Every 10 weeks or so, Rule Breaker Investing podcast host and Motley Fool co-founder David Gardner picks a new set of five stocks he recommends and shares it with his listeners. There's always a time frame, and usually a clever theme, and while those things change, one point stays constant. When the anniversary of each sampler rolls around, he tallies up the share prices, talks a bit about what's moved them, and scores those mini-portfolios against the S&P 500. Because win or lose, Fools keep honest score.
For this episode, it's time to check in on not one but two such samplers. First, it's been one year since he offered up "Five Stocks I Own That You Should Too." Those were Activision Blizzard (NASDAQ: ATVI), Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), Intuitive Surgical (NASDAQ: ISRG), Match Group (NASDAQ: MTCH), and Zillow (NASDAQ: Z) (NASDAQ: ZG), and he'll review their progress with senior analyst Jim Mueller.
Next, two years ago, he picked "Five Stocks for April the Giraffe," the Washington Zoo favorite who was live-streamed giving birth to baby Tajiri. Those were Axon Enterprise (NASDAQ: AAXN), Grupo Aeroportuario del Pacífico (NYSE: PAC), ResMed (NYSE: RMD), Intuitive Surgical, and Live Nation (NYSE: LYV). The first letters of their tickers spell out A-P-R-I-L, and David and senior analyst Brian Feroldi will let us know if their returns should put a spring in your step.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
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This video was recorded on April 17, 2019.
David Gardner: Two years ago, a first for the internet: April the Giraffe, in a much-ballyhooed moment likely almost completely forgotten since, gave birth to a baby giraffe offspring, Tajiri, and it was live broadcast on YouTube. Almost completely forgotten about since. I mean, did you remember? If you ever knew? Almost completely forgotten, but not by this podcast. That's because two years ago this very week, I picked a five-stock sampler entitled "Five Stocks for April the Giraffe." So here in Rule Breakerville, we will never forget.
Today, I have the pleasure of reviewing for you how those stock picks did, and not only that, how did I do with the five stocks I featured on this podcast last year: "Five Stocks I Own That You Should Too." So a fun week where we review 10 past picks made on this podcast with reflections about what's happened, why, and what to look for going forward. April, Tajiri, you listening? Only on Rule Breaker Investing!
Welcome back to Rule Breaker Investing! There's still a little bit of glow about me. I'm glowing. I'm happy. Something happened last night. We're taping this on Tuesday afternoon, as we always do. Tuesday, April 16. It happens to be my brother's birthday. Happy birthday to Tom Gardner!
Jim Mueller: Happy birthday, Tom!
Gardner: Happy 51st birthday! My friend here, Jim Mueller, who's going to be joining me very shortly, Jim, you also hope that Tom will have a happy birthday?
Gardner: It's harder to have happy birthdays once it starts with a five, not a four, three or two. Jim, you and I are aware of that.
Mueller: You get used to it.
Gardner: You get used to it. So, the glow about me -- and this is not just mine. Jim, you look like you're glowing a little bit to me, and a lot of our community members, I hope, are because last night, The Motley Fool was a correct answer on Jeopardy! That's the third time in our corporate history. I've watched each of them. I'm happy to say, each time that contest and got us right, which is a good feeling. You don't want to have crickets when your corporate name is the answer -- I should say, the question -- on Jeopardy. If you didn't get to watch Jeopardy!, I'll try the answer out on you, dear listeners. "This company has been helping the world invest better since 1993." It helps to know that the category was April Foolery; otherwise it would be hard, Jim, wouldn't it? This company's been helping the world invest better since 1993. No, but it was April Foolery for $1,000, Alex. Happy to say the champion nailed it.
One brief reflection before we actually get to the work of this podcast this week. The first time we were an answer on Jeopardy!, which was early days for The Motley Fool 1990s, it was more about brothers David and Tom Gardner this or that. Now, it's just our company purpose. I love that basically our purpose statement from 2018, helping the world invest better, is the answer on Jeopardy!
Mueller: That's awesome!
Gardner: And people get the question. That is kind of awesome! So yes, there's a little bit of a glow about our offices this week.
Well, you've heard the perhaps familiar voice of my friend, Jim Mueller. Jim has been here at The Motley Fool for how many years, Jim?
Mueller: A little over 12 years in office and 13 years as an employee or contractor.
Gardner: Indeed. And as a community member well back before that.
Mueller: A couple of few years before that, yes.
Gardner: Jim, the reason that your voice may be familiar is because you're on Market Foolery and some of our Motley Fool podcasts. You do a lot of great work studying stocks. You also have a CFA.
Mueller: I do have the CFA charter.
Gardner: A designation I probably will never have myself but I'm deeply respectful of it. How many levels are there?
Mueller: There are three levels of exams and then you have to have a certain amount of industry experience before you can be granted the charter.
Gardner: Jim, what level of CFA are you?
Mueller: Oh, no, there's only a single level. There's only a single level. You can pass the three exam levels, but there's only a single CFA charter level.
Gardner: I see. See, this just shows the English major in me, the eternal noob who doesn't exactly know how my own industry works. I'm very happy that you have your CFA, Jim. Very respectful! We have many of them here at The Fool. It seems like what all the cool kids are doing.
Mueller: We do. And I think it's a great thing.
Gardner: Yeah, good. But you're here this time to help me look over the stocks that I picked a year ago on this podcast. I mentioned at the top that we have two five-stock samplers we're going to be reviewing. I like to do them in reverse chronological order. Let's go with the CFA term here, we're going to go LIFO. Last in, first out. The most recent one was one year ago this week. Later in the show, we're going to look at the one done two years ago this week. So, a LIFO approach to five-stock sampler reviews.
Jim, you graciously raised your hand and said you'll help out with this one.
Gardner: Thank you very much!
Mueller: You're welcome!
Gardner: Before we get to that, Jim, you are on a quest, a lifelong quest, that relates to one of my favorite things in the world, which is baseball. Could you briefly share that with Rule Breaker Investing listeners?
Mueller: In my previous job, I traveled around the country a fair bit and decided to start collecting the baseballs at the various Major League stadiums. There are 30 stadiums. I have 20 of them so far, and I pick up two more at the beginning of May. That'll be fun!
