REVIEWAPALOOZA!: 5-Stock Samplers
We've set aside this Rule Breaker Investing episode to review not one, not two, but three five-stock samplers from the last three years. What stocks did we pick? How did they perform? And most importantly, what can we learn from the discipline of keeping score?
A full transcript follows the video.
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This video was recorded on Feb. 20, 2019.
David Gardner: Most financial podcasts that talk about stocks probably don't pick them formally. Pick them to beat the market. Pick them for three years. A lot of people will talk about stocks but may not walk. Now, I'm not trying to call anyone out. Truth is, I don't listen to many financial podcasts, pretty much just Motley Fool one, so I'll be the first to say that I only suspect -- you can let me know otherwise -- that most financial podcasts do not pick stocks over specific, defined periods, score them, talk about the score, good or bad, and then revisit them a year later, two, three. Most, I'm just betting, do not.
Well, this one does. I've always done it, in part because the act of picking, of scoring, of holding yourself accountable, is really the best way I know to get better at investing. This week, we will look back on Rule Breaker Investing. It's Reviewapalooza! We'll look back one, two, and three years to see how three different five-stock mini-samplers have performed. How's Tesla (NASDAQ: TSLA) done for us? How about Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) or Planet Fitness (NYSE: PLNT)? How are we doing? And what can you learn? On this week's Rule Breaker Investing.
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Welcome back to Rule Breaker Investing! I'm David Gardner, joined this week by my friend Emily Flippen. Emily, welcome to Rule Breaker Investing!
Emily Flippen: Thanks for having me!
Gardner: Welcome back to Rule Breaker Investing, because you and I both know that you were rookie of the year for our Market Cap Game Show when we played a few months ago. March is coming, end of March. Emily, I'd love to have you back for the Market Cap Game Show.
Flippen: I'd love to do it! I was just thinking, we were talking about Etsy earlier today, and I had the conscious thought in my head, "Gosh, I don't know if I can remember the market cap of Etsy!" And I was very disappointed. [laughs]
Gardner: I'm never going to say ahead of time what's coming to my game show contestant. We'll always keep it a secret which stocks I'm going to ask about. But you're right that Etsy has had an interesting place on the Market Cap Game Show.
If you're a new listener, you don't know that we play a game show every quarter where I basically bring in one of my friends around The Fool -- in this case, Emily Flippen -- and I quiz relentlessly this person, asking them the values of companies. How much is Amazon (NASDAQ: AMZN) worth today? We're not talking about the stock price. That's just the price per share of a stock. No, we're talking about the market capitalization. When you multiply the share price by the number of shares, you get the total value of a company for the most part, and that's the market cap. It's a wonderful game that we play once a quarter because A, we have to play games on this show, that's just how we roll, and B, it's a great discipline to start thinking about the world in terms of the price tags on the things around you, the companies that you can buy. Emily, you distinguished yourself with your performance in your rookie appearance on the Market Cap Game Show.
Flippen: Only downhill from here, though. That's the problem. Start off too strong and you have nowhere to go.
Gardner: I insist you do not do that. Do not go downhill. Well, at least not today. Today, I have you in for a different reason. We're going to be going over, this is the Reviewapalooza Rule Breaker Investing podcast. You well know, and any longtime listener of my podcast knows, that we pick stocks about every 10 episodes or so. We'll pick five stocks. I call them my five-stock samplers. I'll usually have a theme, and I'll tie it to those stocks. Then, we'll check back a year, two, three years later, and see how we did. It's an important component of Rule Breaker Investing, always keeping score, always looking to beat the market, always keeping score. I'll probably have a few lessons about that at the end of this week's podcast.
But really, what we're here to do is, this is an all-time record for this podcast, we're going to be taking three separate five-stock samplers from the past, and we're going to see how those stocks have done. We're going to learn why. That's why I'm really happy to have Emily joining me. I don't think I could probably go back over 15 different stocks and have good, substantive stuff to say about every one of them all by my lonesome. So, Emily, awesome to have a wonderful sidekick to help me and us understand how these companies have performed, why they're up, why they're down from one, two, three years ago.
Flippen: Well, it's great to be here! Hopefully I can provide some of that clarity, but I guess we'll find out.
Gardner: Before we start our first five-stock sampler -- by the way, each of these five-stock samplers was from February. There's one from last February, a year ago. Then there's one from two years ago, February. And then, yep, three years ago this month. That five-stock sampler we will be bidding goodbye to because we will not keep reviewing these stocks "ad infinitum." Otherwise Rule Breaker Investing would be completely taken over by reviews of five-stock samplers. We have to sunset these, say goodbye to them, from time to time. We'll be doing that with the stocks from 2016.
