What’s going to be the S&P’s best-­performing stock this year? Many Wall Street experts expect a repeat of 2023—large-cap tech stocks such as Meta Platforms and Nvidia.

“Don’t bet on it,” says investment ­advisor Martin Fridson, CFA. According to him, S&P 500 stocks that achieve the number-one return have specific characteristics that set them up for huge gains in share price. None of 2023’s Magnificent Seven stocks checked all those boxes at the start of 2024. That doesn’t mean your tech stocks can’t do well this year, but if you want to invest aggressively in a big potential winner, you’re better off owning some surprising companies.

Bottom Line Personal asked ­Fridson for his contenders and what is so special about each of them…

Four Winning Factors

The top S&P 500 performer in any given year is rarely the biggest or most well-known company. In fact, the list of winners in recent history is eclectic and includes homebuilder PulteGroup (2012, up 188%)…Southwest Airlines (2014, up 126%)…Invisalign-maker Align Technology (2017, up 132%)…oil-and-gas producer Occidental Petroleum (2022, up 119%)…and semiconductor chip maker Nvidia (2023, up 239%).

In every case, what drove their performance wasn’t just strong earnings growth and robust future guidance. It was that their results surprised Wall Street. Remember—prices reflect what investors think may happen next quarter and next year. If expectations for a company are very high to begin with, its stock price may not budge even if it posts terrific results. But when results greatly exceed expectations, investors rush in to buy the stock, pushing up the price.

I examined the big winner in each of the past dozen years and tried to reverse engineer the process. I scoured scores of quantitative factors to figure out how these companies managed to shock Wall Street. With the exception of the unusual year of 2023, they all had these four factors in common, regardless of whether there was a bull or a bear market at the time or how the economy was faring…

Factor #1: Massive stock price volatility. Every number-one stock experienced large up-and-down swings in its stock price versus the rest of the market. A stock’s price needs to bounce up and down wildly if you hope to capture a high bounce. Case study: Last year’s winner, Nvidia, always has been hypervolatile. It experienced a ­double-digit stock gain or loss every year since 2005, as well as triple-digit gains six times. That roller-coaster ride continued throughout 2023—in just one week in May, the stock shot up 31% due to a combination of blowout earnings, strong guidance and a new reputation as the poster child for artificial intelligence. 

Factor #2: Wall Street analyst wars. Every quarter, investment banks and equity research firms release estimates of how they think companies’ earnings per share will do. The analysts typically have a similar consensus of what will happen. Not so for number-one S&P 500 performers—their estimates have been widely dispersed, creating the opportunity for a stunning surprise. Case study: Tesla stock rose nearly 750% in 2020. At the start of the year, analysts were divided over Tesla. On one hand, the company was dominating the transformation of the auto industry away from gasoline-powered vehicles. On the other hand, three fatal crashes involving Tesla’s autopilot self-driving ­system raised questions in regulators’ minds.

Factor #3: Less-than-pristine balance sheets. If you want a big winner, don’t look at blue chips. Number-one stocks typically had below investment-grade or “junk” status. The low credit ratings often were due to large amounts of debt, which creates the kind of leverage that magnifies positive and negative changes in earnings and cash flow for companies. Case study: Devon Energy (2021, up 179%), the Oklahoma oil-and-gas driller, operated in major shale basins in the US. With more than $5 billion of debt, Devon carried a junk-level rating. Then from 2020 to 2021, oil prices spiked nearly 80%…Devon’s free cash flow soared…and major credit agencies lifted the company’s rating to investment grade after it announced a plan to pay off $700 million in debt. 

Factor #4: Modest market capitalization. The number-one stock in the past decade (excluding 2023) has never been a behemoth. In fact, its market cap was typically in the range of $30 billion to $40 billion. By comparison, there are companies in the S&P 500 with market caps in the trillions. Smaller companies often have larger gaps between expectations and outcomes, and they can double or triple in size in the course of a year. Once a company’s value grows above a few hundred billion dollars, even big surprises move the needle only so much. Case Study: Netflix was a $5 billion mid-cap stock back in 2013, one of the smallest companies in the S&P 500, when its share price rose 298%. Two years later, it ranked number one in performance again, jumping 134% to a $50 billion market cap.

The Surprising Five

At the end of 2023, five S&P 500 companies met the criteria. Before you invest…

Consider qualitative factors affecting these picks. The stocks check all the quantitative boxes for big winners, but you also want to identify strong catalysts that could occur and trigger larger-than-expected earnings growth.

Allocate only a tiny percentage of your equity portfolio—2% or less—to these picks because the risk is considerable. After all, volatility cuts both ways. A stock capable of triple-digit annual gains also could face outsized losses if it fails to execute well or the catalysts for growth don’t materialize.

Five companies with the best profiles to be the number-one stock in 2024…

Boston Properties (BXP) owns more than 190 office properties and 54 million rentable square feet in markets such as Boston, New York and San Francisco. Nationwide, office occupancy rates are far below pre-pandemic levels, but Boston Properties has better-situated buildings than the competition, and 20% of its properties are geared toward the expanding life-sciences industry. Also, interest in urban living is making a comeback. Recent share price: $63.83.*

Carnival Corp. (CCL), the largest global cruise company, is in the midst of a remarkable recovery. Revenues fell to nearly zero during the pandemic, and Carnival borrowed heavily to remain solvent. In 2023, business rebounded sharply, leading to a stock gain of 130%. For 2024, Carnival has raised prices and bookings are robust thanks to pent-up travel demand. Recent share price: $16.23.

Expedia Group (EXPE), the world’s second-biggest online travel agency books vacation lodging and rental cars through branded websites. It has reduced annualized fixed costs by more than $700 million in post-pandemic years. Expedia is building generative AI into products and using advanced chatbots to recommend destinations and flights to travelers. Recent share price: $136.93.

Norwegian Cruise Line Holdings (NCLH). The cruise company’s stock rose 63% last year for the same reasons that Carnival outperformed. But Norwegian stock still is 70% below pre-pandemic heights. It is increasing capacity with four new ships debuting by 2028. Falling interest rates should make its debt cheaper. Profitability is expected to triple in the next few years. Recent share price: $19.80.

Warner Bros. Discovery (WBD). The Warner Bros. and Discovery merger in 2022 gave the cable-TV franchises, film studio and streaming entertainment conglomerate an edge. Assets include CNN, HBO and the Food Network…and movies and shows such as Barbie and Game of Thrones. Analysts have mixed estimates on its future—management faces challenges including a debt burden of nearly $50 billion. Recent share price: $9.07.

*All performance figures are through March 11, 2024, courtesy of Morningstar, Inc.


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