Don't settle for mediocrity

Every day, thousands of investors settle for mediocrity.

It’s not their fault…

They’ve been fed the same advice for years:

“Buy the S&P 500.”

As you probably know, the S&P 500 is by far the most watched, talked about, and written-about stock benchmark in the world.

Tens of millions of Americans own S&P 500 index funds through their retirement accounts.

And there’s nothing wrong with that.

The S&P 500 is a great way to own a basket of America’s biggest and most established companies.

But if you’re specifically hunting for the fastest-growing stocks in America, there’s a problem.

By definition, you’re looking mostly at companies that have already made it!

The S&P 500 is full of phenomenal businesses. Microsoft (MSFT) has dominated multiple technological revolutions over the past three decades. This is one I’ve owned since 2016. Taiwan Semiconductor (TSM), another one of my favorites, has become the indispensable manufacturer behind the world’s most advanced chips. Nvidia (NVDA) sits at the center of the AI boom.

These are the kinds of stocks you can buy and hold for years, or even decades, as long as the underlying businesses keep getting stronger.

But to find the highest-upside stocks, you usually have to look earlier in the growth story.

That’s where things get interesting.

Some of the market’s biggest winners this year have come from companies you’ve probably never heard of.

AXT (AXTI), which makes specialized semiconductor wafers, is up roughly 350% this year.

Erasca (ERAS), a biotech developing cancer treatments, is up 392%.

Aehr Test Systems (AEHR), which makes semiconductor testing equipment, has skyrocketed 480%.

These aren’t household names. None of them are in the S&P 500.

And that’s precisely the point.

You don’t find the next superstar after it has already become a superstar.

You want to find it while it’s still a rising star.

There’s actually some interesting research behind this.

Morningstar published a historical study of companies added to the S&P 500 and found that, on average, those companies subsequently underperformed comparable companies outside the index by roughly 28% after one year, 33.1% after two years, 40.2% after three years and 55.2% after five years.

Now, that doesn’t mean joining the S&P 500 causes a stock to underperform.

And it certainly doesn’t mean you should sell a stock the moment it gets added to the index.

The more interesting takeaway is that a company can be added to the S&P 500 after a huge period of growth, meaning some of its explosive early-stage run may already be behind it.

By the time a company becomes a household name, everyone knows the story.

That doesn’t mean the story is over… It just means the biggest gains are probably off the table.

Think about a sports superstar like LeBron James or Tom Brady.

The rise to superstardom is the most exciting part.

Stocks can be the same way.

You want to find the fast-growing rising stars before they become household-name superstars.

That’s the whole idea behind Grow or Die.

We’re don’t avoid researching great companies just because they’re big. Some of the greatest investments in history became huge precisely because they kept growing long after everyone knew their names.

But we also don’t want to wait until every investor, analyst, and financial television host has discovered the same story.

The sweet spot is finding a great business while the market is still underestimating how big it can become.

These days, many of those opportunities are coming from different parts of the AI buildout.

But there are even more candidates emerging from what I’d call the “junior leagues”… industries that are just beginning to make a name for themselves.

Quantum computing is one example. We recently covered quantum stocks you should put on your radar in our quantum Power Rankings.

Space infrastructure is another. We recently looked at seven stocks that could benefit from the eventual buildout of data centers in orbit.

Those are the kinds of areas I want to keep watching.

Not just today’s superstars…

But who’s coming up next.

Happy hunting,

Chris Reilly
Grow or Die

P.S. Take a look at this year’s top-performing stocks. Only one name, Sandisk (SNDK), is in the S&P 500: