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Stocks Worth Waiting For

By Todd Wenning - Updated Nov 11, 2016 at 3:41PM

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All we need is just a little patience.

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

Instant gratification is becoming more and more a part of our culture. Technology has allowed us to obtain information and services whenever we want them. Not sure what the word "indefatigable" means? Look it up on Google 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:

Stock

Total Return, 12/1998-12/2001

Total Return, 12/2001-12/2008

U.S. Steel (NYSE:X)

(17%)

119%

Newmont Mining (NYSE:NEM)

13%

111%

Walter Industries (NYSE:WLT)

(18%)

197%

Nucor (NYSE:NUE)

29%

323%

Hologic (NASDAQ:HOLX)

(17%)

398%

Hess (NYSE:HES)

24%

142%

Sun Hydraulics (NASDAQ:SNHY)

0%

634%

Data from Capital IQ, a division of Standard & Poor's.

Patient investors got the last laugh. Despite the recent market volatility, each of these stocks crushed the 10-year returns of both the S&P and the Nasdaq.

The mustard seed
It can be particularly trying to wait for smaller companies. While 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% and revenue by 97%, and it posted a double-digit return on equity while ramping 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 brand, the stock went up. Today, it's up more than 6,100% in five and a half years -- turning $10,000 into $620,000 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 6,000% in five 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 to become a category-killer in casual dining. 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 up only 9%. 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 -- at one point, the original Buffalo Wild Wings pick more than tripled in value, though recent volatility has reduced that gain to 88%. That decline hasn't diminished the team's confidence in the stock, and it continues to recommend it to subscribers.

The Foolish bottom line
The market will eventually recognize exceptional companies -- and when it does, the returns can be huge. Sometimes, all it takes is a little patience.

Want to find some great stocks with tremendous upside potential? The Hidden Gems team specializes in finding unrecognized small companies with solid balance sheets, dominant positioning in their markets, and shareholder-friendly management teams.

Interested? Follow this link for your free trial.

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

Todd Wenning 's random '90s movie of the day is PCU, starring a young Jeremy Piven and Jon Favreau. Todd owns shares of Sun Hydraulics, which is also a Hidden Gems pick. Buffalo Wild Wings is a Hidden Gems recommendation. The Fool owns shares of Buffalo Wild Wings, and its disclosure policy is not gonna protest.

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Stocks Mentioned

Nucor Corporation Stock Quote
Nucor Corporation
NUE
$141.90 (0.29%) $0.41
United States Steel Corporation Stock Quote
United States Steel Corporation
X
$24.82 (-0.96%) $0.24
Hess Corporation Stock Quote
Hess Corporation
HES
$112.14 (4.23%) $4.55
Newmont Mining Corporation Stock Quote
Newmont Mining Corporation
NEM
$45.30 (-0.96%) $0.44
Hologic, Inc. Stock Quote
Hologic, Inc.
HOLX
$72.07 (-0.23%) $0.17
Walter Energy, Inc. Stock Quote
Walter Energy, Inc.
WLTGQ
Sun Hydraulics Corporation Stock Quote
Sun Hydraulics Corporation
HLIO
$66.62 (0.97%) $0.64

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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