Before we get started, I want to mention, next week is our monthly mailbag on this podcast. If you have a question, thought, suggestion, or poem, rbi@fool.com is the email address. I'd love for you to reach out. We read them all. We can't present them all because we get pages and pages worth of notes from you, and great questions and thoughts and stories. I'm looking forward, as always, to our mailbag next week.
And then, why not? I'll just mention what we're going to do the first week of March. It's going to be one of those series that we do from time to time about once a year. It's Mental Tips, Tricks, and Life Hacks, Volume 4, coming to you on March 6th. If you have a mental tip, trick, or life hack, I'd love for you to email us, rbi@fool.com, again, is the email address. Of course, you can always tweet us @RBIPodcast on Twitter. I already have a pretty good shortlist that I'm looking forward to presenting, but I bet you can top some of mine. I'm going to put in yours ahead of mine if you have a better mental tip, trick, or life hack that we can present at the start of March.
All right. The day was February 7th, 2018. What were you doing on February 7th, 2018? I can tell you what I was doing the day before February 7th, 2018. I was taping this podcast. Every week, we tape on Tuesdays, generally, and then we broadcast, we put it up there, on Wednesday. But February 7th, 2018, has a special place in my soul. I think this is definitely a TMI moment. Maybe I can turn it into a public service announcement. I was having my first and only so far colonoscopy on February 7th, 2018 as this group of stocks came public. Now, quickly scrambling to turn that into a PSA -- I think if you're over 50 years old, you owe it to yourself, your family, and your health to do that. Male or female. I think my wife and I both did it the same week. It was like a his-and-her colonoscopy week for us. It was actually kind of a pleasant experience. It wasn't nearly as bad as I thought.
Anyway, what was also happening that day is that this list of five stocks came out. The theme was Five More Stocks to Feed the Next Bear. The reason it was called that is because, this is almost an ongoing five-stock samplers series. We'd first picked stocks in advance of a bear market in 2016. My talented producer Rick Engdahl decided we'd call this this Five More Stocks to Feed the Next Bear. Emily Flippen, these five companies came out. They were, we'll go with alphabetical order based on company name. They were Alphabet, Amazon, Apple (NASDAQ: AAPL), Novo Nordisk (NYSE: NVO), and Tencent.
I remember, having listened back to that podcast in preparation for this week's show, that pretty much the market was just about at an all-time high. I was really happy. Emily, I bet you were happy.
Flippen: I think we were all very happy in February of last year.
Gardner: We were. And yet -- and this was a funny sidelight -- the week that led up to it, basically the first week of February, in that week, it was the worst week in years for the market. The market had just dropped. I was down 8% just with my portfolio in the one week leading up to this podcast. So, a funny juxtaposition of all-time highs and yet an 8% clunker in a single week. And it was then that we picked these five stocks.
The two traits I was looking for are companies with low risk ratings and companies that are big. I wanted big, safe companies with low risk ratings. That's why we ended up with companies like Alphabet, Amazon, Apple, etc.
I'll reveal the numerical performance at the end of our conversation, Emily. But as I look over this list of companies, the outperformer so far has been Amazon. Amazon up 15%, the market up 3.9% -- 4%, we'll call it -- since the podcast a year ago. Bad news for this five-stock sampler. If that's the best performer and it's only up over the market by 11% or so, maybe this hasn't been a great sampler to start.
What's happened to Amazon in the last year or so?
Flippen: A lot of things. Amazon maintains a lot of optionality. They definitely have cashed in on that in 2018. The Amazon Web Services, their cloud business, it's so important. I'm not sure if investors or the public in general really realized how far ahead Amazon was in that space until 2018, until the competitors started to come out, and you're like, "Gosh! Amazon is almost a clear winner here!" That was a big development in 2018.
There's so much optionality and success that they've had from virtually every part of their business. Going into 2019, I'm not sure if I can tell you what Amazon's going to do next, but I can tell you it's probably going to be great.
Gardner: It's funny, I first picked this stock in 1997. It's basically been a long-term hold. It's really ironic in some ways, then, that it was a pick as recently as a year ago, just on this podcast. It's a company that has evolved. As you're mentioning Amazon Web Services, I remember that it didn't even exist when amazon.com was Earth's biggest bookstore, which is when I first picked the stock. But it's really continued to evolve and adapt. That's true of a few other players here that we'll be talking about.
It's a spectacular story of constant winning in the face of some really tough moments. At its worst, Amazon went from right around $95 a share to around $7 in 2001. You had to really live through some real loss and some real pain. Of course, that's going to be true of almost anything in life. If you try to do something, whether it's an excellent marriage, a long-term buy-and-hold, or your own business, you're going to have some tough times over 20-plus years. And yet, look how spectacular it's been despite that.
Let me go, then, to the opposite end of the performers here, Emily. Tencent has been the company in this list of stocks that has been the real underperformer, down 19% against the market's up 4%, so it's a minus 23%. What's happening with Tencent?
