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?
- 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.
- 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.
- 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 comprehensive 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?
- 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
- 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
- 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.
Why Is DSGR a Top Pick?
- Market share has increased this cycle as its 17.8% annual revenue growth over the last two years was exceptional
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 24.9% outpaced its revenue gains
- Free cash flow margin increased by 3.8 percentage points over the last five years, giving the company more capital to invest or return to shareholders
At $27.60 per share, Distribution Solutions trades at 16x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
