These Are the Market's 10 Best Stocks

It is, actually. You learn pretty rapidly in this business that the
best way to make money in the market is to invest for the long term,
and recognize that volatility is part of the ride. And when you commit
to the long term, you quickly discover that the stocks that offer the
best returns today aren't well-known, widely owned names such as Intel and General Electric (NYSE: GE).

But I'm getting ahead of myself. Before I can get to the takeaway, I
have to show you the data. This is a simple list of the top-performing
stocks of the past 10 years. I compile this list at the end of every
year, and every year, it yields the same fascinating insight:

Data from Capital IQ, a division of
Standard & Poor's. Includes only U.S.-listed stocks with verifiable
stock price histories on major exchanges.

The trait that sets these stocks apart

What
does an energy-drink maker (Hansen) have in common with a biotechnology
leader (Celgene)? A home-nursing practitioner (Almost Family) with the
makers of Ugg boots (Deckers)? A natural-gas driller (XTO) with some
guys who sell java (Green Mountain)?

On the face of it, not much. But if you look closely, you'll see that these were all very small companies when their amazing stock market runs began.

Here's what's special about very small companies

And although companies such as Celgene and XTO are big-cap market darlings today, tracked and owned by big institutions such as Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), TIAA-CREF, and the New York State Common Retirement System, the next Celgene and the next
XTO are being ignored and undervalued -- just as Celgene and XTO were
10 years ago! That's because companies like these are too small and too
obscure to be worth Wall Street's "valuable" time.

So if you want to buy the best returns, you have to look at stocks today that are:

1.    Ignored.
2.    Obscure.

And, most of all:

3.    Small.

That was the case at the end of 2005, 2006, and 2007 as well.

They're out there

At Motley Fool Hidden Gems, these are precisely the types of companies we spend our time looking for. Rather than tracking $22 billion Celgene, we follow Natus Medical (Nasdaq: BABY),
a $320 million maker of health screening products for newborns, in the
health-care space. Instead of $22 billion XTO, we've recommended that
you get energy exposure by buying $220 million Dawson Geophysical.

Though Natus and Dawson are small, we believe they're well managed,
cash-conscious, and poised to take advantage of enormous market
opportunities. That last point, after all, is what spurs the best small
companies to grow big, and that's what we believe our Hidden Gems recommendations can do for your portfolio.

Your Mid Year's resolution

So take this
lesson from the market's 10 best stocks, and put it to work in your
portfolio this coming year by buying small caps. If you'd like some
help doing just that, you can see all of our Hidden Gems research and recommendations by joining the service free for 30 days.

Click here for more information.

This article was first published Dec.24, 2008. It has been updated.

Tim Hanson
owns shares of Dawson Geophysical. Natus and Dawson are Hidden Gems recommendations. Quality Systems is a Motley Fool Stock Advisor pick. Intel is an Inside Value choice. The Motley Fool owns shares of Intel and Dawson as well as covered calls on Intel. This is the Fool's best disclosure policy.

© 2009 UCLICK L.L.C.