Flippen: What's not happening with Tencent is the better question. I'm not even sure where to begin. We have China cutting down on gaming in the country, increasing regulations, potential for a trade war, concerns over privacy and government interference with the company. And we see a lot of failed Chinese IPOs. Maybe there's just some investors who are scared to get into China right now. And that's justified. But the stock price definitely has started to show it. Tencent, despite being such a large and stable company -- which is, I'm sure, why you originally added it to this podcast list --
Gardner: Indeed, and it was at $53.40 a year ago. Today, it's right about $43.50. That's the down 19% we're talking about. But even down 19%, it's still a behemoth company.
Flippen: It is a behemoth company. We talked about Amazon, and what made Amazon special was the optionality there. To an extent, Tencent has it, too, to the extent that a large company can have the optionality. Their user base is so large that it will be very interesting to see if some of these macroeconomic headwinds continue into the future, or if it starts to blow at Tencent's back.
Gardner: All right, so I've just led with the biggest winner, Amazon, about 11% of the market; the biggest loser of these five, Tencent, down 23% to the market. Somewhere in between are Alphabet, Apple, and Novo Nordisk. Let's just take them quickly in that order. Emily, what has been happening with Apple over the last year or so?
Flippen: Apple's been interesting as well. They come out with these new products. There's been a lot of great sales growth. But then they say, "We're going to stop breaking out iPhone sales." And investors start to be concerned. The movement this year, which has been in between the market, it comes amid the fact that there was a mid-year surge of like 30%. It's really interesting, looking at Apple. Moving forward to the future, the market might be a little confused for it.
Gardner: If there's a bigger, more innovative company in the world than Alphabet, which is of course often referred to simply as Google, and since Alphabet continues to rock, the ticker symbol is GOOG and GOOGL, it's understandable why people might just think it's Google. It's a lot more than that, though. Really, as we've looked at Alphabet over the years, a perennial pick within Motley Fool Rule Breakers, is there a more broadly influentially innovative company in the world today?
Flippen: Wow, that's a good question! I'm not sure if I know the answer. But I know, if there is, then Google is a close second, to say the least. They're competing in the cloud development space as well. They have lots of opportunity to monetize their numerous platforms like YouTube. Ad revenue, while there are investor concerns over it, is still growing faster than their traffic acquisition costs, for example. They have a lot of sway and control over at least American search. I think there's a lot of influence that Google still has.
Gardner: I'm happy to say that both Apple and Alphabet are beating the market here. The market, up 4% from a year ago, Apple up 7%, Alphabet up 6.5%. They're each eking out a few percentage point win over the S&P 500.
The last company we'll talk about, the least-known but still a very big company unto itself, Novo Nordisk. I think a lot of our listeners who may not have heard the podcast a year ago when I presented each of these companies might wonder, what is Novo Nordisk?
Flippen: They're the largest producer for diabetes medication worldwide. They're very influential. They're moving into a lot of different spaces, but diabetes is still their bread and butter.
Gardner: Novo Nordisk itself is about flat from where it was a year ago, so it's slightly trailing the market. A pretty remarkable story overall. Over the last 10 years, just checking the stock chart here, Novo Nordisk about 10 years ago was at $10. Today, it's at $50. This might be the world's least well-known $96 billion company. European, Scandinavia-based. It's very well known outside the United States of America. But even here I think most people don't know of this amazing company.
There we are, Five More Stocks to Feed the Next Bear. What's the bottom line? The bottom line is, these stocks as an average are up 2.1% as we broadcast one year later. The market, as I mentioned, is up 3.9%. These stocks are about 2% behind the market in their first year of trying to beat the bear. Now, certainly the last year has contained elements of a bear market. If you check a stock chart of the S&P 500, the NASDAQ, you'll see it caved in in the fourth quarter of 2018. But a lot have snapped back. These companies are resilient. I do trust another two years from now, when we're reviewing these companies after three years of holding Five More Stocks to Feed the Next Bear, I do trust they'll be beating the market. I sure hope so. But, of course, we're picking the stocks to beat the market, so I sure hope this group will perform.
All right, let's go further back in time. Rick, maybe a little bit of back in time music.
[♪ angelic harps ♪]
Excellent! Now we're in 2017. Emily, do you remember where you were in February of 2017?
Flippen: February of 2017. That's two years ago. I was graduating from college.
Gardner: Outstanding! Was it an emotional college graduation, that spring for you?
Flippen: It was a bit. I was graduating from China. Had the realization, I'm leaving the country and I probably won't be back --
Gardner: In Shanghai, right?
Flippen: Yeah, in Shanghai.
Gardner: You were part of the NYU.
Flippen: Yes, New York University. I was just part of their graduating class in China.
