On November 20, Nvidia Financial results for the third quarter of fiscal 2025 were reported, showing an impressive 94% year-over-year revenue growth. 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 that return is on Nvidia, it’s not the best-performing stock in the S&P 500(SNPINDEX: ^GSPC) this year. That distinction currently belongs to the energy company Vistra(NYSE: VST)which we got 332% by 2024.
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Vistra provides residential electricity and owns power plants, including nuclear plants. And many investors believe that its nuclear assets are positioned to meet the growing power needs of artificial intelligence (AI).
However, after gaining more than 300% in less than a year, is it too late to buy Vistra stock? Stock market history can serve as a guide.
Looking at the top stocks of the past can provide useful insights. For practical reasons, I had to limit the scope of this test by setting some parameters.
First, I only looked at the last 10 years of the S&P 500. Second, I only included stocks that were members of the S&P 500 throughout the year. Companies included in the index during the year are not included in the results.
10 years ago, Southwest Airlines, Netflixnvidia, Align Technology, AMD, Devon Energyagain Occidental Petroleum all have taken the top stock crown at least once.
A year
Best performing stock
Back When It Was High Stock
Come back next 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%*
Retrieve data from YCharts. Table by author. *Annual return to date as of 11/21/24.
This data is actually surprising. After being the top stock of the index, one would think that it could be due to a reversal. But in fact, players who did well the previous year continued their winning streak the following year in eight out of 10 cases.
In addition, the average profit in the second year was greater. Investors could have made a lot of money by simply buying any of the best stocks in the past year.
Suppose an investor bought Southwest Airlines stock on Dec. 31, 2014 and we were held for the entire year of 2015. And let’s say this investor sold Southwest Airlines at the end of 2015 and made that investment in Netflix in 2016, and then did the same in Nvidia. in 2017, and so on.
Let’s not include trading fees and taxes for simplicity (but leave them out in real life because they can add up). If an investor uses this strategy and starts with an investment of $10,000, he will have more than $800,000 in 10 years.
Again, these sensational returns were not achieved by predicting which stock would do best in the coming year. It would be accomplished by simply buying what was the best stock — no prophetic powers required.
Therefore, history suggests that Vistra stock is headed for a high in 2025.
Before I go any 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 part of a year-round index. The returns from my strategy above aren’t particularly good when including mid-year additions to the S&P 500, even though these stocks still go up in value over the next year more often than not.
However, investors need to be very careful about what they take away from this historical data. Rather than looking at this as a surefire way to invest, there is a better option.
Stocks jump every day for any number of reasons. But if the horizon is longer, the stock movements are in line with the business results. At the risk of sounding too simplistic, positive results send stocks higher, while negative results send stocks lower.
To put this another way, it is the difference between correlation and causation. History shows that the best performing stocks in the S&P 500 tend to rise in the following year. But that’s correlation, not causation.
The bottom line, however, is strong underlying business results. And those business results tend to stay strong for years, if not longer.
For this reason, investors would do well to give Vistra stock a closer look. Whether it comes from AI or general grid electrification, the company’s services will enjoy growing demand in the coming years. The company is leaning heavily on nuclear power by buying out several investors in its Vistra Vision business. It is also a company with a history of making profits and returning cash to shareholders.
So, while Vistra stock is on track to be the top stock in the S&P 500 by 2024, this doesn’t mean the stock is over the top. On the contrary, the top performers over the years have continued to bring in more returns because in most cases, the increase in their stock prices has reflected positive developments in the business that have carried over to the end of each year. And that’s what serious business investors should focus on, whether it’s Vistra or another company.
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*Stock Advisor returns from November 18, 2024
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions 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 policy of disclosure.
Top S&P 500 for 2024 (So Far) Not Nvidia. Here’s Where History Says Inflation Is Pointing To 2025. was originally published by The Motley Fool
