November 20th, Nvidia reported financial results for the third quarter of fiscal 2025, showing an impressive 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 nearly 200% year-to-date.
While Nvidia's returns are impressive, it's not the best-performing stock on the market. S&P500 (^GSPC 0.35%) this year. That distinction now belongs to energy companies Vistra (VST -2.81%)increased by 332% in 2024.
Vistra provides home electricity and owns power plants, including nuclear power plants. And many investors believe the company's core assets can meet the growing power demands of artificial intelligence (AI).
But 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.
What happened to the S&P 500 winners?
Examining historical top stocks can provide useful insights. For practical reasons, we had to set several parameters to limit the scope of this study.
First, it only covers the past 10 years of the S&P 500. Second, we only include stocks that were members of the S&P 500 throughout the year. Companies included in the index during the year were excluded from the results.
Over the past 10 years, southwest airlines, NetflixNvidia, align technology, AMD, devon energyand western oil All of them have been crowned best stocks at least once.
| year | best performing stocks | Back when it was the best stock | Return 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 | western oil | 117% | (5%) |
| 2023 | Nvidia | 239% | 196%* |
Returns data from YCharts. Table by author. *Year-to-date returns as of November 21, 2024.
This data is actually quite surprising. Some may think that after a stock becomes the top stock in an index, there will come a period of decline. But in reality, the companies with the best annual results over the past 10 years have continued their winning streak the following year in 8 out of 10 cases.
Moreover, the average profit in the second year was huge. Investors could have made a lot of money just by buying the best-performing stocks over the past year.
Suppose an investor purchases Southwest Airlines stock on December 31, 2014 and holds it during 2015. And let's say this investor sold Southwest Airlines at the end of 2015, moved that investment to Netflix in 2016, and then did the same to Nvidia. 2017 etc.
Let's exclude transaction fees and taxes for clarity (but don't exclude them, as they can actually add up). If an investor uses this strategy and starts with a $10,000 investment, he or she could have more than $800,000 in assets by year 10.
Again, these sensational returns were not achieved by predicting which stocks would be the best next year. That could have been accomplished simply by buying the already best stocks, no prophetic powers needed.
Therefore, history says Vistra stock will rise in 2025.
What does this mean for Vistra stock?
Before we explain further, it's important to note that Vistra stock was added to the S&P 500 in May. Therefore, unlike the stock in my example, it was not part of the index throughout the year. Although the returns from the above strategy were not as good when including mid-year additions to the S&P 500, these stocks still often rose in value the following year.
However, investors should be very careful about what they read from this historical data. There is a much better lesson than looking at this as a foolproof approach to investing.
Stock prices fluctuate daily for various reasons. However, the longer the period, the more likely stock price trends are linked to business performance. It may sound overly simplistic, but good results will cause stock prices to rise, but bad results will cause stock prices to fall.
In other words, it's the difference between correlation and causation. History shows that the best-performing stocks in the S&P 500 tend to rise in value the following year. However, it is a correlation, not a causation.
However, this is due to strong fundamental business results. And these performances tend to remain strong for several years, if not longer.
For this reason, investors would do well to keep a close eye on Vistra stock. Whether it's through AI or the general electrification of the power grid, the company's services will be in high demand in the coming years. The company is increasing its focus on nuclear power by acquiring a minority investor in the Vistra Vision business. And the company has a history of making profits and returning cash to shareholders.
So while Vistra stock is on track to become a top stock on the S&P 500 in 2024, this doesn't mean the stock has reached its peak. On the contrary, the best-performing companies over the past few years have continued to make even more profits, as share prices have increased, often reflecting positive developments within the business that continue beyond the end of the year. And that's where core business investors should focus, whether it's Vistra or other companies.