Gardner: Spectacular! I don't exactly remember where I was two years ago today, but I can tell you I was not having a colonoscopy. I'm pretty sure about that!
Well, the day was February 15th of 2017. That's when we came up with our Five Stocks the World Needs Right Now. Now I'll say a little bit more about that in a sec.
By the way, each of the three five-stock sampler reviews we're bringing you this week, you can go back and google. Just google "five stocks the world needs right now." Or maybe you'll see it there in iTunes or on Google Play. You can always find all past Motley Fool podcasts at podcasts.fool.com. If you were to google the phrase "Rule Breaker Investing five stocks the world needs right now," it would point you right at this podcast. You might enjoy going back and hearing what I was saying about these five companies.
Emily, now we're back in the present. You and I are going to talk through these five companies, just like we talked about the previous ones. These companies were, alphabetically, Alkermes (NASDAQ: ALKS), Alphabet -- yep, I had Alphabet on the brain once again in February -- next one was FactSet Research (NYSE: FDS), and then The New York Times (NYSE: NYT) and Tesla. Five Stocks the World Needs Right Now.
Now, the market atmosphere -- in preparation for this week's podcast, I went back and listened to that one, too. There were some big market moves the previous three months. The market was riding a top, a very broad-shouldered bull. I remember saying at the time, pinch yourself at how good the stock market had been leading up to this podcast. I picked these companies for four years. I was in particular being influenced at the time by a lot of talk, which was mainstream American talk in particular, about so-called fake news, and a lot of people doubting the veracity of things being said in the political arena and through the media itself. Facebook was getting called out, Donald Trump was being called out, a lot of people had some questions about what truth meant anymore back then. That's why I went with a list of stocks, not all of them, but a number of these were about fact-checking and facts. At least in the case of The New York Times Company, some people may feel like they're not always factual themselves, but at least they're an authority. They certainly stand prominently as a respected member worldwide of the fourth as the so-called Fourth Estate.
That's what was going through my mind back then. But really, even more so, Emily, I was thinking about the importance of these companies, what they do every day that people rely on a company like, well, Alphabet, Google, being able to Google things and look them up. All five of these companies are important players within capitalism.
The market from two years ago is up 18%. The market's up 18%. That's the bogey these five companies are trying to beat. Let's start with the worst performer, Alkermes. This is a company based in Ireland. It's a European-based company. They attack things like depression and the opioid epidemic with a lot of their products. And yet, Alkermes, despite being a company the world really does need right now, the stock is down from about $57 to about $34 in the two years since I thumbed it up on this podcast. Emily, what's been happening with Alkermes?
Flippen: There's a lot of regulatory approval that these companies must go through. It doesn't matter if you're trying to fix a very big issue -- if the FDA doesn't sign off, the FDA doesn't sign off. That's unfortunately what Alkermes has been seeing, is a lot of FDA headwinds.
Gardner: For a company, even a sizable one like Alkermes, it certainly doesn't control its destiny in a way that so many other companies of that same size do.
The best performer in this list of five is The New York Times Company. The stock was at $15.95 cents on February 15th of 2017. I'm using closing prices from that day for every one of these. Today as I look, the stock is trading, Tuesday afternoon, at $31.76. Why am I taking it out to the hundredth, to the penny? Well, because the stock is up 99.1% since being picked on this podcast two years ago. That's way ahead of the market, again, 99%, with the S&P up just 18% in that same time. Have you taken a look at what's happening with The New York Times Company?
Flippen: I'm sure this was not a pick without its controversy. However, The New York Times is poised to succeed if off anything just its reputation. The household name that it soon became thanks to things like fake news. They did a great job of growing their subscription revenue and their digital sales and driving traffic to their sites, really making them an integral part of the American media landscape. I think that's probably what caused the 99% increase in stock price.
Gardner: You're right, Emily. Certainly, that's been a stellar performer for Motley Fool Stock Advisor. Again, all of the companies that Emily and I are presenting to you this week are drawn from our existing services, Motley Fool Stock Advisor, Motley Fool Rule Breakers. That's why I call these samplers. We're sharing with you some of the ideas. There are many more that our members own and that we report on through both of those services every week. At least for Stock Advisor, where I picked The New York Times Company, it really has been that conversion from an old media model to a new digital, global subscription model that has powered The New York Times. Some people would say -- maybe Donald Trump himself would say -- that he's helped them by calling them out and calling them out --
Flippen: I'd say he has.
Gardner: He calls them out, but in a way, he's giving them publicity and maybe helping them. That's a funny dynamic. It's interesting that the best performer, up 99%, the worst performer down 41%. Respectively, we're already ahead of the market just netting out those two. The other three companies, we've already talked some about Alphabet. I'm not sure there's much more to say other than I'd like to give the performance of Alphabet over the two years. Again, the market up 18%. Alphabet up 36%. We're beating the market by 18% with Alphabet.
