The S&P 500 rallied by more than 80% over the past five years, despite the pandemic, inflation, soaring interest rates, and other macroeconomic headwinds rattling the global economy. However, the S&P 500 now looks historically expensive at 30 times earnings, so investors might be reluctant to load up on new stocks until the market cools off.
That would be a prudent strategy, but investors who plan to hold their stocks for a few decades instead of a few quarters shouldn't fret too much over the market's near-term fluctuations. Instead, they should still accumulate the stocks that could generate significant long-term gains.
Let's examine three of those promising stocks: Walmart (WMT +0.94%), Costco (COST +1.16%), and American Express (AXP 1.17%). All three stocks outperformed the S&P 500 over the past five years, but they still have plenty of upside potential.
Image source: Getty Images.
Walmart
Over the past decade, Walmart has expanded its e-commerce marketplace, utilized its brick-and-mortar stores to fulfill online orders, matched Amazon's (AMZN 1.43%) prices, and introduced free delivery options and other perks for its Walmart+ members. It also maintained a pace with Costco in the warehouse club market through its Sam's Club stores, and continued to expand overseas. Today, it operates over 10,800 stores and clubs across 19 countries.
NASDAQ: WMT
Key Data Points
Walmart's scale enables it to sell its products at lower prices than its smaller competitors. It can also leverage that scale to negotiate lower prices from its suppliers. Those advantages, along with the stickiness of its Walmart+ memberships, help it thrive through economic downturns. Walmart also usually attracts more cost-conscious shoppers during recessions.
From fiscal 2025 (which ended in Jan. 2025) to fiscal 2028, analysts expect Walmart's adjusted earnings per share (EPS) to grow at a CAGR of 10%. Its stock isn't cheap at 38 times forward earnings, but its evergreen strengths justify that premium valuation.
Costco
Costco, the world's largest warehouse club retailer, can afford to sell its products at low margins because it generates most of its profits from its high-margin membership fees. It constantly opens new warehouses to attract more members, locks them in with more ancillary services, and leverages its scale to negotiate lower prices from its suppliers. It also differentiates itself from other retailers by selling bulk goods and its own private-label products.
NASDAQ: COST
Key Data Points
Costco's business will remain healthy as long as it continues to grow its comparable store sales, opens additional warehouses, attracts more cardholders, and maintains high renewal rates. From fiscal 2020 to fiscal 2025 (which ended this August), its comparable store sales consistently rose, its warehouse count jumped from 795 to 914, its total cardholders grew from 105.5 million to 140.6 million, and its global renewal rate increased from 88% to 90.5%. It achieved that expansion even as the pandemic, inflation, and other macro headwinds rattled the retail sector.
From fiscal 2025 to fiscal 2028, analysts expect Costco's EPS to grow at a CAGR of 11%. Its stock isn't a bargain at 43 times forward earnings, but it should continue to expand as it opens more warehouses and attracts more members.
American Express
American Express is often considered a credit card company, but it operates under a distinct business model compared to Visa (V 0.74%) or Mastercard (MA 1.20%). Unlike Visa and Mastercard, which only process card payments but don't issue their own cards, American Express is a full-fledged bank that issues its own cards.
NYSE: AXP
Key Data Points
That business model might seem riskier, but American Express only approves its cards for higher-income consumers with lower risk profiles. It also insulates it from interest rate swings. When interest rates are low, it benefits from an uptick in consumer spending. When interest rates are high, it can generate more net interest income from its own banking accounts. That balance makes it a more stable investment than stand-alone card companies and banks.
American Express had more than 140 million cards in force at the end of 2024, but it still has plenty of room to grow as it expands overseas. From 2024 to 2027, analysts expect its EPS to grow at a CAGR of 13%. Its stock still looks reasonably valued at 21 times forward earnings, and it should continue growing at a robust but predictable rate over the next two decades.
