Meet the 2 Formerly Down-and-Out Stocks That Are Outperforming the S&P 500 This Year. Are They Still a Buy?

Over the past three years, many investors favored tech stocks -- and in particular, they looked to get in on the hottest companies in the high-potential field of artificial intelligence (AI). These stocks, from Nvidia to Alphabet, led the S&P 500 higher. But in recent weeks, investors became more cautious, worrying about several headwinds, such as turmoil in Iran and economic growth in the U.S.

And this led to a shift. Instead of rushing into AI stocks, they turned to other players seen as offering safety, such as healthcare and retail stocks -- the idea is that individuals need their medications and essential products like groceries no matter what's happening in the world.

As a result, since the start of the year, two formerly down-and-out stocks in these industries are outperforming the S&P 500. Now the question is: Are they still a buy? Let's find out.

Image source: Getty Images.

Moderna soars nearly 70%

Moderna (NASDAQ: MRNA) took center stage during the early days of the pandemic, as the company rapidly developed and commercialized a coronavirus vaccine. The vaccine brought in blockbuster revenue, peaking at more than $18 billion in 2022. At the time, this was Moderna's only product, so the company relied on it for growth -- and that prompted investors to turn their backs on the biotech stock as vaccine demand declined later in the pandemic.

Since the stock's peak, it dropped 90% through the end of 2025. But investors returned to Moderna in recent weeks as a potentially safe stock that, as it recovers, may offer growth. The biotech has set out a plan to return to growth, involving cost cuts and a focus on three key areas: seasonal vaccines, oncology, and rare diseases. It now sells two coronavirus vaccines and a respiratory syncytial virus (RSV) vaccine, and regulators are reviewing its flu candidate right now. The company expects revenue from this seasonal vaccine franchise to help power the development of its other programs.

Recovery and growth may be right around the corner: Moderna recently reaffirmed its forecast for as much as 10% revenue growth this year. Investors have been cheering on this biotech recovery story as the stock has climbed almost 70% since the start of the year. Is the stock still a buy? Moderna is a fantastic stock to own, and a new phase of growth may lie ahead, but it has advanced quickly in a short time -- I would look for an opportunity to buy this top biotech stock on the dip.

Target jumps more than 20%

Target (NYSE: TGT) is another company that won during early pandemic days, then faced headwinds in the years to follow. In the initial phases of the health crisis, consumers loved Target's digital presence and pickup and delivery options, and this helped the retailer significantly increase revenue.

In recent years, though, Target has faced a number of challenges. Some customers favored the focus on low prices found at rival Walmart. Target also angered certain customers when it launched diversity, equity, and inclusion policies, then angered others when it rolled them back. And customers complained about product assortment and availability, as well as customer service. All of these elements weighed on growth and stock performance.

But Target has taken major steps to turn things around. And Michael Fiddelke, who rose over the years from intern to chief operating officer and just recently to the chief executive officer position, set out a formal plan. It includes improving displays and floor plans, refreshing the product assortment, and offering new training for employees. These and other efforts involve a $2 billion investment this year alone -- the plan is multi-year.

Investors clearly like this strategy and have given Fiddelke a stamp of approval so far, as the stock has advanced more than 20% from the beginning of the year. Target trades at 14x forward earnings estimates, considerably lower than retail peers such as Walmart and Costco -- they trade at more than 40x -- and Target is in the early days of its recovery story. All of this means Target stock could have more room to run from today's levels, making it an excellent retail player to buy now.

Adria Cimino has positions in Target. The Motley Fool has positions in and recommends Alphabet, Costco Wholesale, Moderna, Nvidia, Target, and Walmart. The Motley Fool has a disclosure policy.