Let's talk a little bit more about FactSet Data Research. I doubt there's another podcast in the world that this week said, "Let's talk a little bit more about FactSet Data Research," so I just wanted to say that anyway, and then oh, yeah, maybe we'll talk about Tesla, too. But let's do them in that order. Emily, FactSet Data Research for me is a steady data company. Of course, they're powering a lot of the data that we take for granted when we read news or business reports. They're doing things like earnings numbers. You'll see them quoted out. Their analysts are all about the numbers that underlie a lot of business in our culture. It's a quiet, unknown company. The stock was trading at $180 two years ago. Today, it's about $225. It's up 25%. What's been happening with FactSet Data Research.
Flippen: FactSet succeeds when the market succeeds. It tends to do well when we're seeing a healthy Wall Street. You said two years ago, you have to pinch yourself because the market has been performing so well. You can only imagine looking back now about how the market has performed since two years ago, and seeing that FactSet Research really became an important part of the landscape reporting on companies and helping continue to expand the American financial sector. They did a great job. Grew revenue, have wide profit margins. Not much to see here.
Gardner: It's funny, funny how invisible the company is in broader terms. I do want to note that the market being up 18% from two years ago, that's about the historical average. When a market tends to rise 9% or 10% a year, if you just think about it in a two-year increment, that's about 18%. So it's been an average-good stock market. But it's nice to see FactSet Data Research up 25%, ahead 7% over the market averages during that time.
The last company we'll talk about in this five-stock sampler from 2017, Five Stocks the World Needs Right Now, is a little company named Tesla. Before we talk about it, I'll just mention Tesla's up 10% in these two years. The market is up 18%. Tesla has been an underperformer. If you've just bought the stock two years ago with this podcast, you're behind the market. It's been a very volatile and interesting, fascinating time in the life not just of Tesla but of Elon Musk himself. Any thoughts to share about Tesla?
Flippen: Other than I see where you're going with the facts. Maybe Elon Musk should start to fact-check himself before he tweets a little bit.
Gardner: [laughs] I don't think I was saying that back then, but it's become more interesting, hasn't it?
Flippen: It's played well into the theme, I'd say. Tesla is kind of out of the doghouse in a lot of investors' minds, while Elon Musk not might not be. Now is the time for Tesla to start delivering. 2018, man, were they close to not reaching that goal. But, reaching profitability. We'll see if that profitability sustains itself. But assuming it does, 2018 was an exciting year for Tesla, but I think the doubt still remains in investors' minds, which probably shows for some of that market lag.
Gardner: I do want to say, because I think it's been fairly fashionable in the last year or so to take shots at Musk, at Tesla, and at some other great companies. I know some people don't think this is a great company anymore, but I think Facebook is a great company. These companies come and go in and out of favor. I would say right now, Facebook and Tesla are both a little bit out of favor.
I want to say two things about Tesla. First is, how many other car companies now in 2019 are advertising their all-electric vehicles coming out in 2020 or 2021? There's some large automotive companies that are almost going pure electric. It's been remarkable. What I was saying two years ago, the reason that the world needs Tesla right now, wasn't because of fake news. This was just about the conversion to electric, and how I think that really will help the environment and the whole world. It's a much cleaner world and a more spectacular world, the way that electric cars feel as you drive them, their capabilities which exceed the cars I grew up with. Pretty fantastic. You kind of feel like a superhero when you're driving a Tesla around. These days, I am driving more often than not my Model 3. That didn't exist two years ago when we did this podcast. In the meantime, the Model 3 has come out. It's a spectacular and beautiful car.
I think in a lot of ways, I sure hope Tesla will continue to be a market beater. It's been a spectacular long-term Rule Breaker. I first recommended the stock on November 23rd of 2011. That sounds right around Thanksgiving 2011. I still give thanks now seven-plus years later because Tesla is a nine-bagger, up 879% from $31 to $310. Taken all in all, it's been a spectacular Rule Breaker stock. But within the context of this five-stock sampler, Emily, all that matters is performance. What have you done for me lately? Tesla up 10%, market up 18%. It's 8% behind the market.
We're going to get ready to warm up our final five-stock sampler, but I need to give the numbers for this one before we move on. Five Stocks the World Needs Right Now from February 15th of 2017, these stocks average 26.1%. You already know the market is up 18%, in this case 18.3%. We're basically up 8% on average per stock up and down this list of Five Stocks the World Needs Right Now. That feels better.
Flippen: It does, it feels much better.
