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Stocks that outperform the market usually share key traits such as rising sales, expanding margins, and increasing returns on capital. The select few that can do all three for many years are often the ones that make you life-changing money.
It’s clear there’s a strong connection between sustained earnings growth and hall-of-fame returns. On that note, here are three market-beating stocks that deserve a spot on your list.
Microsoft (MSFT)
Five-Year Return: +145%
Short for microcomputer software, Microsoft (NASDAQ:MSFT) is the largest software vendor in the world with its Windows operating system, Office suite, and cloud computing services.
Why Will MSFT Outperform?
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Microsoft is one of the great brands not just in tech but all of business. It produces mission-critical software and bundles it together, resulting in cream-of-the-crop gross margins.
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The company's elite unit economics lead to robust profit margins that improve over time. This speaks to the scale advantages and operating efficiency across its diverse portfolio, which spans everything from Office and Azure to Minecraft.
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Microsoft has a virtuous cycle of returns. Its dominant market position enables it to generate strong free cash flow, and it reinvests these funds into promising ventures that further strengthen its competitive moat.
Microsoft is trading at $452.45 per share, or 31.9x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Netflix (NFLX)
Five-Year Return: +160%
Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.
Why Do We Love NFLX?
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Global Streaming Paid Memberships are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
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Healthy EBITDA margin of 27% shows it’s a well-run company with efficient processes, and its profits increased over the last few years as it scaled
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Free cash flow margin expanded by 18.6 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
Netflix’s stock price of $1,179 implies a valuation ratio of 36.3x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
Distribution Solutions (DSGR)
Return Since IPO: +47.6%
Founded in 1952, Distribution Solutions (NASDAQ:DSGR) provides supply chain solutions and distributes industrial, safety, and maintenance products to various industries.