Tomorrow's huge winners are out there. The trick is finding them. I assume that you, like everyone and their Aunt Audrey, would love to find the next Microsoft - to dig out the market's best hidden gems. Back in January 1990, Microsoft traded at a split-adjusted $0.45 per share. Today, the stock is up around $49. Put another way, $5,000 invested in Microsoft in 1990 is worth over $532,000 today. Of course, you'd love to buy the next Microsoft. But you'd prefer not to take on extreme risk, right? I think you're smart to think that way. So do a host of great money managers - from Peter Lynch to Seth Klarman, Bill Miller to Charles Royce. They've all searched for small companies with a mixture of sales and free cash flow growth, superior returns on invested capital, heavy insider ownership, and healthy assets - all at a reasonable price. Born to be the best But remember, companies like Microsoft typically display excellent financials from the day they hit the markets. Microsoft was never a penny stock (again, that 45 cents in January 1990 is split-adjusted). It didn't hype itself in press releases, nor did management make outlandish promises to investors. If you're going to invest in small-cap rocket stocks, as our team does at Motley Fool Hidden Gems, please avoid the whisper-stock party tips and hype jobs. They destroy wealth over time. Contrary to popular perception, you need not assume great risk to invest in the best small caps. You only need to train yourself to look for disciplined, conservatively run small businesses. Finding these stocks doesn't involve a hopeless search through barn-sized haystacks for a lone platinum needle. The stock market features plenty of promising smaller companies, run successfully by founders with large personal stakes in the enterprise. In fact, they thrive in every industry - electrical, education, medicine, retail, and beyond. Take a look at how these five great companies from across the market performed from 2006 until today. They were all small caps in 2006. | Company | Return on Investment* | | Boston Beer (NYSE: SAM) | 740% | | Under Armour (NYSE: UA) | 1,059% | | O'Reilly Automotive (Nasdaq: ORLY) | 730% | | Dominos Pizza (NYSE: RRC) | 856% | | Skyworks Solutions (Nasdaq: SWKS) | 1,159% | Note, again, that this group hails from a broad variety of sectors. A few are familiar faces, while the others remain largely unknown on Main Street. But each was a small cap back in 2006. And not only were they not industry stalwarts, but they were also flying below most consumers' and investors' radar. They had yet to attract a cadre of Wall Street analysts and big institutional investors. Their stock prices reflected it. They were cheap because they were irrelevant! And these sorts of opportunities still exist today. The next big thing The 20- to 700-baggers of the next 12 years are out there right now, with their fuses lit and a wide-open sky above them. But they aren't Microsoft, valued at over $360 billion and covered by more than 30 Wall Street analysts. They're small companies with strong founders and executive ownership north of 10%. Companies without debt concerns. Companies that generate excess cash from their operations, some of which already pay dividends. Companies that function without any real reliance on Wall Street for financing or table-pounding "strong buy" ratings. I know it sounds contrary, but I want you to see that many of these small businesses offer low risk and high rewards for their long-term owners. How could a small company be less risky than a giant? Ask the former owners of WorldCom. That company wasn't just over-followed - it was fraudulently run! The exact opposite exists with great small caps. They're well-run and underfollowed on Wall Street, creating price inefficiencies that strongly favor long-term investors. Does that sound possible? Does it sound logical? It's certainly contrary. What you should look for Our team at Hidden Gems advises you to track down the following: - Founders with large personal stakes.
- Financial statements that are easy to read.
- A solid asset base with little or no debt.
- Price ratios that significantly undershoot growth rates of free cash flow.
- Dominant positioning in a profitable niche.
- Plenty of room to grow.
If you're inclined to think that every small-cap stock is doomed to have a larger competitor stomp it out, I ask you to return to my list of strong performers above. Each rose from obscurity because of sound financial management and shareholder-friendly practices. The free markets gave them plenty of maneuvering room. But not every small company is poised for enduring success. Of the thousands of stocks in the small-cap universe, I find that 90% are too richly valued or too speculative, given the underlying business. That remaining 10%, however, contains hundreds of small caps that I believe will beat the market, and dozens that will rise more than 30 times in value over the next 10 to 15 years. Tomorrow's huge winners are out there - hiding in plain sight. Hidden Gems can you help find them. Click here to begin. Fool on,  Tom Gardner
The Motley Fool P.S. Still unsure if Hidden Gems is right for you? Here's what I suggest - join now and take a few weeks to test Hidden Gems out for yourself. If you decide it's not for you - no problem - simply call us up and we will refund your money. P.P.S. Here are the full details on that membership fee-back guarantee: Cancel in the first 30 days and we'll refund every penny of your membership fee. Cancel any time after that and we'll refund the entire value left in your membership. What can I say? Even our fine print is Foolish. So please click here to take advantage. | 
0 comments:
Post a Comment