Building a stock portfolio is like building a house. Combining the right parts results in a beautiful home, but neglecting a key feature can undermine the whole structure. Let's explore three stocks and see how they can play a role in building a perfect $25,000 portfolio.

Jar full of $100 bills on a wood table.

Image source: Getty Images.

Microsoft

Every home needs a solid foundation. It's the rock upon which the entire house rests. So for a hypothetical $25,000 portfolio, I would allocate $12,500 (50%) to Microsoft (MSFT 0.55%).

With a staggering market capitalization of $2.5 trillion, Microsoft is the second-largest company in the U.S., trailing only Apple. Its various businesses range from cloud computing to personal computing to online search.

In its most recent quarter (Q4 2023, ended June 30), Microsoft reported revenue of $56.2 billion and earnings per share of $2.69. Both of those figures topped estimates and show that Microsoft continues to execute on CEO Satya Nadella's aggressive plan to grow annual revenue to $500 billion by 2030.

One key to Nadella's plan is skyrocketing cloud services growth, which continues to impress. Microsoft's Azure cloud business, which competes with Amazon Web Services and Alphabet's Google cloud in the lucrative enterprise cloud market, grew revenue by 26% year over year. And while that growth rate is decelerating, it remains a powerhouse unit that should deliver top-line growth for years to come.

Microsoft is a juggernaut that keeps on rolling. Its reliable management, iconic brand, and enormous size make it a force to be reckoned with, and it's a solid foundation for nearly every portfolio.

e.l.f. Beauty

We've taken care of the foundation, so now it's time for some fun! After all, who doesn't want a little luxury? A screened-in porch, a fancy kitchen, maybe even a pool? Well, when it comes to stocks, my pick for brightening up a space is easy: e.l.f. Beauty (ELF 0.62%)

That said, I'm allocating only $2,500 (10%) of my hypothetical portfolio to the up-and-coming cosmetics brand. After all, this stock is a highflier with a scant market cap of only $7 billion -- which is nothing more than a rounding error compared to Microsoft. Nevertheless, e.l.f. still earns a spot in my portfolio thanks to its mind-blowing growth. 

Consider e.l.f.'s most recent quarter (Q1 2024, ended June 30), where the company blew away expectations. Highlights included:

  • 76% year-over-year net sales growth
  • $74 million of adjusted EBITDA, up 135% year over year
  • Full-year revenue guidance raised by 11% to $713 million
  • 38% sales growth forecast for the year 

Moreover, e.l.f. is rapidly gaining market share thanks to its innovative social media marketing. According to Nielsen, e.l.f. is now the No. 3 color cosmetics brand in the U.S. and the top brand at Target, where it holds an 18% market share.

Given that cosmetics is an industry where brand loyalty is key, e.l.f. looks like a company well-positioned to thrive for many years. Investors willing to hold through volatility should consider it a long-term buy-and-hold stock.

Visa

Finally, we need a roof to cap our house and protect it from the elements. I can't think of a better stock analogy for a sturdy roof than Visa (V -0.87%). That's why I'm allocating $10,000 (40%) of my hypothetical portfolio to it.

A financial payments and technology company, Visa is deeply embedded in much of the world's economy. For example, the company processed $3.2 trillion in payments during its most recent quarter (Q3 2023, ended June 30). Needless to say, that's a staggering volume of payments, and Visa reaps a windfall of revenue from it. Net revenue in the third quarter totaled $8.1 billion -- up 12% from a year ago.

What's more, the nature of Visa's business model -- facilitating payments on its massive network of consumer-based cards and merchant-based terminals -- is stable. Revenue grows naturally as economic activity increases and developing economies adopt card-based payments. That's why analysts expect sales to grow nearly 11% next year.

In short, every portfolio needs a play-it-safe stock. And for me, that's Visa.