Gardner: That is awesome! Where are you headed that you haven't been yet in May?
Mueller: I will be seeing the Texas Rangers in Arlington, Texas. Then I'll be flying down to Houston and meeting up with a friend and colleague there before seeing the Houston Astros play.
Gardner: That is wonderful! Jim, each time, you are taking a ball away from the ballpark. Right?
Mueller: The rule is, I have to buy the ball at the park.
Gardner: Have you ever caught one?
Mueller: No. [laughs] I came within about 12 seats away.
Gardner: That's pretty close! I mean, odds on, you go to 30 ballgames over the course of your life, probably you're not going to catch a foul ball at any of those. It takes a lot more, maybe season ticket like, persistence. But that could still happen. But you're always walking away with a ball, probably a better-looking than the one that gets hit off a bat.
Mueller: And it has the logo of the team, so you know where it's from.
Gardner: There you go! That's awesome! Well, congratulations, Jim! Have a great trip in May to Texas!
All right. Without further ado, one year ago this week, "Five Stocks I Own That You Should Too." Now, every one of my five-stock samplers -- and we've done more than a dozen on this podcast over almost four years now -- every one of them has a theme attached to it. This one was pretty straightforward. I own these stocks. I don't own every stock that I pick in Motley Fool Rule Breakers and Motley Fool Stock Advisor. I love them all. I'm accountable for them all. Our members presumably are paying us for our advice with their subscription to buy them. But I don't keep up with all 220-plus of the companies. I only have so much money in my family portfolios that I can allocate. So I thought last year this week, let me put out five stocks that I own and just say, I think you should too. Jim, you and I are going to tick down this list alphabetically.
The first one, ticker symbol is ATVI. This company is Activision Blizzard. Activision Blizzard was first picked April 18th of last year. Right about this time last year, at $68.69. Jim, I'm really disappointed to lead off with this one because I hate to say it, but the stock has dropped from $68.69 to $45.30 as we tape. That's down, we're going to round it to 43% to the market because, and this is the key with all five-stock samplers, we always compare to the market. As you well know, Jim, that's what we do here at The Fool.
Mueller: Well, that's the default other choice.
Gardner: Absolutely! Because the S&P 500, any of us could have bought that index fund. A lot of the world says just buy that, don't buy individual stocks. Of course, we don't think of that as Foolish. We've done a lot better, and my five-stock samplers I think prove this, by buying stocks individually. But we're always marking against the market.
Now, the market is up 8% from last year. Each of these five stocks we're comparing against a plus eight. A minus 35 doesn't look good at all against a plus eight. We start 43% in the hole, Jim. What has happened to Activision Blizzard?
Mueller: Activision Blizzard and their competitors, Take-Two Interactive and Electronic Arts, EA, are all down since last fall. They all did pretty well in the spring and the summer, and then, along with a lot of the market, they fell down. While most of the market has recovered --
Gardner: Yeah. Q4 was brutal, but Q1 was really nice.
Mueller: Q1 was really nice.
Gardner: To most industries.
Mueller: But not to this industry. The big story here seems to be the rise and popularity of a game called Fortnite, especially its Battle Royale mode, which has become quite popular and grown like gangbusters. Over 125 million players last summer. I'm sure it's done nothing more than grow since. Worries are that customers are playing that rather than Activision games.
As far as analysts are concerned, in the third and fourth quarter, the company missed on both its revenue estimates and on its earnings estimates. The second miss in Q4 was substantial, almost a 7% miss, a $200 million miss.
Gardner: Right, and this is a company that doesn't have a history really of missing its earnings forecast, for the most part.
Mueller: No. For the most part, it's pretty good. And during that call, the CEO Bobby Kotick said that the company hadn't delivered to the expected performance. They'd done very well financially, set new financial records for the company. But they said, we didn't do as well as we should have. As a result, they're making a lot of changes. Analysts and investors tend not to like uncertainty. For instance, previous CFO Spencer Newman, he was fired for cause and replaced with a former CFO, Dennis Durkin. He came back to once again lead the financial side of the company. They got rid of their deal with Bungie Studio, which made Destiny.
Gardner: Yeah. Destiny was a big title, then Destiny 2. But no longer part of the company.
Mueller: No longer part of this company, unfortunately. They're also laying off a bunch of people and there's been pushback by players of the in-game transactions. So it's a little bit uncertain about how Activision is going to go forward. Like all of this industry, it's a "what have you done for me lately? What's your next big hit" rather than "how well are you doing now?"
Gardner: Yeah, so it's obviously been very disappointing. A year ago, we're down more than a third from where Activision Blizzard was just one year ago. And yet this has been such a spectacular long-term performer for us. I first picked Activision Blizzard at a split adjusted $1.61 in 2003. Here we are, 16 years later, riding a 28-bagger, even having lost a third of its value over the last year. We've rerecommended it many times since, including this five-stock sampler a year ago.
I really do love this company and believe in it going forward, Jim. What are your feelings about Activision Blizzard?
Mueller: I like the company. I own shares myself, though I do have a covered call on them. If the call ever is exercised, I'll sell my shares off. I do remember there was this long period after your second or third recommendation where the share price just sat and sat and sat.
Gardner: Yeah. 2009, 2010, 2011, 2012, 2013. It did nothing for like five years while the market was rising.
Mueller: And then, all of a sudden, it shot up. That was triggered by Kotick and a group of investors that he put together buying the shares of the company away from the French company that owned --
Mueller: Yeah, they owned a good part of it. Now, whether that was the reason or not is up for debate. But that was the event where the market finally pushed the shares up. And the market might have gotten a little over enthusiastic.
Gardner: Well, it's a company that has great franchises and really makes a lot of money, not just through one great product but through many. I really do like Activision Blizzard. I still like it. I guess I like it even more right here, a third down. But I don't like it for the performance of this five-stock sampler because we started at minus 43, which is not the way I like to start a five-stock sampler.
Quick trivia, since we're talking baseball, briefly, Jim. Did you know that Bobby Kotick, the CEO of Activision Blizzard, was personally in a very well-known baseball movie from a few years ago?
