It's easy to pick a stock that will earn you a stand-out return in a single year. Well, okay, maybe not "easy," but with just 12 months as a scorecard, there's a lot in the world that can put the wind at a company's back. In 2007, shipping companies had a fantastic year, thanks to a boom in commodities. In 2008, deep-discount retailers saw a major rally, in no small part because consumers were spooked by the financial crisis.
Take a longer-term view and success is a little trickier. That's why TIME asked investment-tracker Morningstar to pull together a list of the best-performing stocks over the past decade. On the eve of 2010, we figured it was time to take a look back and see which companies most thrived during the aughts. If a company can maintain its momentum over 10 years, maybe there's something to be learned.
Perusing the list of the top 200 companies (with a market cap of at least $250 million) produces a number of surprises. There is Apple, but no Microsoft. The Boston Beer Company makes an appearance, but not market leader Anheuser-Busch. Tractor Supply lands on the list; Wal-Mart doesn't. Even with the economic crisis, a number of financial firms show up, including asset manager Blackrock, regional bank Iberiabank and homebuilder NVR (parent of Ryan Homes). The decade's best industry: oil and natural gas. A full 34 companies 17% of the list either drill, transport, refine or sell the stuff.
What does the list teach more broadly?
First, barriers to entry matter. The list is packed with railroads, steelmakers, producers of heavy machinery and makers of technical instruments. These aren't companies you can compete with just by starting a business out of your garage. Sure, industrial pumps, valves and seals aren't exactly sexy, but if you've owned parts-maker Flowserve over the past decade, you're probably happy with your 499% return. At the other end of the spectrum, only two media companies make the list broadcaster Central European Media Enterprises and comic-book-based Marvel Enterprises (which Disney is buying). For the most part, companies that go head to head with an Internet full of free entertainment and information don't make the biggest bucks.
That doesn't mean it's impossible to do well in an industry with oodles of competition just that if you're going to play that game, you'd better know your customer pretty well. Consider retail. The stores that make the list are all super-focused on what they sell. Chico's is for comfortable women's clothing. Gymboree is to dress your kids. Jos. A. Bank Clothiers is for men's suits and dress shirts. And PetMed Express is to order your dog's prescription online. Department stores, big-box discounters and generalist web sites retailers that try to be everything to everyone are nowhere to be found.
Finally, trends do matter, but only when they're big and lasting. All those shipping companies that did so well in 2007 don't make the cut once the time frame is a decade. But an aging population and increasing demand for health care that's one shift that's here to stay. Among the top 200 are nearly three dozen companies that sell products and services to the sick and dying, from Gilead Sciences, a biotechnology outfit, to Quest Diagnostics, which administers blood and other laboratory tests, to Ventas, a real estate investment trust that manages hospitals and nursing homes. Another secular trend: more Americans seeking out higher education. Among the beneficiaries are for-profit institutions such as Apollo Group, ITT Educational Services and Strayer Education.
Of course, as is always the case with the stock market, a company's past performance, magnificent though it may be, doesn't necessarily indicate what's going to happen in the future. In fact, today's chart-toppers are often tomorrow's laggards. Still, with a decade of solid returns already on the books, maybe there's more reason than there usually is to believe that these companies have staying power.