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Let's face it -- we all want growth from our portfolios.
Whether you're a college-aged investor looking to start
aggressively accumulating wealth or a retiree more interested in
protecting what you've already built, everybody is looking to
earn a fair return on their money.
Of course, our definition of "fair" might not always be the
same. Many conservative investors are happy to take whatever the
market gives them, while others work tirelessly to identify
special companies poised to outperform.
Just one homerun
can generate more profit than an average investor might make in
a lifetime. I'm talking about that rare multi-bagger that
appreciates, say, +3,000% over a 10 year stretch.
Don't make the mistake of assuming such jaw-dropping gains must
always involve risky ventures that happen to pay off.
With that said, you probably won't find these types of stocks in large-cap benchmarks
like the Dow.
I'm not saying large cap stocks can't be
profitable trades -- I happen to own several, including
American Express (NYSE: AXP).
But the odds of a large cap stock posting quadruple-digit gains
during the
next decade are slim.
You have to start thinking small
to rake in truly big returns.
I'll show you what I'm talking about.
I recently ran a screen to find the highest-returning U.S.
large-cap stocks during the past decade. After excluding
pure-play commodity companies (most of which were just in the
right place at the right time), here's what I found:
|
Company |
August 1999
Market Cap |
10-Yr.
Cumulative Total Return |
| Apple (Nasdaq:
AAPL) |
$10.4B |
+802% |
|
Lab Corp. of America (NYSE: LH) |
$474.9M |
+870% |
Activision Blizzard
(Nasdaq: ATVI) |
$369.5M |
+898% |
Express
Scripts
(Nasdaq: ESRX) |
$2.5B |
+1,133% |
Led by Apple (Nasdaq: AAPL), there have been quite a few standouts that
delivered gains of +700% or more. Nobody will
complain about that, particularly during a rough stretch when the
overall market lost ground.
Then I repeated the process for smaller companies. Here's what I
found:
|
Company |
August 1999
Market Cap |
10-Yr.
Cumulative Total Return |
| Life Partners
Holdings (Nasdaq: LPHI) |
$180.5M |
+36,868% |
|
Green Mountain Coffee Roasters (Nasdaq: GMCR) |
$29.0M |
+7,915% |
Hansen Natural
(Nasdaq: HANS) |
$43.1M |
+6,421% |
|
Clean Harbors (NYSE: CLH) |
$13.5M |
+3,835% |
These are the types of game-changers I'm talking
about. Any one of these would have
turned a $25,000
investment into a fortune.
These chart-topping gains are almost always the
result of an exceptional growth spurt. Take Green Mountain
Coffee Roasters (Nasdaq: GMCR), for example: Since 2000, the firm's sales have
climbed 10-fold and profits have soared more than 20 times
over.
Common sense dictates that it's much easier to pull off that
type of growth when you're starting from a base of $2 million
rather than $200 million.
Believe it or not, there are over 1,000 small-cap
stocks (market caps below $2 billion) offering dividend yields
that beat average yield of the S&P 500.
Don't automatically assume a company is
fast-growing and has a promising future simply because it's
small -- the usual rules of competitive advantage and economic
moats still apply.
Good Investing!
-- Nathan
Slaughter
Chief Investment Strategist
Half-Priced Stocks
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