Mueller: No, I don't.
Gardner: Yes, he played the role of the owner of the Oakland Athletics in the movie Moneyball with Brad Pitt. He's just early on in a scene but that's Kotick, who I think is friends with Michael Lewis or somebody who's making the movie. So the Activision Blizzard CEO makes that cameo appearance in Moneyball.
Mueller: That's awesome!
Gardner: All right, let's go to stock No. 2. All right, stock No. 2. This is alphabetical by ticker symbol because the ticker symbol is GOOG. I presented it that way back in the day, although we've since revised and we like to present by company name because we're more about company names than ticker symbols on this podcast.
Mueller: Well, Alphabet comes in alphabetically after Activision.
Gardner: That even still works! You're right! I wasn't thinking about that. That is true, Jim! So, yes, Alphabet is company No. 2. Still with that artifact of a ticker symbol, GOOG. In fact, I think that Google should consider renaming its ticker symbol. I'm going to go with ATOZ. That would be good for Alphabet, right? A to Z?
That could work! I don't think they're going to take my advice, though. A year ago, the stock was at $1,072. Today as we tape, it's right about $1230. So the stock is up 14%, the market up, as we said 8%. So this is a plus six. It brings us back from minus 43 to minus 37. Jim, what's been happening in Googleville, Alphabetville, here over the last year?
Mueller: Alphabet, as you know, is a very large company, around $850 billion market cap. The amazing thing is that it is still managing to grow its top line, its revenue line, by around 20% a year.
Gardner: It's phenomenal!
Mueller: It's done that for the last three years. That's crazy for such a huge company. That's why this company is doing so well. Revenue growth in 2018 was 23%, 22% for the fourth quarter. That's, as I said, the third year in a row of 20% or more growth. It beat revenue estimates three out of the four quarters last year. It beat earnings estimates all four times. Market loves that kind of stuff, and so it bids the price up.
Gardner: Great! I don't think we have to talk a lot more about Alphabet. It's a company that's very well-known and it's almost hard to keep track of because it owns so many different businesses -- things like Waymo, the autonomous driving software company, and then there's something called YouTube, which a lot of us may have heard of. I don't know if you know this, Jim, but on YouTube two years ago there was a live giraffe birth.
Mueller: You said something about that, didn't you?
Gardner: I think maybe I did. So, yeah, that's all brought to you by YouTube, which is owned by Alphabet. Alphabet is a massive company. It is an innovator. And I really like that you highlighted that top line growth. That's so hard to do it at the scale at which Google/ Alphabet operates.
Mueller: And they've got YouTube TV offering cable free TV, and it sucked me back in last year, so I could watch the Olympics. And now I'm watching baseball. They've just added the Food Network. I love cooking and so yeah, I'm never going to get rid of that. [laughs]
Gardner: Yeah. I really think Alphabet might be the quintessential Rule Breaker, when you just think about the company and all the rules it's breaking across many different fronts, and not just domestically but globally. A truly phenomenal company. I'm glad that it's beating the market here over the last year.
Mueller: One of the things I like is, it's moved further and further into AI and getting more of that integrated. It's helping clean up the videos on YouTube that violate their content rules. It's making Google Assistant expand. The thing I love the most is, it's bringing the universal translator to reality from Star Trek.
Gardner: Can't wait! Babble fish from Douglas Adams as well.
Mueller: You can talk in one language, and Google Assistant is going to translate it right for you.
Gardner: I can't wait!
Mueller: I love it!
Gardner: I'm ready! You and I, we'll have our first real conversation in different languages the day that comes, Jim. What language will you be rocking?
Mueller: I took French in high school.
Gardner: That was going to be my choice. That wouldn't be as good. Actually, I would benefit from having Google translator translate my French because it needs some help. [laughs]
Mueller: It's here already and it's only going to get better.
Gardner: OK. All right, stock No. 3, Intuitive Surgical. The ticker symbol is ISRG. This is one of our longest running Rule Breaker picks. Yep, it's another stock I own, along with all five of these, "Five Stocks I own That You Should Too." This one, I'm happy to say, $471 a share a year ago. Today, tipping the scales right around $563. Intuitive Surgical is up 19%. That's 11% ahead of the market. That brings us to a minus 26 for this sampler as we struggle to get above water.
Jim, what's happening with the da Vinci Surgical robot purveyor?
Mueller: This one, the company just keeps on managing to ship more and more of those da Vinci surgical robot systems. Each quarter and year over year. Along with that, it gets more procedures done. It's expanding the reach of those procedures, what different kinds of surgeries can be done both domestically and internationally.
Gardner: Which is amazing.
Mueller: It remains debt free. It kicks out over a billion dollars in free cash for each of the last three years. It's rocking any investor's dream right there.
Gardner: What I really love about this company as a part owner, shareholder -- Jim, do you own any shares?
Mueller: I own shares.
Gardner: So you and I are shareholders here. I love the competitive advantage that the company enjoys over almost anything that looks like it in its industry. Intuitive Surgical is spending more money on R&D per year than a lot of start-ups could even raise to try to compete, and it just keeps, as you mentioned, Jim, broadening the number on types of surgeries that can be done minimally invasively with a robot eye and incredibly fine, precise movements that the human hand could never do with a scalpel.
Mueller: There are always concerns that come up every now and then repeatedly on whether the minimally invasive procedure is the best procedure for that particular type of surgery. That's debated in the medical journals. Doctors will figure out which ones are best. But I believe there's ample proof that any sort of minimally invasive surgery is best for the patient. Less blood loss, less pain, faster healing times.
Gardner: It's true. This has actually dogged the stock some over the years. In fact, I would say a dark cloud that I can see through, that I've seen through in the past, was a perception on the part of medical professionals that you didn't get any better outcomes, you still had your prostate gland successfully removed whether it was a human hand with the scalpel or with the da Vinci Surgical robot. That was the doctors' view. As patients, which would you prefer? Would you like to be cut open and recover for several days in hospitals just to get back on your feet; or minimally invasively be up and out the next morning? I know which one I'd want. So, I always felt like some of that criticism leveled at Intuitive Surgical was not really thinking through the whole system.
