It's not easy for a stock investor to beat the S&P 500 in any given year, and it's even harder to do that regularly. Even Warren Buffett, who has beaten the market by huge margins over decades, hasn't managed to do so every year.
That said, he has a stellar long-term track record. Consider this: From the year when Buffett took over Berkshire Hathaway through the end of 2023, the S&P 500 gained 31,223%. Over that same period, Berkshire Hathaway's value increased by 4,384,748%.
I'm not sure even Buffett could replicate that success if he were starting over today; conditions now are different. But if you choose your own portfolio of stocks instead of simply buying index funds that will match the market, you also give yourself a chance to come out ahead of it. And if you're looking for top stocks to consider, Buffett's portfolio is a great place to get inspiration.
American Express(NYSE: AXP), Visa(NYSE: V), and Amazon(NASDAQ: AMZN) are three Buffett stocks that could outperform the S&P 500 this year. If you have $1,000 available for investing, here's why you should consider adding them to your portfolio now.
American Express: A resilient, closed-loop model
American Express is one of Berkshire Hathaway's longest-held stock positions. After the recent sale of some of its Bank of America shares, American Express is now the conglomerate's second-largest equity position.
It operates a closed-loop credit card network, which means it acts as its own bank instead of relying on third-party partners to provide customers with credit. That has allowed it to create a differentiated, financial powerhouse system with a targeted, affluent clientele, a broad product assortment, and a complete array of banking services that make it a lot more than just a credit card company.
It's known for its robust rewards programs and perks, which incentivize people to pay the larger-than-average annual fees for its cards. For many users, the value of the perks exceeds the fees, and the company enjoys loyalty from its membership base.
In the first nine months of 2024, its revenues increased 9% year over year, and earnings per share (EPS) were up 28%. American Express has multiple streams feeding into its earnings, including the fees it takes on its cards and net interest income on its deposits. That type of multifaceted business is something Buffett has mentioned that he looks for in a potential investment.
American Express stock increased 58% in 2024, and it also pays a dividend. Now that inflation has moderated, it should enjoy increased credit card business in 2025, and lower interest rates should benefit its banking division.
Visa: The network that moves the world's money
Buffett only has a small position in Visa, but the company has many of the features he craves in an investment. As the largest credit card network in the world, it plays a major role in the global economy, and that's what also gives it long-term staying power. Unlike American Express, Visa works with an array of financial institutions that underwrite the credit in transactions. All it does is provide the infrastructure that moves money from one place to the other, but it's a major part of the process, and individuals and merchants rely on it to keep money flowing.
Because its services are ubiquitous and its operation (now that it has been built out over the decades) is fairly capital-light, Visa has unmatched profit margins that generally continue to expand, and that reached 55% in fiscal 2024. Revenue increased by 10% in fiscal 2024, and EPS was up 17%.
But Visa isn't relying on its name or current system alone to keep going. It's constantly developing new partnerships and products that complement its existing framework and ensure it can maintain its place as an indispensable cog in the machine of the global economy.
Visa didn't really outperform the market in 2024, gaining just 22% vs. the benchmark S&P 500's 25% gain, but it has been a reliable market-beater over time. It also pays a growing dividend. Now that inflation has moderated, people could be on track to spend more, in which case Visa could go back to beating the market in 2025.
Amazon: Tops in e-commerce and cloud computing
Amazon is also one of Buffett's smaller positions, and he invested in it for the first time in 2019. Adding the stock then wasn't actually his idea -- credit goes to one of Berkshire Hathaway's investing managers. Even then, when it had already minted millionaires among its shareholders, he obviously felt it still had more room to grow. It has gained more than 130% since that time, beating the S&P 500's 97% increase over that span.
Amazon is the top e-commerce player in the U.S. and the top cloud computing infrastructure company in the world. But its most exciting growth driver right now is generative artificial intelligence (AI).
CEO Andy Jassy has said it's the largest opportunity he's seen in technology since the cloud, and maybe even since the Internet altogether. He also said that 85% of global information technology spending still goes to on-premises systems, but that ratio is going to flip to the cloud.
That transition offers a huge opportunity to Amazon -- and that's before adding the generative AI piece to the puzzle. AI is already generating billions in revenue for Amazon, and Jassy feels like that trend is just beginning.
Amazon stock gained 44% last year, and there's every reason to believe that it can beat the market again this year.
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American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in American Express and Apple. The Motley Fool has positions in and recommends Amazon, Apple, Bank of America, Berkshire Hathaway, and Visa. The Motley Fool has a disclosure policy.
