BBD
$3.79 (2.43%) $0.09
PLDT Inc. Stock Quote
PLDT Inc.
PHI
$31.82 (0.38%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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