Mueller: I agree.
Gardner: So, we first picked this stock at below $15 a share back in 2005. 14 years later, just holding, as we're wont to do as Fools, the stock is up more than 39 times in value. It's in the high 500 right now from our cost basis below $15. So this is a classic example of how The Motley Fool is helping the world invest better. By the way, since 1993, according to Alex Trebek. He nailed it!
Al; right, stock No. 4, ticker MTCH. This is Match Group. This is a company that owns Tinder, it owns match.com. It's a company that's bringing people together, not just here in the U.S., but worldwide, and all different types of people. Really the worldwide leader, I think, Jim. Match Group, this week last year, was just over $47 a share. Today, happy to say it's up to $58. This is the best performer in the group of five. So far, it's up 24%. 24 minus eight, that's a plus 16. If you're keeping score at home for this five-stock sampler, we're now up to minus 10 with one stock left.
Jim, it seems like Match Group, when it came public, IPO-ing only a few years ago, so much less hype than things like Uber or Lyft or the coming IPOs. There was so little talk, I thought, about Match. So when I first picked it for Stock Advisor, I was almost shocked that it had so little visibility as, to me, anyway, big, well-known brands like Tinder, doing important stuff in this world.
Mueller: Well, I've been happily married for many, many years, and never even considered using any of its products.
Gardner: I haven't, either!
Mueller: Many of our members, I'm sure, are in the same boat.
Gardner: It's true.
Mueller: I could see why it just floated out there without much excitement.
Gardner: Yeah. But a lot of us these days are swiping left or right depending on whether you like or don't like somebody, and meeting people. Match really is the dominant, I think the leading worldwide player here. I say this often on this podcast, but it's still shocking when you think in terms of global humanity, the No. 1 way that we meet our spouse is through word of mouth and friends. "Hey, I want you to meet Veronica or Bob, I think you'd really like her/ him." That's No. 1. No. 2, I think I have my math right here, is arranged marriages. In countries, big ones like India, and many other parts of the world, it is common to arrange marriages. The No. 3 way that humans meet their spouse today is online and the internet. I don't think that's going to lose ground in that sweepstakes anytime soon, so I'm really glad that we're invested. Is this a company you also own, Jim?
Mueller: I might. Actually, I probably do. For a long time, I was buying your Stock Advisor recommendations on a fairly regular basis. I think Match Group was in on that.
Gardner: Awesome! You said for a long, using past tense, Jim. Did I did I lose my allure?
Mueller: No, you didn't. It's just that I had to stop doing it for a couple of reasons.
Gardner: That's fine! That's personal. We won't go into it, other than my feelings are now obviously deeply hurt. But let's just let's just, [weepy-voiced] let's keep going, Jim.
Mueller: OK. I don't have a tissue to hand over. So, Match last year has just been killing it. The last several quarters, they beat on both the top and the bottom line. They're growing revenue strongly. They still have a fairly small presence internationally. There's a good portion of growth ahead of them there. Especially like the fact that they raised guidance a couple of times last year. When they come out with original guidance, when they report fourth quarter of 2017, they say, "We're going to make this much money and have this much revenue." Then, a couple of quarters later, they said, "We're doing even better. We're going to have more revenue and more money." A quarter after that, even more money. The market loves that. Investors love that. That's one reason why it's up last year.
Gardner: That's really wonderful! It wasn't just up last year. Since we picked it in Motley Fool Stock Advisor, the year was 2016, the month was April. So it's exactly three years ago. The stock is up 458%. I'll take that for any stock over any three-year period. It far exceeds my own expectations when I first picked it. It's a reminder that when you look for leaders and companies that are doing important things in this world, sometimes in a strong market, which we've been living in, you can be shocked by how well your stock does. Imagine people who weren't coached properly on investing, who bought Match back in April 2016. It goes up 20% and they think, "Should I sell?" Then maybe it doubles. "I'll sell half and play with the house's money," one of those old saws that we don't like here at The Fool.
Mueller: Don't get me started!
Gardner: I won't get you started. But a lot of people are afraid of doing too well. But sometimes these great companies we've been talking about in this podcast, they do even better than you could have thought of, and the right thing to do has been, as long as the company continues to operate successfully, don't worry too much. Sure, stock prices can get ahead of themselves. Maybe for Activision Blizzard, we're seeing that over the last year, down a third. But we're not in it for one year or two or three. We're in it for a lifetime as investors. What a shockingly great five-bagger in just three years for Match.
Mueller: What a fantastic pick!
Gardner: That sets the stage for the final stock in this stock sampler. Jim, I have a record of almost always being able to bring in -- and this is pure luck -- winners. I almost never don't win with my five-stock samples. Now, these stocks, picked a year ago, were picked for a minimum of three years. This is premature.
Mueller: We're only one year in.
Gardner: That's right, and we always review after each year. It's fun to check and see how we're doing. Zillow is stock No. 5. I know a lot of people know Zillow. People who know Zillow well as a stock might be, like my friend Brian Feroldi, who's shortly going to be joining me for the second set, might be grimacing a little bit because I think Brian knows that unfortunately, Zillow hasn't had a great run of it on the market. That dream of always being able to bring in winning five-stock samplers, even premature reviews, that dream, if it ever existed, dies right now.
Zillow was picked just below $49 a share a year ago. Today, it is $38. The stock is down 22%, the market up eight. That's a minus 30. Our grand total then for this five-stock sampler is minus 40%. Taken together as a group, divide by five, five stocks, we average losing to the market by 8%. In fact, if you remember, the market was up 8% over the last year. That means this group, even though we had some nice winners -- and the majority were winning -- this group is at 0% return one year later.
Now, I sure hope it'll get better from here. But Jim, before we move on, what's been happening at Zillow?
