NEW YORK (CNN/Money) - Growth is dead. At least that's what most individual investors seem to fear nowadays.

But they're letting short-term concerns obscure the long-term opportunities.

In fact the current market for growth stocks is the mirror image of what it was three years ago. Then, investors hesitated to sell expensive shares, hoping they could cash in on one final run-up before the boom ended. Today investors know that many big-cap stocks are cheap, but they're afraid to start buying and risk losses in an unexpected sell-off.

This may be a moment, however, when caution turns out to be costly in terms of missed opportunities. If you consider current economic trends, there's good reason to believe that stocks will be trading at higher prices a year from now. Moreover, classic growth companies can outpace the market over long stretches of time, especially if you begin your buying when share prices are depressed.

The stock boom of the 1990s was exceptional, and though conditions today are not as good, they are still favorable for good-quality growth stocks.

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So why is the market so weak? The biggest factors holding it back are psychological.

Though the recent economic downturn lasted less than a year, stocks were so overpriced before the slump began that the bear market in share prices has been more severe and lasted far longer than most people anticipated. Having guessed wrong on both the magnitude and duration of the decline, investors don't want to risk getting burned again.

One result of this fear has been the conspicuous absence of a recovery rally. Since World War II, a market advance has typically started a few months before the end of each recession and then gone on to lift the S&P 500 by at least 13 percent -- and often by 25 percent or more -- over the following year. Since the start of 2002, by contrast, the index has actually posted a 15 percent decline.

Stock prices eventually follow earnings trends, though, and it's hard to see how earnings can continue to deteriorate. None of today's problems are comparable to the oil crisis or the double-digit inflation of the 1970s.

Unemployment appears to have stopped rising and will likely be reduced in the second half of 2002. And productivity gains in the most recent quarter were surprisingly strong. As a result, profit margins, while still deeply depressed, are improving for the first time since 1997.

Economists generally expect a solid recovery. Bruce Steinberg at Merrill Lynch, for instance, sees real gross domestic product growing at an annual rate of more than 4 percent by year-end. As a result, he expects a 21 percent jump in S&P 500 operating earnings this year and a 19 percent gain in 2003.

The potential for a strong earnings rebound is one of the reasons the current market is cheaper than it looks at first glance. Based on last year's reported earnings, the P/E of the S&P 500 is more than 40. But use projected 2003 earnings, and the market's P/E is less than 19.

Today's real opportunity, however, isn't to make a quick buck timing the market. It's the chance to begin assembling a long-term growth portfolio that can thrive over a five- to 10-year holding period.

We set out to find the stocks to fill such a portfolio. We screened the big-cap universe for the winners of the past decade and found 50 stocks that had produced compound gains of 20 percent or more a year.

The only reliable way to evaluate growth stocks is to consider their gains over time periods long enough for short-term deviations -- both favorable and unfavorable -- to wash out.

And by far the best period to use is a complete market cycle, from the trough during one recession to the trough in the next. The last complete business cycle lasted far longer than usual -- more than a decade instead of the typical six years or so.

The starting point is easy enough to identify: The S&P 500 hit bottom in October 1990, right in the middle of the 1990-91 recession. But the end point is harder to pin down. Since the recession began last year, the S&P 500 dropped to a low following the Sept. 11 attacks.

Stocks then rallied, but have tumbled again, briefly setting a new low in early July. Although the prospects for economic recovery are quite bright looking out a year or two, stocks could still fall further in the next few months.

To take account of the market's double bottom, we decided to run two different stock screens. The universe consisted of companies that have market capitalizations and annual revenue of more than $5 billion.

First, we calculated price gains from October 1990 to September 2001. Over that period, 55 companies posted compound growth of 20 percent or more a year. Then we screened the same universe a second time, calculating compound annual gains from October 1990 to June 14.

Because of lousy performance this year, several companies, such as Omnicom, moved down in the rankings. Five, including Tyco, fell off the list altogether. That left 50 classic growth stocks -- click here for the full list.

What can we learn about growth investing from this elite club? Despite recent catastrophic losses, technology still provided the biggest winners in the 1990s. Five of the top 10 are tech companies, and Dell Computer heads the list.

But tech is far from the only growth sector. It accounts for only a fifth of the stocks that passed both screens -- the majority of companies are in other businesses. Altogether, the list is made up of four different growth groups.

Besides 10 tech stocks, there are 17 financials, 11 consumer stocks, five health-care firms, two media stocks, an auto-parts maker, a defense contractor, an airline, an ad agency and Warren Buffett's holding company, Berkshire Hathaway.

This diversity shows not only that growth investors have to look beyond tech, but also that buying stocks in different industries helps control risk without undermining returns.

A basket of all 50 stocks was less than half as volatile as tech alone. And during the bear market, the 50 stocks did a better job of holding on to their long-term gains.

Most of the stocks on the list do display one of two characteristics.

Some are dominant companies in an industry with above-average growth. Examples include Applied Materials, the leading maker of equipment used in semiconductor manufacturing, and Pfizer, one of the most successful drug companies.

Others on the list have simple and compelling business strategies that enable them to gain ground against more sluggish rivals. Dell Computer is a perfect case in point, earning the No. 1 spot in our screen by consistently under-pricing other major PC makers.

The results of the screen also confirm some of the time-tested principles of successful growth investing:

• Focus on industries that are expanding faster than the overall economy.
• Diversify across the major growth groups. At a minimum, that includes tech, health care, financials and consumer growth stocks (and I expect that over the coming decade, entertainment and defense stocks will also be well represented on the list).
• Favor companies that are among the top three in their industry or that have unassailable business niches.
• In addition, it's generally safer to focus on companies with solid balance sheets and annual sales and market capitalization of more than $3 billion.

From the list, we identify six stocks that meet those standards, and also represent good buying opportunities now. Click here for profiles of them.