Gardner: One of the lessons you can take away -- I'm going to give a few at the end of this podcast -- one of them is that generally, the longer your holding period, the more confidence you can have that you're going to do well and beat the market, especially with these kinds of Rule Breaker companies. In any given day, week, month, even year, the market's very unpredictable, and these kinds of companies can get really bashed. In fact, the fourth quarter of 2018, as I mentioned earlier, was an ugly time for Rule Breaker Investing. But, hey, just go back a year, two, three, which is where we're heading next, and you might be quite pleasantly surprised by how well these companies stand up over time.
All right. We're about to go even a little bit further back in time. Rick?
[♪ angelic harps ♪]
I went back and listened to this one, too. On February 10th of 2016, the podcast that came out that day, Five Stocks to Feed the Bear. I was wearing a great big red sweater because the whole market was down. It had been a very bad few months back in February of 2016. At the time, I was saying, ever since mid-August -- it was a six-month run -- Rule Breaker Investing, anyway, and the market itself, had been pretty weak. Quite spectacularly, in some ways shockingly, in just the previous three months, the following companies were all down at least 20%: Apple, Amazon and Disney. Some really big, important companies had all lost about a fifth of their value in just one quarter. That was the environment when we picked Five Stocks to Feed the Bear.
The two attributes that I was looking for with this five-stock sampler were low risk ratings. I wanted to find, again, companies that were lower-risk. But, this is the opposite of the 2018 sampler that we just talked about, Emily, these companies were small. These weren't the big ones. I was looking for a range of market capitalizations from $1 billion to $5 billion. Small fries that nevertheless had low risk associated with them in the face, I thought, of a potential bear market. Really, it was a quite a bad market at that time. I like these companies for appreciation going forward.
One of the things I've always tried to do with this podcast is save the best for last. It's fun to go back in time and see how things have done, especially when you have a lot of time. Let's talk about Five Stocks to Feed the Bear. Emily, here they are, alphabetically: Carter's (NYSE: CRI), Ellie Mae (NYSE: ELLI), IPG Photonics (NASDAQ: IPGP), MercadoLibre (NASDAQ: MELI), and Planet Fitness.
Two things to say about that list of stocks. One, one of them just announced it was getting bought out recently. We'll talk about that in a sec. No. 2, these were the exact same companies that I picked in my five-stock sampler from a few weeks ago, my most recent one. If you didn't get a chance to hear Five Stocks Shrouded in Mystery, I'll give it away right now -- he mystery is that I simply decided to reup these five companies once again to show that winners win. Usually, the winners keep on winning, and I really like all five of these companies, even though one of them is a gross underperformer. The other four, though, have all beaten the market, and in some cases beaten it up silly.
As I did pick these stocks three years ago -- and as I mentioned a little bit earlier, this is going to be the last time we ever review this beautiful five-stock sampler. These kinds of companies we're going to keep holding, and darn it, I repicked the very same companies a few weeks ago, as I already mentioned. So you can imagine that we're not really sunsetting it. But for the purpose of this podcast, I'm not going to review "ad infinitum" every five-stock sampler. Three years for this one, I think I said that at the time, is a good cut-off. So, thank you, Carter's -- yes, I'll even thank you. Thank you, Ellie Mae, IPG Photonics, MercadoLibre and Planet Fitness. This is the dream five-stock sampler I'm hoping to deliver every 10 weeks on this show. It's nice to see when we get that kind of performance, darn it, on a free podcast!
Rick, I know you've thought hard about the right music to say goodbye to a five-stock sampler. Why don't we go ahead and enjoy, maybe for 10 or 15 seconds, that musical goodbye to Five Stocks to Feed the Bear.
[♪ Happy Trails by Dale Evans and Roy Rogers ♪]
These are, from three years ago, Five Stocks to Feed the Bear, but from just three weeks ago, Five Stocks Shrouded in Mystery going forward.
Emily, let's start with the underperformer Carter's, the baby clothes company, was at $85 three years ago. Today, it's at $90. It's up 5% or 6%. The problem is, the market over that time is up 50%, an outstanding three-year return for the S&P 500.
Flippen: There's just such a challenging retail environment. Carter's is proof that you can have a great, well-run company that doesn't escape the trends of the industry. I think it's saying something, that we have a brick and mortar store that's still making transition to e-commerce up in this type of environment. While it's a market underperformer, I don't think it's necessarily a testament that Carter's itself is a poorly run company. It's just, the macro trends right now aren't really in support of retail businesses.
Gardner: Yeah, and a big part of their business is that bricks and mortar, as you mentioned, Emily. But, of course, Carter's and Oshkosh B'gosh, basically they have their own branded apparel and merchandise. They can sell that in more attractive venues like, for example, digital, like e-commerce, and do pretty well. This is not a straight retailer at all. This is a branded maker of garments that I continue to favor. That's why I just picked it once again a few weeks ago. I'd like to see Carter's perform better over the next three-plus years. But I'm glad you mentioned that it's up, as disappointing as it's been. It's up basically 5%. The market's up 50%. That's a minus 45% to start with this five-stock sampler.