Mueller: You may remember I said Activision is rejiggering itself a little bit and figuring out how it wants to proceed. Zillow is doing that squared. They're advertising-based, having realtors advertise on their site. Having such a fantastic data set, which they still do, that brings a lot of eyeballs for those realtors to hook up with. That didn't turn out as good as they had wanted it to. So they've done a couple of things. In Q2, they launched a home buying and selling service. They'll buy your home from you so you can get out of it quickly. You might not get the best price, but you'll get cash that day. Then, they have to sell the home, hopefully at a profit, and meanwhile, carry that inventory. That means it's more capital intensive than it used to be.
Gardner: You bet. They have to have cash to buy houses, and then they sell them back and hold that inventory in the meantime.
Mueller: Right. A quarter later, in Q3, they launched a loan mortgage origination service. The big gorilla there is Quicken Loans. They're competing against them. They're competing against Redfin, another company that's playing in the same space. There's a lot of competitors there. Both of these announcements caused the stock to drop when they were announced at earnings. New business and analyst investors, wondering how well they'll do, because they're kind of outside their area of core competency by doing this. It's related business, but it's different business.
Gardner: Yeah. And the CEO has changed over. A lot of uncertainty over this last year. We've always said, it's an old saw as well, the market hates uncertainty. Certainly, the market has sold this stock off. It's lost a fifth of its value from one year ago.
Mueller: It's not a new CEO. This is the former CEO, Rich Barton coming back in.
Gardner: I hope on a high white stallion and ready to ride to victory.
Mueller: There are things that, if they work out, can do really good things for the company and for the stock. But there's a lot of uncertainty right now.
Gardner: I trust things will work out. To close this one out, first of all, thank you Jim Mueller for joining me on Rule Breaker Investing!
Mueller: You're welcome! My pleasure!
Gardner: Great job! It's a pleasure, Jim, to work together as we have for years now, looking over great companies like this for Motley Fool Stock Advisor where you and I are on the same team at Stock Advisor.
Thinking about these companies, every one of these I like just as much today as I did a year ago. Three of them are ahead of where they were, but two are well behind. Taken as a basket -- and that's what we do with our five-stock samplers, it's a little mini portfolio -- I really like this group of companies. It's flat over the last year with the market up. I feel good about where we're headed in years two and three. Jim, maybe a year from now, let's talk again and see where we are in these companies.
Mueller: Sure thing!
Gardner: All right. Thus much for "Five Stocks I Own That You Should Too." We're going to clear the stage. As a reminder, I do own the stocks, so I sure hope that they will outperform. But sometimes there are periods and/ or stocks that are just going to underperform for me. At least I can say my money was and is where my mouth is. I have good feelings about those companies going forward.
All right, goodbye to my friend Jim Mueller! Hello to my friend Brian Feroldi! Brian, welcome to Rule Breaker Investing!
Brian Feroldi: Great to be here!
Gardner: This is not the first time that you've been on the podcast. I know over the phone -- is it?
Feroldi: This is the first time I've been on Rule Breaker podcast. However, I was a guest on a Fool's Guide to the Galaxy.
Gardner: Ah, yes! An earlier version of my podcast done just for Supernova members back in the day. I knew we'd spent some time together. But we don't get to spend that much time together because Brian, where do you live?
Feroldi: I live in Rhode Island. I am visiting right now with the family, the Washington D.C. area, and decided to pop into Fool.
Gardner: Brian, what was your journey as an investor? How did you start? How'd you end up at The Fool?
Feroldi: I'm just one of those weirdos that just loves this stuff. It's what I did with my free time for years and years. I was lucky enough to make the switch to becoming a writer for The Fool. I write for fool.com and I've been doing that for about four years.
Gardner: That's a full-time job?
Feroldi: It is.
Gardner: That's amazing! That means you're prolific and very much appreciated, which I know about you. You are! I certainly appreciate you. I'm so glad it worked! Spring break, saw the kids in here earlier. You had your family in. I'm just really happy to have you here reviewing Five Stocks For April The Giraffe. I think we may have even belabored the backstory to that one. Anybody who's still listening is going to know who April the giraffe is. But the key here -- because there's that theme for each five-stock sampler -- the key here, when I did this two years ago this week, I decided to make it a puzzle. I put five stocks together that seemingly had nothing to do with each other. The solution to the puzzle was, it was an acrostic. The first letter of each company name spelled April. So we're just having a little bit of fun with it. Of course, these are all companies that I love. I'm being a little silly with the theme, but each of these is a very good stock. In fact, the letter I represented in April, we've already talked about because I picked it for the sampler that Jim did, Intuitive Surgical. I'm going to love hearing your thoughts about Intuitive in a sec, Brian. Anyway, so that was why April the giraffe. The stocks spelled April, and then my talented producer Rick Engdahl noticed there was this live internet birth, etc. I think the backstory is clear to everyone.
With all that said, we've got five stocks. These are each picked two years ago so they've had a little bit more time to age than that first set. Let's see how they're doing.
The first one up is Axon Enterprise, ticker AAXN. While it initially started as Taser, and in an earlier version of Motley Fool Rule Breakers, it was one of our active picks as Taser, later, it changed its name because Axon acquired the No. 1 police body equipment cams, the cameras that do live footage when police apprehend people. That became a big part of the business. Of course, evidence.com, Brian, which I know you know, that's their cloud-based video house. They house all the videos that police departments and the courts use. That's the business today, Axon Enterprise.
Feroldi: This is a super interesting company. I have to be honest, I know it's been a rec for years, I was not interested in it at all. It was one of those Rule Breaker stocks that I personally passed over. However, when you rerecced it a few years ago, you really highlighted evidence.com as their SaaS offering. And when I realized that there was a SaaS component to this business, a software-as-a-service component, I became much more interested in it.
Gardner: Wonderful! I'm happy to say, this is actually not one that I own. I sure wish I did, though. Two years ago when I picked it, the stock was at $22.73 on April 19th, 2017. Today it's gone from $22 to $61. Axon Enterprise up 170% against the market's 24%. That's the bogey this five-stock sampler is competing against, a market that's risen 24% in the last two years. That's a crushing outperformance. 170 miles 24, that starts us at a plus 146.
Brian, what has been happening for Axon?
