The US stock market had a fantastic year, returning almost 33% in 2019. I always find it helpful to review my portfolio at the start of a year and compare it against the S&P 500’s returns to get an idea of how I am doing.
I also like to look at the best-performing stocks of the past twelve months and analyze why they did well. Among other things, it can be a superb educational experience.
How To Measure Stock Performance
I prefer measuring stock performance by calculating its year on year growth. I simply take a stock’s price at the start of the year and see how much it changed in 12 months.
For example, Tesla’s stock was $301.6 at the start of 2019 and $424.5 at the end, returning 38.6% in 2019.
A year is a long enough time for a stock to rise and fall, and it’s also easy to compare yearly returns.
It’s also important to have perspective while measuring stock returns, so I go a step further and look at the top 1,000 stocks by returns in large-cap, mid-cap, and small-cap.
Companies of different sizes tend to grow at different speeds, so I prefer to group them by market capitalization. It allows me to compare their returns better, and gives me a complete picture of the stock performance.
The 20 Best Performing Stocks in The Past 12 Months
I am going to take the 6 best-performing stocks from small-cap and mid-cap each, and the 8 best from large-cap to make up the list of the 20 best-performing stocks in the past 12 months.
1. Axsome Therapeutics (AXSM)
Stock Price on 31st December 2019: $103.36
12-month growth: 3578.29%
The scientists at Axsome have figured out a way to get antidepressants past the blood-brain barrier (no other drug can do this right now). The new drug has the potential to change the mental health industry completely, and that’s the reason Axsome’s stock has skyrocketed.
2. Constellation Pharmaceuticals (CNST)
Stock Price on 31st December 2019: $47.11
12-month stock growth: 1066.09%
When clinical trials conducted by pharmaceutical companies show promising results against a deadly disease, their stock price tends to increase exponentially. A similar thing happened with Constellation when their clinical tests for a rare bone marrow cancer drug showed promising results.
3. Stage Stores Inc (SSI)
Stock Price on 31st December 2019: $8.12
12-month stock growth: 941%
Two factors drove the Stage Stores’ stock in 2019. First, the conversion of Stage Store-branded stores into Gordmans stores. And second, they reported a profitable quarter for the first time since 2015.
4. Kodiak Sciences Inc (KOD)
Stock Price on 31st December 2019: $71.95
12-month stock growth: 919.12%
Kodiak Sciences is another biotech stock. It has risen on the back of successful clinical tests of therapies and drugs for chronic eye diseases.
5. Provention Bio Inc (PRVB)
Stock Price on 31st December 2019: $14.9
12-month stock growth: 741.81%
Another biotech company, Provention, is close to developing a disruptive drug that can delay and even prevent Type 1 diabetes in high-risk patients. Diabetes-related healthcare is a $57 billion space, while Provention is valued at $710 million.
6. EverQuote (EVER)
Stock Price on 31st December 2019: $34.35
12-month stock growth: 725.72%
EverQuote has big ambitions of becoming the largest website for insurance quotes. It’s taking giant strides by partnering with some of the most well-known insurance companies in the US, like MetLife and Progressive. At the same time, its revenue and profits are increasing.
7. Avita Medical (RCEL)
Stock Price on 31st December 2019: $9.1
12-month stock growth: 719.82%
An Australian company, Avita, aims to regenerate skin for burn victims. With a valuation of $868 million, it is targeting a market of $2 billion. In 2019, its revenue increased seven times to $7.7 million.
8. Durect (DRRX)
Stock Price on 31st December 2019: $3.8
12-month stock growth: 691.67%
Durect is a biotech company whose stock price has risen exponentially because of the development of a promising pain medicine and the approval of a new drug.
9. Arqule Inc (ARQL)
Stock Price on 31st December 2019: $19.96
12-month stock growth: 625.82%
Arqule specializes in drugs for cancers and rare diseases. In December 2019, Merck & Co., one of the largest pharmaceutical companies in the world, acquired Arqule at $20 per share, when the stock was trading at less than $10.
10. Arrowhead Pharmaceuticals, Inc. (ARWR)
Stock Price on 31st December 2019: $63.43
12-month stock growth: 421%
Arrowhead is one of the frontrunners in developing a cure for chronic hepatitis B, a condition that kills more people in the world than malaria. In 2019, it reported promising trial results.
11. The Medicines Company (MDCO)
Stock Price on 31st December 2019: $84.94
12-month stock growth: 349%
In 2019, The Medicines Company got closer to developing a drug for genetically inherited cholesterol issues. It was also bought by Novartis, a huge Swiss pharmaceutical company, at $85 a share. Both reasons played a role in the massive jump in stock price.