Let's next go to the company that got bought out just a few weeks ago, Ellie Mae.
Flippen: Ellie Mae kind of got saved here, being acquired, taken private. This mortgage industry originator, the platform makes it easy for any consumer to set up a mortgage. Unfortunately, the housing market right now might be headed into... I don't want to say a downturn, that's not a great word, but an overall decline. That's not to say it won't increase later. We just see these cycles. But the fact that it was taken private at this point is a testament to that fact. But, it's being taken private at a pretty significant premium. I think it got saved a little bit from being a total underperformer.
Gardner: And it had been underperforming. But now, with that premium price paid for Ellie Mae -- which is an impressive company, I want to make it clear, even though it had been underperforming. This is a long-term winner for us on Rule Breakers. For this podcast, anyway, three years ago, it was at $60. Today, it's right around $99, where it's going to get bought out. That means it's up 66% against the market's 50%. That's about a plus 15%. That starts to make up some of the gap created by Carter's. We're not above water yet. And yet, with the next company we'll talk about, IPG Photonics, we're about to go into market-beating territory.
IPG Photonics, picked at $81.50 three years ago. Emily, it's at about $153 today. That's up 87%. What's been happening with this player?
Flippen: Well, laser production has just taken off. It's become such an important part of businesses. IPG Photonics has positioned themselves well to succeed. Long-term, definitely been a market-beater. Unfortunately, over the past year, because the majority of their sales do go to China, they faced some issues regarding that. But you look back far enough, you have a long enough viewpoint, like you said, you start to see a market beater.
Gardner: You really do. In fact, if you go back well before the three years ago when I picked this stock to when we first picked it in Rule Breakers, years before that, or how about when it first came public as a company? Valentin Gapontsev, the Russian-American, the Russian emigre, the CEO and founder of this company. It's been an amazing performer and a great story about how to do capitalism right, innovate and make the world better. This has certainly made a lot of Motley Fool members' stock portfolios better. As we mentioned, IPG Photonics up 87%. That's 37% ahead of the market. So, now we're cooking. We're ahead of the market now net-net by about 7%.
But here come our two big-time winners. Let's first go to MercadoLibre. Emily, you and I were having a conversation earlier today at The Fool talking about what kinds of stocks we would want to name as core holdings or what we call our starter stocks at Rule Breakers for the year ahead. We're not printing that list yet, we're just discussing the different kinds of companies. But MercadoLibre was a company that you brought to the table and mentioned as a potential starter stock for 2019 and 2020.
Flippen: I love the work that MercadoLibre is doing with e-commerce retail in locations that haven't fully expanded into it yet. I'm not surprised that this has been a complete market crusher. It's grown into such a large company. Unfortunately, I don't know the market cap off the top of my head. Maybe don't ask me that next month.
But I know it's no longer a small-cap company like when you originally brought it up. MercadoLibre, despite all the political risk, has been providing an amazing service to people in developing economies, doing a lot in the payment processing space that I think puts it in an extremely competitive position.
Gardner: For those keeping score at home, I do believe the market cap is around $16 billion. On the one hand, that sounds pretty big compared to when we originally picked this stock, when it was just sub $5 billion market cap. But it still sounds pretty small relative to being the No. 1 e-commerce company in Latin America today and going forward.
Flippen: It can be bigger.
Gardner: It continues to feel like a big-time winner for Motley Fool members, especially Rule Breaker members, where the service is picked from. I should mention the performance of this stock. I've probably talked about it a few weeks ago since I repicked it on Five Stocks Shrouded in Mystery. But three years ago, lucky listeners of this podcast who thought, "I like what Dave's saying about that MELI company, MercadoLibre." Back then, it was at $87.71. That's where it closed, February 10th, 2016. Today, $370. It's up a four-bagger since when we picked it on the podcast three years ago. I'm happy to say it's even been outperformed by the final stock in this five-stock sampler.
As good as MercadoLibre has been, and a four-bagger over any three-year period is going to bring a big smile to my face, Planet Fitness, ticker PLN, has even been a little bit better.
Flippen: I remember when this stock was originally brought up. It was a controversial pick. It had a business model that was really revolutionizing gyms. Some people thought it maybe took advantage of the people, the non-regular gym goers. But I think their franchise model has proven that Americans want cheap, convenient access, judgment-free access, to a local gym. Planet Fitness has posted amazing growth, really sustainable margins, and has created an entire culture of gym membership and gym goers that three years ago, four years ago, didn't exist yet.
Gardner: Emily, when you and I were talking earlier today before the podcast, you mentioned, if we didn't have a fitness and health center here at Fool HQ, where would you be getting in your wellness?
