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3 Warren Buffett Stocks That Are Crushing the S&P 500 This Year. Are They Still Smart Picks?

Motley Fool - Sat Mar 25, 4:50AM CDT

Warren Buffett isn't beating the market so far in 2023. Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) stock performance lags well behind the S&P 500.

However, it's a much different story for some of Berkshire's holdings. Here are three Buffett stocks that are crushing the S&P 500 this year.

1. Floor & Decor Holdings

Floor & Decor Holdings(NYSE: FND) ranks as Buffett's biggest winner of the year, by far. Shares of the specialty retailer have skyrocketed close to 34%, while the S&P 500 has risen less than 5%.

Berkshire first initiated a position in Floor & Decor in 2021. It scooped up more shares last year. The giant conglomerate now owns 4.5% of the company.

The big year-to-date gains for Floor & Decor mark a stark contrast to the 46% decline in 2022. What happened? An improving overall stock market helped.

Floor & Decor also announced better-than-expected Q4 results last month. The company's net sales jumped 14.6% year over year to $1.05 billion. Floor & Decor also projected that 2023 net sales will rise nearly 10%, based on the midpoint of its guidance range.

2. Apple

Apple(NASDAQ: AAPL) is arguably the Oracle of Omaha's favorite stock after Berkshire Hathaway itself. The huge tech stock is the largest holding, by far, in Buffett's Berkshire portfolio. It's also one of Buffett's biggest winners this year, with a solid gain of over 23% after falling 27% in 2022.

Two months ago, Apple announced worse-than-expected fiscal 2023 Q1 revenue and earnings results. How has the stock beaten the market anyway? It boils down to anticipation about the future.

The company could have a new AR/VR (augmented reality/virtual reality) headset on the way. Apple is reportedly considering launching an iPhone subscription service. Several Wall Street analysts have raised their price targets on the stock in part because of these expectations.

3. Amazon

Amazon(NASDAQ: AMZN) stands out as another turnaround story for Buffett this year. In 2022, the stock plunged nearly 50%. So far in 2023, though, Amazon's shares are up close to 17%.

Buffett hasn't been buying Amazon stock lately. Berkshire's position in the e-commerce and cloud services leader amounts to only 0.3% of its total portfolio. That's still more than twice as large as the stake in Floor & Decor, though.

There have been several positive developments for Amazon over the last couple of months. For example, the company announced earlier this week that it's collaborating with Nvidia to build the most scalable artificial intelligence (AI) infrastructure on the market using Amazon Web Services (AWS) and Nvidia's chips.

Amazon has also taken steps to boost its profitability. It's expanding into new areas, as well, completing the acquisition of primary care provider One Medical in February.

Are they still smart picks?

While all three of these stocks are hot right now, momentum can quickly fizzle. Are they still smart picks? I think so.

Floor & Decor continues to expand. The retailer plans to open up to 35 warehouse stores this year.

Sure, higher interest rates have dampened the housing market somewhat. However, there's still a national housing shortage. That should provide a tailwind to Floor & Decor in the coming years.

I like Apple for the same reasons that Buffett does. It's a fantastic business with a strong moat. My hunch is that Buffett could be buying even more shares of Apple this quarter.

As for Amazon, I wouldn't be surprised if the stock doubles or more over the next seven years. Amazon certainly has room for growth in e-commerce. But I'm most excited about the prospects for its AWS cloud business. I look for an AI boom to significantly benefit AWS over the next decade and beyond.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has positions in, Apple, Berkshire Hathaway, and Nvidia. The Motley Fool has positions in and recommends, Apple, Berkshire Hathaway, and Nvidia. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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