On November 20 Nvidia reported financial results for the third quarter of 2025, with a stunning 94% year-over-year revenue growth. The company is absolutely booming, and so is the stock price. At the time of writing, Nvidia shares are up almost 200% this year.
As impressive as these returns are for Nvidia, it’s not the best-performing stock in the sector S&P500(SNPINDEX: ^GSPC) this year. That distinction currently belongs to the energy company Vistra(NYSE: VST)which will increase by 332% by 2024.
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Vistra supplies electricity to homes and owns power stations, including nuclear power stations. And many investors believe its nuclear assets are setting it up to meet the growing energy needs of artificial intelligence (AI).
However, after gaining more than 300% in less than a year, is it too late to buy Vistra shares? The history of the stock markets can serve as a guide.
Looking at top stocks from the past can provide useful insights. For practical reasons, I had to limit the scope of this study by setting some parameters.
First, I only look at the past ten years for the S&P 500. Second, I only included stocks that were members of the S&P 500 for the entire year. Companies that were included in the index during the year were excluded from the results.
In the past 10 years Southwest Airlines, NetflixNvidia, Align technology, AMD, Devon EnergyAnd Western petroleum have all captured the top title at least once.
Return data from YCharts. Table by author. *Year to date returns as of 11/21/24.
This data is actually quite surprising. After being the index’s top stock, you’d think it was due for a pullback. But in reality, the annual top performers from the past decade continued their winning streak the following year eight out of ten times.
Moreover, the average profit in the second year was enormous. Investors could have made a lot of money by simply buying the best stocks of the past year.
Let’s say an investor bought shares of Southwest Airlines on December 31, 2014 and held them for all of 2015. And let’s say this investor sold Southwest Airlines in late 2015 and rolled that investment over to Netflix for 2016, and then did the same for Nvidia. in 2017, and so on.
For simplicity, let’s exclude trading fees and taxes (but don’t exclude them in real life because they can add up). If an investor were to use this strategy and start with an investment of $10,000, they would have over $800,000 by the tenth year.
Once again, these sensational returns were not achieved by predicting which stocks would be the best in the coming year. This would have been achieved by simply buying what were already the best stocks – no prophetic powers were needed.
History therefore indicates that Vistra shares will soar higher in 2025.
Before I go any further, I should note that Vistra stock was added to the S&P 500 in May. Unlike the shares in my example, these shares were not part of the index for the entire year. The returns from my above strategy aren’t as good when I include mid-year additions to the S&P 500, although these stocks still increased in value the following year more often than not.
However, investors should be extremely careful about what they draw from this historical data. Rather than viewing this as a surefire approach to investing, there is a much better takeaway.
Stocks fluctuate day after day for all kinds of reasons. But the longer the time horizon, the more stock movements are linked to company results. At the risk of sounding too simplistic, positive results send stocks up, while bad results send stocks down.
In other words: it is about the difference between correlation and causality. History shows that the best-performing stocks in the S&P 500 also tend to rise the following year. But that’s correlation, not causation.
However, the reason is the strong underlying business results. And those business results typically remain strong for several years, if not longer.
For this reason, investors would do well to take a closer look at Vistra stock. Whether it is AI or the general electrification of the power grid, the company’s services will experience growing demand in the coming years. The company is focusing more on 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 track to become the top stock in the S&P 500 by 2024, that doesn’t mean the stock has peaked. On the contrary, the best-performing companies in recent years have posted even greater gains, as their rising share prices in many cases reflected positive developments within the company that extended beyond the end of each year. And this is what investors should focus on, whether it’s with Vistra or any other company.
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*Stock Advisor returns November 18, 2024
Jon Quast has no position in any of the stocks mentioned. The Motley Fool holds 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.
The best S&P 500 stock of 2024 (so far) isn’t Nvidia. This is where history says the rising stock price is headed in 2025. was originally published by The Motley Fool
