Top Performers of 2024: Why the ‘Most Expensive’ Stocks Outpaced the Market

The Year’s 10 ‘Most Expensive’ Stocks Outperform ‘Cheapest’ Ones

The year 2024 witnessed an intriguing trend in stock market performance. The ten most “expensive” stocks at the start of the year, including Palantir Technologies (PLTR), Welltower (WELL), and Axon Enterprise (AXON), delivered an average return of 59.3%, as per an analysis by Investor’s Business Daily using data from S&P Global Market Intelligence and MarketSurge. These stocks significantly outpaced the average gains of 20.7% for the 10 “cheapest” S&P 500 stocks and the 15.1% gain of the average S&P 500 stock during the year.

This assessment categorized stocks as “expensive” or “cheap” based on their trailing adjusted price-to-earnings (P-E) ratios as of January 1, 2024.

Why Expensive Stocks Outperformed

Nicholas Colas of DataTrek Research explains, “Surprise moves asset prices, and the possibility of upside surprises to corporate fundamentals drives equity valuations. That’s why U.S. stocks trade rich to other markets, and tech has a higher P-E than energy.”

This year’s performance underscores how higher valuations often reflect anticipated growth or strategic advantages, even if they seem risky at first glance.

Standout Performers Among Expensive Stocks

1. Palantir Technologies (PLTR): A Stellar Year

• Performance: Shares surged 376% in 2024, making Palantir one of the top-performing S&P 500 stocks.
• P-E Ratio: An eye-watering 249.7, the highest in the index at the start of the year.
• Key Drivers: The company’s focus on defense and security technologies resonated with demand, supported by expected profit growth of 52% in 2024 and 21% in 2025.

2. Axon Enterprise (AXON): Another Big Winner

• Performance: Gained 142% during the year.
• P-E Ratio: A lofty 132, yet the stock’s success validated investor optimism.
• Key Drivers: Analysts forecast profit growth of 24% in 2024 and 22% in 2025, alongside the stock’s strong 97 RS Rating.

3. Welltower (WELL): A Real Estate Surprise

• Performance: Shares rose by 40% despite a staggering P-E of 179.3.
• Key Drivers: Robust demand for its health care real estate offerings powered its growth.

Not All Expensive Stocks Thrived

However, high valuation doesn’t guarantee success. Stocks like American Tower (AMT) and DexCom (DXCM) saw significant declines, with returns of -14.8% and -35.2%, respectively. Meanwhile, Uber Technologies (UBER), despite a high P-E ratio of 124, managed only a modest gain of 0.5%, trailing the broader market.

‘Cheap’ Stocks That Defied the Odds

While expensive stocks generally outperformed, some “cheap” stocks bucked the trend:

United Airlines (UAL)

• P-E Ratio: A low 4.8 at the start of the year.
• Performance: Soared by 144%, driven by surging demand and strategic profitability improvements.

Key Insights for Investors

Important Takeaways:

1. Growth Potential vs. Valuation: Expensive stocks often represent high growth potential. However, not all high P-E stocks succeed, emphasizing the importance of strategic selection.
2. Sector Performance: Technology and innovative industrial sectors were the strongest drivers of expensive stock performance.
3. Cheap Stock Success: While rare, undervalued stocks like UAL can deliver outsized returns, driven by exceptional execution and market conditions.

‘Most Expensive’ S&P 500 Stocks: Performance Snapshot

The performance of expensive stocks in 2024 demonstrates the power of growth-oriented investing. While higher valuations can pose risks, they often signal untapped potential. For investors, this underscores the importance of balancing valuation metrics with growth prospects and industry dynamics.