Feroldi: This company has been just crushing it. I mean, they've been mostly beating their estimates. They've been putting up 20% revenue growth. Wall Street loves that kind of thing. But I think what's getting so excited about this company is their evidence.com platform is really becoming profitable. This is a company that has been investing heavily to build that out. They are using Tasers and their body cameras as their gateway in, and then they give, in many cases, evidence.com to police forces for free. And once a police force gets on the platform, and they get all their stuff tied into it, that becomes incredibly sticky. They just can't leave the ecosystem.
The other big thing that Axon did was, last year, they acquired their biggest competitor. They not only have a monopoly in Tasers, but they also have a monopoly in body cameras. Both those markets are growing. A lot to be excited about here.
Gardner: It is, especially in a world where we have demanded more accountability from our police, especially here in the United States of America. And rightly so in some cases, because there are unfortunately some bad actors. And when they're wearing blue with a badge, that makes things really problematic. I'm happy to say, since I've always been a fan of police forces, I'm definitely pro-police, I'll put myself out there. I really appreciate the work that they do every day. They put their lives on the line in many cases, just like our military. I also admire our military. Anyway, unfortunately, the bad actors get the headlines and it creates some distrust of police. So, Axon Enterprises there with its body cameras, to make it clear exactly who's saying what and what's happening when officers flip on that camera, when they go into a situation.
I want to put out a quick idea to our listenership. I did this a few weeks ago and I'm pretty sure any city, maybe county, in the United States, you can do this too. I signed online, and I signed up for a free ride along with a cop for a day. It was a morning. Chances are, google it, check your own local jurisdiction, I bet that there's a form there that you can fill out and say, "I would like to ride along with an officer." So I spent the morning a few weeks ago with Officer Mayberry. My stock tip for him at the end of the day was, "You should buy Axon Enterprise." He was certainly familiar with it. He appreciated the product. They use it in the D.C. Metropolitan Police Force every single day and have for a while. But that made a lot of sense for Officer Mayberry, my new friend.
Before moving on to the next stock, I asked Officer Mayberry, "I'm just curious, how many other people do this?" And he said, "You're the first one in five years." [laughs] Apparently, not a lot of people are taking advantage of this. The opportunity to really see through an officer's eyes, I doubt they're going to put you in a distressing or dangerous situation most of the time, but just to spend that time and see how the world works and what they're doing every day... I really enjoyed the empathy that I gained from that and fun experience. That was my connect in with Axon Enterprise. I wanted to share that from a few weeks ago. Anyway, what a great stock pick it was from two years ago. Plus 146 in the wind column.
Brian, let's go to stock No. 2. This one allows me to try it out my fake Spanish accent. I never did take Spanish but I'm going to go with Grupo Aeroportuario del Pacífico, ticker PAC. As you well know, Brian, because you've done a little studying up for us here, this is a company that operates a lot of Mexico's prominent airports and is positioned to benefit from all that money -- airports these days aren't even airports, they're malls in a lot of cases. That's part of their business. The stock two years ago this week was $99.50. Today, it's at $101. So it's up a couple of percentage points. Unfortunately, when the market's up 24% this one's up 2%, that's a minus 22% performance for PAC, Grupo Aeroportuario del Pacífico. That brings us down to plus 124 as we keep score. Brian, what's happening in Pac land?
Feroldi: Can we just pause for a second and say that was a phenomenal job with the pronunciation there? I think that was spot on!
Gardner: I'm honored. I don't even know because I'm definitely not a native speaker. I did take French as I've established earlier and I could barely speak it after a few years. That's not on my teachers, that was on me. I'm not very good at languages. But thank you!
Feroldi: No, that was great! I'll just call it Pac. They own some of Latin America's most popular airports -- Guadalajara, Tijuana, Los Cabos, Puerto Vallarta in Mexico. More recently, they've been expanding out into other countries actually. They operate Sangster International in Montego Bay, Jamaica, and they recently just were awarded a new contract for a second Jamaican airline that is coming online in October of 2019.
If you look at the company, the company's results have been pretty solid. This is a company that's growing revenue at 20% because passenger volume is just increasing. They make money in two ways. Two-thirds of the revenue comes from the passenger, facility fees, airline, landing fees, parking, security, that's the bulk of their business. But they also, as you mentioned, have malls on-site, where they basically have restaurants and stores and lounges. That's one-third of their business. And they have these properties that have huge fixed costs. As they are utilized more, that is just driving outsized returns on the bottom line. So this company has grown its top and bottom line very nicely over the last couple of years.
Gardner: I'm really glad to know that. I first picked this for Motley Fool Stock Advisor members in October 2016. You might notice that was timed just before the election in the United States of America. The winner of the election, President Trump, didn't have kind things to say about Mexico; in many cases, still doesn't. That really dunked the stock hard those first few months. It's been coming back ever since. The stock pick for Stock Advisor is up 8% with the market up 43% since then. It's still a laggard, but at least it's not a loser like a few of the others that we talked about earlier. I do really favor Mexico. I think it's very well positioned. There's a lot of great tourism, lots of reasons to go to Mexico. Occasionally, it's needed some more police, maybe with some more body cams. That's a worry for the country. But for the most part, I'm a real believer in that area of the world. I like this company going forward. Even though -- well, it's up 2%, so it's not down -- it's been lagging here for the last few years.
Feroldi: If you look at international stocks in general, they have lagged the U.S. markets over the last couple of years. But the nice thing about this company is, if you widen the lens to a little bit further out -- three years, five years -- it is more of a market-beater. So I think it's more of a fact that we're just looking at the last two years than anything else.
Gardner: Yeah, like when I picked it, for example. Three years ago, when I picked it. You're right, if you dial it out further, it has been a very fine investment. It's just I haven't done a great job for my members; or in this case, my listeners, as it is, happy to say here, the one laggard from this five-stock sampler. A little foreshadowing for where we're headed.
OK, company No. 3, ticker RMD, the company is ResMed. It is a San Diego California based medical equipment company. Now, this gets into an area of expertise and interest for you, Brian. You have been in the past a medical equipment professional.
Feroldi: Yes, I spent a decade selling medical devices. I know the space very well.
