On Nov. 20, Nvidia reported financial results for its fiscal 2025 third quarter, showing stunning 94% year-over-year revenue growth. The business is absolutely booming, and so is the stock price. As of this writing, Nvidia stock is up close to 200% year to date.
As impressive as those returns are for Nvidia, it’s not the best-performing stock in the S&P 500 (^GSPC 0.35%) this year. That distinction presently belongs to energy company Vistra (VST -2.81%), which has gained 332% in 2024.
Vistra provides residential electricity and owns power generation plants, including nuclear plants. And many investors believe that its nuclear assets set it up to meet the growing power needs of artificial intelligence (AI).
However, after gaining over 300% in under a year, is it too late to buy Vistra stock? Stock market history can serve as a guide.
Here’s what happened with S&P 500’s winners
Looking at top stocks from the past can offer some useful insights. For practical reasons, I had to limit the scope of this survey by setting some parameters.
First, I’m only looking at the last 10 years for the S&P 500. Second, I’ve only included stocks that were members of the S&P 500 for the entire year. Companies included in the index during the year were excluded from the results.
Over the last 10 years, Southwest Airlines, Netflix, Nvidia, Align Technology, AMD, Devon Energy, and Occidental Petroleum have all taken the top-stock crown at least once.
| Year | Best-Performing Stock | Return When It Was the Top Stock | Return the Following Year |
|---|---|---|---|
| 2014 | Southwest Airlines | 125% | 2% |
| 2015 | Netflix | 134% | 8% |
| 2016 | Nvidia | 224% | 81% |
| 2017 | Align Technology | 131% | (6%) |
| 2018 | AMD | 80% | 148% |
| 2019 | AMD | 148% | 100% |
| 2020 | Nvidia | 122% | 125% |
| 2021 | Devon Energy | 179% | 40% |
| 2022 | Occidental Petroleum | 117% | (5%) |
| 2023 | Nvidia | 239% | 196%* |
Return data from YCharts. Table by author. *Year-to-date return as of 11/21/24.
This data is actually quite surprising. After being the index’s top stock, one would think it would be due for a pullback. But in reality, the past decade’s annual best performers continued their winning streak the next year in eight out of 10 cases.
Moreover, the average gain in the second year was huge. Investors could have made a lot of money by simply buying whichever was the best stock in the past year.
Let’s say an investor bought Southwest Airlines stock on Dec. 31, 2014 and held for all of 2015. And let’s say that this investor sold Southwest Airlines at the end of 2015 and rolled that investment into Netflix for 2016, then did the same for Nvidia in 2017, and so on.
Let’s exclude trading fees and taxes for simplicity (but don’t exclude them in real life because they can add up). If an investor used this strategy and started with a $10,000 investment, they’d have over $800,000 by year 10.
Again, these sensational returns weren’t achieved by predicting which stock would be the best in the coming year. It would have been achieved by simply buying what already had been the best stock — no prophetic powers needed.
Therefore, history suggests Vistra stock is headed higher in 2025.
What does this mean for Vistra stock?
Before I go further, I should note that Vistra stock was added to the S&P 500 in May. So, unlike the stocks in my example, it wasn’t a part of the index for the entire year. Returns from my above strategy aren’t quite as good when including mid-year additions to the S&P 500, though these stocks still went up in value the following year more often than not.
However, investors need to be extremely careful with what they take away from this historical data. Rather than look at this as some surefire approach to investing, there’s a far better takeaway.
Stocks bounce around day by day for any number of reasons. But the longer the time horizon, the more stock movements are tied to business results. At the risk of sounding overly simplistic, positive results send shares higher, whereas poor results drop shares lower.
To put this another way, it’s the difference between correlation and causation. History shows that the best-performing stock in the S&P 500 tends to go up the following year as well. But that’s correlation, not causation.
The cause, however, is the strong underlying business results. And those business results tend to stay strong for multiple years, if not longer.
For this reason, investors would do well to give Vistra stock a close look. Whether from AI or the general electrification of the grid, the company’s services will enjoy growing demand in coming years. The company is leaning more into nuclear power by buying out minority investors in its Vistra Vision business. And it’s a company with a history of profitability and returning cash to shareholders.
So, while Vistra stock is on pace to be the top stock in the S&P 500 for 2024, this doesn’t mean the stock has peaked. To the contrary, the best performers in past years have gone on to deliver even more gains because in many cases, their soaring stock prices reflected positive developments within the business that extended beyond the end of each year. And it’s that core business investors should focus on, whether it’s with Vistra or any another company.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Align Technology, Netflix, Nvidia, and Tesla. The Motley Fool recommends Occidental Petroleum and Southwest Airlines. The Motley Fool has a disclosure policy.
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