Stocks Worth Waiting For

"Patience is the companion of wisdom." -- St. Augustine

Instant gratification is becoming more and more a part of our culture every day. Technology has allowed us to obtain information and services whenever we want them. Not sure what the word "indefatigable" means? Google it and have your answer in 0.02 seconds. Heck, you can download an entire music library from the comfort of your own home and play it a few minutes later on your iPod while you're making a quesadilla.

With stocks, however, not much has changed over the years. Large fortunes are still built over years and decades, not minutes and hours.

When we take the time to research a stock and make an investment, it would be nice to receive instant confirmation that we made the right decision. Unfortunately, it might take quite a while to receive that confirmation.

Consider:

Investors who held these stocks between 1997 and 2000 were disappointed, particularly since that was a time when the market was roaring. The S&P 500 and Nasdaq both more than doubled in value.

But patient investors got the last laugh. Each of these stocks crushed the 10-year returns of both the S&P and Nasdaq.

The mustard seed
Smaller companies can be particularly trying to wait on. Where the larger companies have legions of analysts following their every move, small companies attract little or no Wall Street coverage, which means that even if the company is growing, the market might be slow to catch on.

For instance, in May 2003, the best stock of the past 10 years, Hansen Natural, traded at approximately the same price it did in June 1998. During this period, the company ran a good business -- it increased net income by 67%, revenues by 97%, and posted double-digit return on equity, while it ramped up its profitable energy drink lineup.

But the best was yet to come. When Wall Street eventually realized Hansen's growth potential and its strong energy drink brand, the stock went up. Today, it's up more than 12,000% in just four short years -- turning $10,000 into more than $1.2 million today. Patient investors who saw the potential in Hansen's growth strategy have been rewarded, to say the least.

How do I get those returns?!
OK, Hansen might be an extreme example. After all, not many stocks jump 12,000% in four years -- so I'll give you another example.

In July 2004, Fool co-founder Tom Gardner recommended Buffalo Wild Wings to Motley Fool Hidden Gems subscribers. He saw a rapidly growing $200 million restaurant chain with the potential of becoming a category killer in the casual dining segment. Moreover, the company had $47 million in cash, zero debt, and high insider ownership.

Everything pointed to higher returns, but 10 months later, the pick was only up 7%. Despite the weak returns, Tom still felt strongly about Buffalo Wild Wings' potential and re-recommended the stock two more times to Hidden Gems subscribers during this period. Sticking to his guns paid off -- Buffalo Wild Wings is now up 206% since the first recommendation and 171% and 122% for the subsequent recommendations.

The Foolish bottom line
Exceptional companies will eventually be recognized by the market, and when they are, the returns can be huge. Sometimes all it takes is a little patience.

Want to find some great stocks with tremendous upside potential? Tom and his Hidden Gems team specialize in finding unrecognized small companies with solid balance sheets, dominant positioning in their markets, and shareholder-friendly management teams. Since 2003, their picks have averaged 58% returns versus the market's 22%.

Interested? Follow this link for your free trial.

This article was originally published on April 10, 2007. It has been updated.

Fool contributor Todd Wenning does not own shares of any company mentioned. Todd's random '90s movie of the day is P.C.U. starring a young Jeremy Piven and Jon Favreau. The Fool's disclosure policy is not gonna protest.