Gardner: Fortunately, I've not had to use this equipment. We all love our medical equipment makers. The less we have to use the equipment, the better probably. But when we do need it, it's awfully good to have great equipment, whether it's a da Vinci surgical robot, or in this case, for people who have sleep apnea, sleep-related breathing disorders, ResMed is the leader. It operates in a hundred countries worldwide, combating sleep apnea.
Two years ago, the stock was at $69.10 a share. Today as we tape, it's just over $102, so it's a 48% against the market's 24%. That's plus 24. So that takes us back to 148% of outperformance from these three so far. Brian, what's been happening for ResMed?
Feroldi: This is a company that pioneered the use of CPAP machines, continuous positive airway pressure, like you said for people with sleep-disordered breathing. The nice thing about this business is, they sell the machines themselves, but they also sell masks, tubings, and accessories that have a more limited shelf life to them. So they're not a one-time sale, they are a repeat purchase sale.
This is a company that has grown steadily because the potential market for sleep apnea is enormous, and it's an incredibly under diagnosed disease.
Gardner: Under diagnosed disease.
Feroldi: As more people go to doctors and are becoming aware of the disease, that's naturally pushing them toward CPAP machines. ResMed is one of the leaders and pioneers in this space is directly benefiting.
Another thing I want to point out about this company, it's actually getting into the software game. It has been very acquisitive in recent years, buying software companies that deal with out of hospital settings. They've also been getting into the electronic health records business. They've been making a couple of acquisitions there. One of the things that they've done is, they've created an app that you can use at home and it actually listens and uses it to see if you might have sleep apnea. So they're, in a way, creating demand for themselves by building up their software component.
Gardner: What I like about this company is, it's the leader what it does. So often, that's what we're looking for in Rule Breakers. First trait of a Rule Breaker, the top dog and first mover in an important emerging industry. Certainly, this is an important industry. In a sense, it is still emerging. We've talked about how under diagnosed sleep apnea is worldwide. It's awesome to be invested in a company that is the leader worldwide in combating it. ResMed, good on you! Up 48%, 24% ahead of the market.
Company No. 4 is next. We talked about this earlier, because the eye in April for April the giraffe -- by the way, I occurs twice in the name Tajiri, April's offspring. I don't know if you knew that.
Feroldi: I did not.
Gardner: How about that?
Feroldi: Unlike you, David, I am a terrible speller. My name is TMFTypeoh for a reason. I am not the spelling bee champion of The Motley Fool like you are.
Gardner: Well, thank you! I'm honored! You do spell it type-oh, which I thought was fun. You're having some fun there.
Feroldi: Yes, purposely misspelling typo.
Gardner: You are one of our most appreciated writers, Brian, a prolific writer on the site. You can play yourself up as not a words guy, but you're putting it together every single day out there for lots of people reading fool.com. So thank you, sir!
Intuitive Surgical, I was talking with Jim Mueller about this company earlier, of course. It was up about 19% from last year. 11 ahead of the market. But if we dial it back a little bit, we know the market's up 24% since two years ago this week. I'm happy to say that Intuitive Surgical has gone from $269 when it was picked on this podcast two years ago this week, to $558. Yep, that's just a little bit more than a double, up 109%. That's a plus 85 in the win column, a huge win for a stock that has even as a large company and a leader, doubled in the past year.
Brian, we'll talk a little bit about the medical equipment. Jim and I already did some of that. But before we do that, how about your own experience selling medical equipment? What was the hardest thing for you to do when you were the sales guy going into a doctor's office or a hospital?
Feroldi: By far the hardest thing was if the device you have requires the doctor to change something about the practice, change something about the way they currently operate, you have an enormous task. In so many cases, they've invested a huge amount of their time, they've trained their staff on the way to do one thing. And if you have a solution that slightly alters that, there are enormous barriers, even if your solution is better for the patient, better for the insurance company, better for humanity. The doctors many times have enormous resistance to anything that's new. Plus, in many cases, you're putting somebody's health on the line. So there's a natural resistance there.
When I personally see a medical device company that is just crushing it, that is just growing quickly, that tells me that they have an effective sales team and they're getting over that barrier. That is something that is incredibly impressive to me!
Gardner: What a great perspective! So glad to have you share that here. Somebody who, for a decade, was in doctor's offices and hospitals, having those conversations, you can see how it really does take Rule Breakers to be willing internally at a hospital or an office to say, "Hey, let's go for this! Let's try this!" But you're right, there's a lot invested in the status quo. Therefore, when rules do get broken in this field, it's very profound, usually, and we like to own those stocks.
Thinking about that, Brian, one of the companies that you worked for, I think the one for the longest period of time, which was Insulet, a company helping to treat diabetes. PODD is the ticker symbol for Insulet. It occurs to me now that there's an I in Insulet and a P in the ticker symbol. This could easily have been a stock for April the giraffe itself. Insulet is an active Rule Breaker pick. For our members, the stock is up from $36 to $90 since May of 2014. It's been a spectacular, more than a double for members. This is the company that you left to come work at The Motley Fool?!
Feroldi: Crazy, right? The stock has been a home run since I left. So you're welcome, investors!
Gardner: [laughs] Do you own some shares?
Feroldi: I actually sold them off. I've always thought it was a great company. But my personal view is, I'd rather have it invested in other companies.
Gardner: Fair enough! That's part of what we do here at The Fool. We try to identify the best places for your money. Interesting to hear you say that. This is an active recommendation that has done well for Rule Breakers, but I respect your opinion.
With that said, enough on medical devices. Any additional thoughts beyond what Jim and I talked about when you think about Intuitive Surgical?
Feroldi: This is one of my favorite companies of all time. What they've done is so incredibly impressive. They have almost 5,000 da Vinci systems that are in place everywhere. This is a business that has tremendous optionality with the number of procedures that they can come up with, with the number of accessories that they can add on. I just love companies with recurring revenue, and this is a company that, more than 70% of the revenue is recurring in nature. A lot to like here.