12. Roku Inc (ROKU)
Stock Price on 31st December 2019: $84.94
12-month stock growth: 330%
In 2019, Roku, a media streaming company, aggressively increased two key numbers that are crucial to its business: the number of active customers and the hours of content they stream. At the end of 2019, they had a market share of 39% in the US.
13. Advanced Micro Devices (AMD)
Stock Price on 31st December 2019: $48.27
12-month stock growth: 160.75%
The launch of better and faster processors and better than expected earnings contributed to AMD’s rise.
14. Lam Research Corp (LRCX)
Stock Price on 31st December 2019: $295.20
12-month stock growth: 115.39%
Lam Research Corp is a market leader in supplying material to the biggest semiconductor companies. It boasts of clients like Samsung and Intel, among many others. Its stock price rose owing to strong financial numbers in 2019, a rising demand for semiconductors because of artificial intelligence, and 5G.
15. KLA Corp (KLAC)
Stock Price on 31st December 2019: $179.96
12-month stock growth: 100.82%
KLA Corp also makes and supplies material to the semiconductor industry. Like Lam Research, it rose because of the immense potential and imminent shift to more advanced technologies like artificial intelligence and 5G.
16. Copart Inc (CPRT)
Stock Price on 31st December 2019: $91.48
12-month stock growth: 96.06%
Copart is an auction and valuation services company. Its business and profits witnessed explosive growth in 2019.
17. Chipotle Mexican Grill Inc (CMG)
Stock Price on 31st December 2019: $865.28
12-month stock growth: 93.57%
Yes, you played a role in Chipotle’s massive stock price return by eating its lip-smacking food. I did too. Apart from that, a new CEO, rapidly increasing digital sales, a push into catering and delivery services, and the opening of new restaurants led to Chipotle’s stellar performance.
18. Apple Inc (AAPL)
Stock Price on 31st December 2019: $298.25
12-month stock growth: 90.19%
Apple’s revenue from the iPhone fell in 2019. But it grew in other areas like wearables and accessories, iPads and services like Apple TV+, Apple Arcade, Apple News+, and a new credit card.
19. Target Corp (TGT)
Stock Price on 31st December 2019: $124.25
12-month stock growth: 89.75%
An improved financial health, rising profits from opening smaller stores, and an increased online business were influential in Target’s stock price soaring in the last 12 months.
20. Quorvo Inc (QRVO)
Stock Price on 31st December 2019: $113.60
12-month stock growth: 89.54
Quorvo is in the semiconductor business. A range of new innovative services and products released in 2019, coupled with the imminent 5G revolution, set the stock on fire.
Many factors affect a company’s stock price. Present value does not indicate its future potential.
That also makes identifying stocks with high returns difficult. Even the so-called experts and people who have spent all their life studying stocks don’t get it right.
Why Picking Them is Not Likely
All people who have ever bought a stock thought it was a winner. Why else would they buy it?
But you are more likely to pick a losing stock than one that makes you very rich. That’s a statement backed by 90 years of research.
From 1926 to 2015, there have been 25,782 distinct stocks. Yes, I know the number seems low, but half of the stocks ever to be listed on the stock market disappear within seven years.
During these 90 years, the stock market rose $32 Trillion in value. But more than half of it came from JUST the top 86 companies. 86 out of 25,728! The remaining wealth was generated by the top 1000 stocks. That’s ONLY 4% of all the companies. In other words, the other 96% of the stocks were losers.
Do you still think it is easy to pick winning stocks?
Here’s one more piece of data. If you were to buy and hold stocks from 1926 to 2015, four out of seven stocks you bought would have had lower returns than if you had invested in 1-month US Treasuries.
Just investing in the previous year’s best performers would not work either. 12 out of the 20 best performing from the above list had a negative return in the year before that.
Stage Stores is a classic example. It grew by 941% to $8.12 in 2019. But its price in 2013 was a shade under $29. Before its astronomical rise in 2019, Stage Stores had a cosmological fall and had lost almost all of its value.
You may be wondering. Okay, I get that picking individual stocks is hard, and the odds of success are low. But then what’s the solution?
The Best Way to Invest in Stocks
Index funds invest in a basket of stocks and aim to mimic an index like the S&P 500. They don’t try to pick winners (which we know is hard). They don’t try to “beat the market”. Their objective is to be the market.
Passively managed index funds have beaten actively managed funds more than 90% of the time. It shows that those who try to beat the market and get massive returns fail miserably.
On the other hand, an index fund lets you own the entire market, which has historically given positive returns.
Since 1926, the S&P has given an annualized return of 10.21% for 92 years. At that rate, your invested money will double roughly every seven years.
Because of all these reasons, I recommend putting 90% of your stock investments into index funds rather than trying to pick winning stocks. You can use the remaining 10% to “scratch your itch” of buying individual stocks after doing your due diligence.