One quiet day last June, in the midst of another dispiriting bear market year, I selected Marvel (NYSE:MVL) as my top recommendation for the month ahead in our Motley Fool Stock Advisor newsletter. The stock was coming down from the inevitable Spiderman hype, and was trading at just $5.21 a stub. We had recently had Peter Cuneo, Marvel's talented turnaround CEO at the time, on our Motley Fool Radio Show on NPR, and I was impressed. The key question: Was this now too late to the dance, buying AFTER Spiderman had already boomed?

After all, the stock had already leapt up from two bucks a share, where it had traded the year before. On the other hand, was Spiderman a positive forward indicator for where this mere "comic-book company" -- resurrected from a mid-1990's bankruptcy -- was headed?

My premise, and the reason I later went on to re-up this stock for our subscribers again at $8.37 in December, was that this was an increasingly relevant media company with a stock in the single digits that Wall Street just wasn't paying attention to. Yet.

With the stock today approaching $20 after a huge earnings report this morning, we're making money in Marvel. Today, for any investor looking for a timeless lesson or two, I want to share with you why. And tomorrow, make a date to return to because right here we're going to analyze Marvel's future.

How Marvel Started to Dominate
Today, our goal is simple. We'll answer the question, "Why has Marvel -- now up four times in value since our newsletter recommendation -- been one of the best stocks in America to own over the past year, and how could one have found it?"

Readers of our Motley Fool Investment Guide know that one investment strategy we have championed for 10 years now is to look for promising and mainstream small-cap stocks that trade in the single digits per share, because they are simply off Wall Street's radar. Wall Street defaults to stocks trading in excess of $10 per share. If you can find a hidden gem that you expect to grow and see climb into the double-digits, look out above! The Wall Street bandwagon will rev its engines and all of a sudden you'll find everyone likes your stock. What happens then? They bring their buying power to the table and you make money.

Despite its high-profile superhero movies and toys, Marvel has been just this kind of company. It was way off the radar. But as a result of Spiderman and the several new deals that movie had opened up (X-Men 2, a mega-hit this past weekend, The Hulk later this summer and, of course, did I mention Spiderman 2?), Marvel was beginning to generate increasing cash flow, allowing it to pay off debts and expand its business. If you've followed this story even just casually, you now know that the company has inked numerous movie (and TV, and videogame) deals to put its superheroes up on the silver screen in big-budget movies that are succeeding not just as originals, but also as sequels.

And even second-tier characters most people had never previously heard of, like Daredevil, have turned into nine-figure movie results, a portion of which goes straight to Marvel's bottom-line. While the company doesn't reveal its actual arrangements, in the movie business typically half of the box office goes to theaters and half to studios. Of the half to studios, Marvel nets approximately 5% -- probably a bit more these days -- for virtually no cost. It's just licensing, and licensing revenue tends to be very profitable. Take a look at Marvel's earnings report earlier today and you'll find that after you take out costs from the company's $87 million in revenues, you wind up with about $40 million in profits.

That is astonishing profitability.

Breaking It Down: How Money Was Made in Marvel Stock
How did I find this stock? Well, it started with a product or service I knew and liked (Spiderman the movie, and also the videogame, and a general enjoyment of this stuff), combined with two key indicators I've talked about here and actively look for as an investor: (1) high profit margins, and (2) a single-digit stock. Please note that one doesn't of course automatically buy any stock that conforms to this profile. That would be foolish, not Motley Foolish. But I certainly recommend to you that when you find companies that fit this profile, you take a good hard look at them for investment purposes.

Thus, the lesson I suggest any investor take away from the Marvel story -- a fascinating and increasingly interesting company whose investment prospects going forward I'll talk about tomorrow -- is that you actively look for companies whose products and services you enjoy, who for every dollar of sales make 10 cents or more in profits (double-digit net profit margins), and that are small-cap stocks valued at less than $1 billion that have single-digit stock prices and lack institutional coverage.

That's a clear focus of several other companies in The Motley Fool Stock Advisor, which as a newsletter only 15 months old may not have made Mark Hulbert's radar yet, but has made pretty good money for our 30,000 subscribers. If you're interested in a trial read of the monthly stock picks of David Gardner (up 41% per average pick so far) vs. Tom Gardner (up 18% per average pick so far), click here.

For more analysis of Marvel circa 2003 and beyond, read Part 2 of this article.

David Gardner owns no shares of the companies mentioned. You can see what he does own on his profile page, thanks to The Motley Fool disclosure policy.