The thing that excites me is that their most recent version of the device is called the da Vinci SP. SP stands for single port. Instead of them doing a surgery and having three holes in your body, they now can do it through one. That, again, for the patient is tremendously attractive. They also flaunt a new device that goes in through the mouth and is actually used to take biopsies of the lung to diagnose lung cancer. A completely non-invasive way to diagnose lung cancer. This company just continues to break the rules.
Gardner: They really do! We talked about their big R&D budget. Clearly, it's being put to good use. They keep innovating. They're not content to just have that da Vinci Surgical robot and just leave it the same machine year after year. It really continues to broaden. The platform gets richer every day.
It is a company with that risk rating, which is something we have on the Rule Breakers site, of just seven. On a scale of zero to 25, where the higher the number, the riskier the stock, seven grades out very low. And so it is ironically one of those companies that I think you can make quite a bit of money on without that much risk, which seems to go against many people's intuition and part of the reason we love it as a Rule Breaker.
All right, let's bring it all home, Brian. Stock No. 5. Ticker LYV, that's right, Live Nation, the L part of April. Live Nation, two years ago this week, was just over $31 a share. Today it is over $64. It also is more than a double. That's right, just two years ago on this podcast. With this five-stock sampler, three of the five stocks have more than doubled. This is one of our very best performers. We're giving this information away for free on this podcast.
Gardner: We should be charging for some of these podcasts, I think. I guess we probably won't anytime soon. But yeah, Live Nation, a plus 84. That brings the numbers altogether to plus 317% outperformance for these five stocks. If you divide by five, that's an average of about 63%. So the average stock here against a market that rose 24% over the last two years, is up 87%, an outstanding gift to April the giraffe and her child, Tajiri, and all of our listeners worldwide.
Now, let's talk a little bit about Live Nation. What's been happening that's been so successful right now for this longtime purveyor of rock music and other forms of entertainment?
Feroldi: For those that don't know, this is the company that owns Ticketmaster. It is the leading promoter of any huge events. Big time concerts, big time comedy acts. These guys not only represent the artists, in many cases they own or have exclusive booking rights to the venue. They get the revenue from Ticketmaster, they get revenue from advertising. They have their hand in every single part of the food chain. Their market share at the top level is extremely high. This is a company with an almost monopoly when it comes to the big businesses.
What we've seen is that, I would say especially with millennials coming out, there's a general trend in society away from owning things and toward experiencing things. People are increasingly willing to spend money on events such as concerts, and that really has played directly into Live Nation's hand. This is a company that, it's almost driven by network effects, where the biggest acts want to be with the biggest venues. That puts them into Live Nation. At the same time, concert goers want to go to the venues that have the best artists. That creates almost a double-sided network effect that allows this company to continually win.
That's what we've seen with the result, continued out performance in the top line, attracting more concert goers, rolling out more advertising and just grow, grow, grow.
Gardner: Really well put and broken down, Brian Feroldi. Thank you very much! Yeah, Live Nation exhibiting really clearly that second trait of Rule Breaker stocks. We talk about this a lot on this show. Sustainable competitive advantage. So many of the 10 stocks that we reviewed this hour on Rule Breaker Investing have an outstanding competitive advantage. You used this a couple of times, Brian, will use the word monopoly. I don't use that myself just in the sense that I don't think it is a true monopoly. Of course, there are a lot of other venues that Live Nation doesn't own, acts that they don't do. Some people buy tickets not through Ticketmaster and pay a lot less because those service fees are remarkable. Anyway, I think of it this way -- these are dominant, really hard-to-compete-against companies. But in capitalism, everyone is competing. There are a lot of players out there, but the winners among Rule Breakers are the ones that were just so good at what they do, whether it's Netflix, Amazon, or some of the companies that we talked about this week on the podcast.
Brian, it's great to see you! If you're back next year for spring break, just drop me a note ahead of time. We'll review these stocks again. Or, when you come through later this summer or fall. Really enjoy having you on Rule Breaker Investing!
Feroldi: I look forward to it! I continue to think that these companies will all crush the market!
Gardner: A show note before we close. Rick Engdahl, my talented producer, you have been googling the internets, looking up words.
Rick Engdahl: Just the word Tajiri, which is of course April the giraffe's offspring, in Swahili means hope and confidence.
Gardner: Wow, that's perfect! And that's a perfect way to end this show! So we have hope for each of these companies as stocks and we have confidence that they will at least as a group outperform. In fact, if you took those 10 stocks together as a basket today and you did the math, you'd find out that those 10 have outperformed on average by 55% to the market, which is a great testament to rolling up your sleeves, buying stocks directly, avoiding the mediocrity that often characterizes index funds -- and rightly so, even though we love them, and they have a place. Knuckling in, buckling in, and buying great companies to hold as Rule Breakers.
Well, next week, it's Rule Breaker mailbag. It's the end of the month, the last Wednesday. We'll be taping a little bit early. If you want to drop us a note, email@example.com as an email, or certainly you can tweet us @RBIPodcast, if you have a question, thoughts, suggestion or poem to share on this upcoming Rule Breaker mailbag. I will handle that next week. I look forward to it! In the meantime, thank you Brian Feroldi! Thank you Jim Mueller! Fool on!
As always, people on this program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at rbi.fool.com.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Axon Enterprise, Electronic Arts, Intuitive Surgical, Live Nation Entertainment, Netflix, Zillow Group (A shares), and Zillow Group (C shares). David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Intuitive Surgical, Match Group, Netflix, Zillow Group (A shares), and Zillow Group (C shares). Jim Mueller, CFA owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Grupo Aeroportuario del Pacifico, Intuitive Surgical, Match Group, and Netflix and has the following options: long January 2020 $1370 calls on Amazon, short January 2020 $1380 calls on Amazon, long January 2020 $220 calls on Netflix, and short May 2019 $17 puts on Redfin. Rick Engdahl owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Axon Enterprise, Electronic Arts, Live Nation Entertainment, Match Group, Netflix, and Zillow Group (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Axon Enterprise, Intuitive Surgical, Live Nation Entertainment, Match Group, Netflix, Take-Two Interactive, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool recommends Electronic Arts, Grupo Aeroportuario del Pacifico, Insulet, Redfin, and ResMed. The Motley Fool has a disclosure policy.