Expert Picks

The Motley Fool Investment Guide (Simon & Schuster) is a bestseller; their Motley Fool forum on America Online is one of the most popular investment forums in the online world. Their basic principle: Invest for the long term to avoid excessive taxes and brokerage commissions and the anxieties of a daily fixation with money.

1. Microsoft: While most businesses turn after tax profits of 5 cents on every dollar, Microsoft consistently earns 25 cents to the buck. It has nearly $7 billion in the bank, no debt and excellent prospects for 1997.

Why all that cash? Microsoft has low upfront costs, no heavy manufacturing equipment, controls the consumer-technology platform, may soon dominate the Internet and, most important, does not confuse sales growth with earnings growth.

Since going public in 1986, Microsoft has compounded 60 percent annual growth, meaning a $10,000 investment at the initial public offering would be worth more than $1.1 million today.

2. Nike: Nike had $6.5 billion in sales last fiscal year, earns 9 cents of profit for every dollar, and has $260 million in cash and negligible long-term debt. Our research shows an extremely profitable business with a firm financial foundation.

More broadly, this is another consumer business that makes a high-quality product and shells out bags of money to promote it. Over the past decade, Nike has compounded 39 percent annual growth.

3. Gap: Another consumer business generating huge amounts of capital, Gap had $4.4 billion in sales last year, earns 9 cents off each sales dollar, and has $633 million in cash and no meaningful debt. Gap has succeeded where other apparel companies haven't by focusing on low-cost casual wear, building an image, being everywhere and running a profitable business. In the past decade, Gap stock has compounded 29 percent annual growth.

Beardstown Ladies

Authors of two bestsellers and the soon-to-be-released Smart Spending for Big Savings (hyperion), the Beardstown Ladies are an investment club whose members' average age is 69. Their 12-year-old club has consistently yielded higher returns than Wall Street professionals. The club's basic principles: Invest conservatively and regularly in well managed companies, and keep a diversified portfolio. Their picks:

1. Merck & Co. Inc.: This pharmaceutical company is well-managed, has a consistent growth record, and is always putting money into research and development. They produce new drugs in a very timely manner. We feel they know what they're doing. Drugs are something everyone needs at some point in time, and when we're sick and need medications, they have the ones we feel confident in.

2. Coca-Cola Co.: Coke--it's the real thing. The company is known worldwide, is aggressive in positioning itself, and has a long history of continued growth, thanks to good management. And the Minute Maid products (a division of Coke) are top quality in their field as well.

3. Hershey Foods Corp.: We're all chocolate lovers, and we like the fact that the company conducts market research and brings out new products. They are also well-managed, and their products are great for gifts. We're impressed with their pasta products as well (Hershey owns Ronzoni and San Georgio).