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Western Digital logo displayed on a phone screen. Western Digital is one of the five biggest gainers in the S&P 500 this year through October. (Photo by Jakub Porzycki/NurPhoto via Getty Images) NurPhoto via Getty Images Robinhood Markets Inc. is the biggest gainer of the 503 stocks in the Standard & Poor’s 500 Index this year through October. It’s up 294%. Second place goes to QuantumScape Corp. (QS), up 255%. Then come Western Digital Corp. (WDC) at 234%, Micron Technology Inc. (MU) at 167% and Palantir Technologies Inc. (PLTR) at 165%. Are any of these stocks still good buys, after their spectacular success in the past ten months? In my opinion, two of them are. I expect Western Digital and Micron to show sharply higher earnings in the next couple of years. The other three, in my opinion, need to take a breather for earnings to catch up with current valuations. Western Digital The massive rush to build data centers for artificial intelligence (AI) computing has helped Western Digital immensely. It makes high-capacity hard disk drives that can store the data AI generates. Twenty-seven Wall Street analysts follow Western Digital. Twenty-two of them rate the stock a “buy,” while five call it a “hold.” When analysts move in a flock, I often go the other way. In this case, I think the analysts are correct. I believe that Western Digital will continue to be one of the beneficiaries of the AI boom. The company is experiencing an earnings revival, after a stretch of mediocre-to-poor earnings in 2016-2024. At 22 times earnings, I don’t think this stock is overpriced. MORE FOR YOU Micron Technology’s specialty is memory and storage chips. The company struggled for even longer than Western Digital, but now, as the song says, “happy days are here again.” Due to AI demand, Micron posted record sales and earnings in its latest fiscal year (ended in August). Particularly in demand is its HBM3E chip. The first three letters stand for high bandwidth memory. Micron is one of the world’s largest makers of memory chips (which make up about a quarter of worldwide chip sales). At 29 times reported earnings, Micron seems expensive. However, the recent stock price (about $224) is less than 14 times the earnings that analysts expect for the fiscal year in progress. Robinhood Markets has done a lot to democratize the stock market, bringing younger and more speculative investors into the fray. Robinhood permits – some would say encourages – its customers to trade risky securities such as one-day options. Will that land it in legal trouble? I don’t think the company has much to fear from the Securities and Exchange Commission. The regulatory philosophy of the Trump administration, in my opinion, is “anything goes.” However, I do think that Robinhood may be nicked by lawsuits over investment suitability. And the stock is expensive, selling at 71 times earnings and 38 times revenue. QuantumScape QuantumScape, out of San Jose, California, is developing “next generation” solid-state lithium-metal batteries for electric cars and other purposes. What is hasn’t developed, in five years as a public company, are profits. Eight Wall Street analysts follow the company and only one recommends it. That hasn’t stopped the stock from tripling this year. Based in Denver, Palantir makes data analysis software used mostly by governments and defense companies. It works only with “entities in Western-allied nations.” Sales were under $1 billion as recently as 2019 but are well above $3 billion a year now. A skein of losses ended in 2022 and earnings have grown rapidly since. But the stock’s valuations are off the charts: 668 times earnings, 147 times revenue and 80 times book value (corporate net worth per share). No wonder analysts are dubious, with only six “buy” ratings among the 25 analysts who follow it. Performance The high flyers I’ve recommended in previous columns on the year’s biggest gainers have returned 16.9%, just barely edging out the performance of the Standard & Poor’s 500 Total Return Index over the same periods. 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. A year ago, I didn’t recommend any of the year’s best gainers to that point. Nonetheless, they went on to march up 83%, on average, over the past 12 months. AppLovin Corp. (APP) led the parade, putting up a 300% gain, on top of 310% the year before. Vistra Corp. (VST) advanced 64% and Carvana Co. (CVNA) 36%. MicroStrategy Corp. (MSTR), which now is called Strategy, gained 21%. The only loser in the bunch was Summit Therapeutics (SMMT), which declined 5%. Disclosure: A hedge fund I manage has a short position in Strategy. Editorial StandardsReprints & Permissions
