There's No Stock Like This Stock

I'd never heard anyone talk about a stock the way this guy was talking about Select Comfort (Nasdaq: SCSS).

Well, that's not entirely true, but this SCSS shareholder I was chatting with recently was effusive in his praise. He loved the company, the competitive position, the management, the product, the growth prospects, and most of all, the price at which he bought shares (I'm guessing it was somewhere in the $12 to $16 range).

I don't blame him for being excited: There's a lot to like about Select Comfort. The balance sheet is strong, with $66 million in cash and no long-term debt; returns on equity are well north of 40%; and while revenue growth is slowing, the stellar management team is focused on delivering long-term shareholder returns.

So there's your hot stock tip for the day: Select Comfort. (And I hope that satisfies the folks who were disappointed there wasn't one stock you must buy.)

Do you want a fish, or do you want to know how to fish?
While Select Comfort may turn out to be a good stock tip, you can't keep just one stock in your portfolio. After all, something tragic and unforeseen could happen to the company -- like a sales slowdown.

Because, if there's one thing that links all long-haul markets out-performers, it's a precipitous decline. You heard me right. Pull up the chart for American Express (NYSE: AXP), McDonald's (NYSE: MCD), Bank of America (NYSE: BAC), or Procter & Gamble (NYSE: PG), and you'll see what I mean. These companies have absolutely destroyed the market over their lifetimes, yet they've each had a few moments that caused investors to think twice.

Those moments will continue to happen with Select Comfort, just as they've happened to the market's best stocks. So please don't stash all of your savings in the stock. It's got great prospects, to be sure, but there are very few -- if any -- sure things in the market.

So find more Select Comforts
Select Comfort is also unlike any other public company because it's the first and only four-time recommendation of our Motley Fool Hidden Gems small-cap investment service. But that alone shouldn't impress you. You should instead be impressed that Select Comfort continues to satisfy Fool co-founder Tom Gardner's strict small-cap investment criteria. These are small companies with:

Select Comfort, of course, possesses these traits in spades. And if you dig up enough businesses that fit this model, I'll almost guarantee you a winner.

Remember when I said it wasn't exactly true that I'd never heard anyone so effusively praise a stock? Well, I heard investors heaping the same praise for the same five reasons on Urban Outfitters a few years back, and on Wal-Mart (NYSE: WMT) a few years before that.

Both of those investments have worked out very, very well.