November 4, 2024 -- (Maple Hill Syndicate) – As an investor and stock-market columnist, I have many successes – and plenty of failures, too. One of my shortcomings is that I pay too little attention to momentum.
My gut instinct when a stock rises 200% or more is to suspect it will fall back to earth. That's often wrong, because market leaders are frequently doing something right.
This year, Summit Therapeutics Inc. (SMMT, Financial) leads the parade of winners among large stocks (those with a market value of $10 billion or more). It's up 628% through Nov. 1.
Carvana Co. (CVNA, Financial) is second, with a 333% gain. Next come AppLovin Corp. (APP, Financial) at 310%, MicroStrategy Inc. (MSTR, Financial) at 264%, and Vistra Corp. (VST, Financial) with a 213% gain.
Here are a few thoughts about these top-performing stocks.
Summit Therapeutics
Summit Therapeutics jumped into the large-stock ranks this year, septupling on hopes for its new cancer drug ivonescrimab. The company's co-CEO Mary Zanganeh, an immigrant from Iran, became a billionaire.
Her co-CEO, Bob Duggan, had already been a billionaire for a decade, based on his previous drug-development work.
Ivonescrimab, is in Phase 3 clinical trials (the final stage) in the U.S. It has already been approved for use in China. The company hopes it can be used to treat cancer of the lungs, kidneys and breasts.
The drug was developed by Akeso, a Hong Kong company. Summit paid “$500 million to license it, and will pay up to $4.5 billion more if certain financial goals are met.
Summit has no revenue yet. Its market value as of Nov. 1 is $14 billion.
Carvana
Retail investors are fascinated by Carvana, which sells used cars online and delivers them from buildings that resemble giant vending machines.
Carvana stock delivers thrills and chills. In 2021 it hit an all-time high of $376. The next year they plunged to less than $4. Now it has bounced back to about $229.
Short sellers love to bet against Carvana. As of mid-October, they had sold short more than 13 million shares, or about 11% of all the stock outstanding.
The numbers seem to support the short sellers' view. Carvana's debt is 10 times the company's net worth. And the stock sells for 102 times the company's profits – a bloated ratio in my book.
AppLovin
Based in Palo Alto, California, AppLovin provides software for mobile app developers. It has listed Amanotes, CommerceBear, Kolibri Games, Music World Media, Ubisoft and Zynga among its customers.
This is a growth market, but growth has slowed a bit, according to EMarketer. The information firm says that the average smartphone used installed about 18.5 apps in 2023, down from about 21 in 2020.
AppLovin had about $2.35 a share in profits in the past four quarters. Analysts look for a steady increase, to $5.86 a share in 2026. Of 22 analysts who follow the company, 14 recommend it.
MicroStrategy
MicroStrategy, out of Tysons Corner, Virginia, is a software maker. But the stock doesn't move primarily on results of that business. Rather, investors and speculators use it as a souped-up play on Bitcoin.
The company is the largest corporate holder of Bitcoin, with a hoard of 252,220 bitcoins as of Sept. 20 – roughly 1.2% of all the coins outstanding. At early November, the Bitcoin stockpile is worth about $17.3
billion, or 37% of the company's market value ($46.5 billion).
MicroStrategy has posted losses in three of the past four years, and also in three of the past four quarters.
Vistra
Vistra Corp., based in Irving, Texas, is a power generation company with nuclear, coal, natural gas and solar facilities. Investors are excited about power generation now – for the first time in decades—because
artificial intelligence datacenters use lots of electricity.
The reasoning makes sense, and some smart investors are in the stock. I'm unlikely to join them, since the company's debt is triple its equity. I prefer stocks with debt less than equity.
The Record
I've been way too skeptical of big gainers in the past. In 11 columns on this subject, the stocks I've recommended have gained an average of 16.9% in 12 months. That beats the Standard & Poor's 500 Total Return Index at 16.5%.
It would be nice if the story ended there, but it doesn't. The big winners that I've said to avoid, usually because they seemed too expensive to me, have returned an average of 40.5%.
Bear in mind that my column results are hypothetical and shouldn't be confused with results I obtain for clients. Also, past performance doesn't predict the future.
Disclosure: In a hedge fund I manage, I have a short position in MicroStrategy.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at [email protected].
