We all want to beat the market. It's easier said than done, but doing your homework can give you an edge on the standard portfolio of exchange-traded funds (ETFs) these days. Here are three stocks that have beaten the S&P 500 that I think can do it again over time.
1. Apple
An investment gem for years, Apple (NASDAQ: AAPL) was in the news a few weeks ago for becoming more valuable than Microsoft (NASDAQ: MSFT) . The company has outpaced the S&P 500 by 234% over the last five years.
It is one of Warren Buffett's favorites, and for good reason. Its products have lots of utility, and the phone and computer businesses have a significant barrier to entry. You need deep pockets and infrastructure to get involved in this game.
Image source: Getty Images.
Naysayers to my Apple pick will likely point to last year's 2.8% decline in revenue and the weak first quarter of 2024. What I think is being missed here is the potential demand that Apple could create from the integration of AI-based programs into its products.
Most recently, the chatter around Apple has been its announcement of Apple Intelligence, its planned AI business, and potential partnership with Meta Platforms on generative AI. This could be exactly what Apple needs to gain the momentum seen by stocks such as Nvidia , whose semiconductor chips are essential to AI-based businesses.
I like Apple as a play on this burgeoning business, since it stands to be a new source of demand for the tech company. It has the product lineup necessary to implement AI in a way that will appeal to its large consumer base. As I said before, Apple's devices offer a lot of utility. Integrating AI into them only stands to increase that advantage.
2. Costco
Costco Wholesale (NASDAQ: COST) is a blue chip gem. The discount king creates consistent annual growth and earnings for shareholders, and its low-price strategy positions it well in our inflationary economy, where consumers are looking for the best deals.
Charlie Munger, Warren Buffett's late partner, loved Costco, and it's easy to see why. It has outpaced the S&P 500 by 134% over the last five years, using a strong member base that drives comparable store sales (comps). In the first 16 weeks of the company's fiscal year, total comps increased by 4.7%, with a 12.6% increase in e-commerce. May sales results showed comps gained 6.4%, with e-commerce sales gaining 15.3%.
Those figures don't match Nvidia's, but the key here is consistency and profitability over time, and a business model that is beneficial to consumers at any time. Costco has averaged double-digit revenue growth over the last five years, just a part of years of revenue and net earnings increases, and there seems to be little sign that the story will change.
3. Cava
Wish you could go back and buy into Chipotle Mexican Grill (NYSE: CMG) before it was Chipotle? Cava Group (NYSE: Cava) just might be your shot.
The latter restaurant chain operates very similarly to its Mexican counterpart but focuses on Mediterranean cuisine. I'd challenge you to find many competitors of scale in the Mediterranean space, and Cava might be a great long-term play.
Having gone public only last year, Cava shares have beaten the S&P 500 by roughly 100% in that time. The restaurant chain has seen significant growth as it pushes to create a similar story to Chipotle. First-quarter revenue increased 30.3% year over year to $256 million, while its total number of restaurants increased 22.8% year over year, to 323 locations.
For being such a young company, and a quintessential growth stock, Cava has found profitability particularly early, making $13.28 million last year. To be fair, that's not significant on a per-share basis, amounting to a mere $0.12 per diluted share, but compared to a loss of $1.30 the year prior, I like seeing a company focused on profitability early.
Full-year guidance is looking for comps growth of 4.5% to 6.5%, with net new-store openings of 50 to 54. To be clear, this is an investment fully focused on growth. Earnings are not the primary thing that will drive the share price.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. David Butler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Chipotle Mexican Grill, Costco Wholesale, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Cava Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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