3 Small Cap Stocks You Can Buy and Hold for the Next 10 Years

Source: Flickr user Pictures of Money.

Over the last decade long-term investors have been taken on quite the ride. Following a greater-than 50% decline in the stock market's major indexes during the Great Recession, the indexes have roared back to levels significantly higher than before. The Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 now seemingly take turns notching new all-time highs on a near-weekly basis.

It's not hard to see why investors are so excited, either. All we have to do is look at the unemployment rate, which currently sits at just 5.4%, a seven-year low. Further, the U.S. economy is back on track, with GDP growth forecast in the 2% to 3% range.

Three small cap stocks you can buy and hold for the next 10 years When the U.S. economy is clicking, investors tend to be willing to take more risks with their money. The result is that small cap stocks, which offer more robust growth potential but also come with greater risks, rise to the top of some investors' shopping lists.

Today, we'll go ahead and take a brief look at three small cap stocks that you can consider buying and holding over the next 10 years.

But before we do that, it's worth reminding everyone that although I believe these small cap stocks could make for smart long-term holds, they could nevertheless decline in value. You'll need to do more than read a few paragraphs here before you decide whether to buy them. Consider this the beginning of your research into these three small cap stocks.

SodaStream International I'm something of an opportunist, and when looking for small cap companies that I'd feel comfortable holding for the next 10 years, I like finding companies with strong branding that have the potential to execute a turnaround. In other words, I'm looking for downtrodden stocks that have what it takes to pull a 180. I believe SodaStream, a manufacturer of home beverage carbonation systems, could be one of those success stories.

Source: SodaStream via Facebook.

If you examine SodaStream's latest quarterly report, it isn't pretty. Without SodaStream's currency hedging strategy, its year-over-year net income would be down by 36% as revenue plunged 23% including currency fluctuations. This weakness stems from SodaStream's almost reckless expansion into retail outlets to get its product in front of as many consumers as possible. While novel, SodaStream learned that its product lacked the convenience of just buying a carbonated beverage at the supermarket.

However, the future still looks bright for this brand.

For starters, SodaStream can still be disruptive to the beverage industry. It allows its niche carbonated beverage consumer to be in control of their beverage-making process. Furthermore, as my Foolish colleague Andres Cardenal pointed out last year, SodaStream had the first-in-class carbonated beverage system on store shelves, and being the first to market comes with competitive advantages that could be difficult for its peers to overcome. And don't discount the partnerships that SodaStream has built over the past couple of years.

Source: SodaStream via Facebook.

Secondly, I appreciate management's willingness to sacrifice profitability by boosting spending on properly marketing the product and rebuilding SodaStream's brand value. Instead of cheapening the brand by trying to get into every retail outlet, SodaStream will instead focus on its niche consumer and upper-income consumers where it has the best chance of long-term success.

Lastly, pay attention to an upcoming decision from the U.S. Department of Transportation concerning the shipping of SodaStream's replaceable CO2 canisters. As of right now these products are considered hazardous material and can't be shipped by traditional logistics companies, but a possible change in that view from the U.S. DOT could mean a major boost in convenience for consumers.

Lumber Liquidators This will assuredly go down as a year to forget for Lumber Liquidators' shareholders.

The company, which oversees the manufacture and sale of various types of flooring, faced allegations earlier this year in a 60 Minutes report that its laminate flooring products contained high levels of formaldehyde, a known carcinogen. The fallout from this report has included possible criminal charges -- Lumber Liquidators also recently admitted to importing bamboo illegally -- and the unexpected resignation of its CEO, Robert Lynch, less than two weeks ago.

But, if you're willing to take the long-term view, I believe Lumber Liquidators could be a big winner for your portfolio.

Source: Lumber Liquidators via Facebook.

Lumber Liquidators has strong branding and the ability to save on costs, but it'll certainly need to time to deal with its current allegations and to implement rigorous compliance controls to ensure this doesn't happen again. Even though it has suspended shipments from its Chinese suppliers for the time being, if Lumber Liquidators can ensure that the procedures involved in the production of its laminates are being followed, its vertically integrated production system should allow it to keep its costs lower than nearly all of its competitors.

Lumber Liquidators also holds the advantage of being able to benefit in both robust housing growth environments and flat growth scenarios. New homebuyers and those who aren't able to move can get a simple change through remodeling; and, as we've witnessed since the Great Recession, the home remodel market is just about as strong as it's ever been. The National Association of Homebuilders' Remodeling Market Index hit an all-time high in Q4 2014 but backed off slightly in the first quarter.

Consumers have an uncanny ability to put bad news and bad PR in the rearview mirror. So long as Lumber Liquidators continues to focus on value and the consumer, it should be able to outperform over the long run.

ZELTIQ Aesthetics Unlike the other two small cap stocks, medical equipment supplier ZELTIQ isn't in any way a turnaround play. In fact, its shares are up better than 400% over the trailing two-year period.

Source: ZELTIQ Aesthetics.

The reason for ZELTIQ's crushing outperformance is its unique technology known as CoolSculpting, which freezes fat cells and allows the body to naturally get rid of them over the course of a few weeks. Its CoolSculpting technology led to a whopping 66% increase in year-over-year revenue in the first quarter, including nearly 208,000 revenue cycles and 347 CoolSculpting systems being shipped.

Of course, investors should understand that ZELTIQ is a rapidly growing work in progress. For the quarter ZELTIQ actually lost $0.06 per share, breaking a streak of three consecutive quarterly profits, although the first quarter is historically its weakest. With a focus on making consumers more comfortable with their bodies, ZELTIQ's CoolSculpting systems tend to see more use during the spring, summer, and early fall months than winter.

As my Foolish colleague Rick Munarriz notes, ZELTIQ may be helping people slim down, but it has a habit of beefing up its previous guidance -- and this past quarter was no different. ZELTIQ is now forecasting revenue of between $235 million and $238 million for the full year compared to a previous forecast in January of $230 million to $235 million.

Because there's really no other system out there like CoolSculpting, ZELTIQ should be able to maintain significant pricing power and retain a first-to-market networking advantage over any peers that do attempt to introduce a similar technology. With that in mind, I believe double-digit sales growth could be possible throughout the next seven to 10 years, which could translate into big gains for small cap stock investors.

The article 3 Small Cap Stocks You Can Buy and Hold for the Next 10 Years originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of, and recommends Lumber Liquidators and SodaStream. It also recommends ZELTIQ Aesthetics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.