Flippen: 100% I'd be at a Planet Fitness. I will say, they don't have all the bells and whistles. But as somebody who just runs on a treadmill, that's all I need to get the job done.
Gardner: It's one of those companies that's democratizing its industry at a pretty low monthly rate, in the same way that Netflix is a pretty low monthly subscription rate when you think about the overall context. $10 or so a month for both of these companies' services. Both of them, I think, help make the world smarter, happier, and richer which is the purpose of our company, The Motley Fool, to make the world smarter, happier, and richer. I really feel like, if you combo the $10 you pay to Planet Fitness and the $10 you pay to Netflix -- and maybe the $10 you pay to The Motley Fool if you're a subscriber, I sure hope you will -- I think that's a pretty great life. It's going to lead you to some good things and some long life, in the case of staying fit with Planet Fitness.
The stock three years ago on this podcast was at $13.86 cents, it closed that Wednesday. Today, it's almost $59, just over $58.80. That's a 324% gain. That's a second four-bagger picked on this podcast three years ago.
When you take it all in all, this group of stocks, Five Stocks to Feed the Bear -- again, the two traits we're looking for are low risk ratings; that's right, we put a number on risk here at The Motley Fool. If you're a member of Stock Advisor or Rule Breakers, you know that we've created our own risk system for rating the risk of stocks. We put numbers on stocks. The higher the number, the higher the risk. It's a 0 to 25-point system. I was looking for lower risk ratings. And, as I mentioned earlier, I was looking for smaller companies, ones that could snap back stronger, presumably, in the face of what a bad market it was with my great big red sweater on three years ago this week.
All right, these five stocks average a gain of 160.8%. The market over the same period, 50.1%. That's just over 110% per stock over the market averages as a list of five.
There are a few lessons I want to draw at the end of this week's podcast, our Reviewapalooza podcast. I want to thank you so much, Emily, for your help again this week.
Flippen: Thanks for having me! It was great to be on!
Gardner: A few lessons. One of them is certainly that losers are OK. They're part of investing. Carter's, which we started with for this one, 45% behind the market. But part of the risk that has you trying with companies like Carter's and sometimes not succeeding, especially in bad retail environments, that same risk really pays off when you're willing to take a risk with a company like MercadoLibre or Planet Fitness.
By the way, secret -- I don't think these companies are as risky as the world probably thinks. For our risk rating system at The Motley Fool, these are actually lower-risk companies. But a lot of people look at MercadoLibre, and they haven't bought a foreign stock before, they have questions about Latin America. They see the bad headlines -- and they sure are bad headlines in Venezuela -- and they think, "Is that really a place you'd want to be?" They also see Amazon starting to advance and come into Latin America, which in some ways contradicts those negative headlines about the Venezuelas of the world. But at the same time, MercadoLibre, looks risky to people. Not to me, though. MercadoLibre is the e-commerce leader. E-commerce is a great business. It is a very wealthy, well-run, founder-led company.
I would say the same thing about Planet Fitness. A lot of people think that would be a risky company, a risky stock. We don't think so. Both of those companies have been four-baggers since we did this podcast three years ago this week.
All right, as I say goodbye to Emily -- thank you again, Emily -- lesson No. 1 was, losers are OK. A lot of the world doesn't feel that way. A lot of people who just start investing, the one thing they don't want to do is lose money. But we lose money constantly. I like to say -- I've said this before recently on this show -- when I talk with new Fools who join us, I have a New Fool coffee with every employee who's ever come to The Motley Fool. In small groups, we get to know each other. One of the things I said recently is that my superhero power is my ability to lose and lose, I'll say, graciously, or just expect to lose, not be too affected by losing. I love that Winston Churchill line, "The secret to success in life is just to go from failure to failure without losing your enthusiasm." That's paraphrased. That's kind of how I roll and how we roll. We're very comfortable. It's OK to lose. That's lesson No. 1.
Then, just two more quick lessons for you. Lesson No. 2: keep score. You're not going to know whether you're winning or losing unless you're keeping score. At the heart of The Motley Fool, which Tom and I -- my brother Tom Gardner and I -- founded 26 years ago, is this belief that you should be keeping score at all times. Each of the scores that I've given you, this is just in a simple Google Doc spreadsheet. I just type in the stocks for each of these five-stock samplers. I just type in the stocks into a spreadsheet and track it going forward. That's right, I'm not using any big data analytics or any extra help here at The Motley Fool. People are busy doing their own work across our company and our services. It's just lil' ol' me, just like it's lil' ol' you, with Google Docs, in this case a spreadsheet that helps me keep score.
What are we scoring? We're scoring beating the market. In a world where so many people don't think it would be possible to do that consistently or well over time, and therefore opt out with index funds, we're here at Rule Breaker Investing saying you absolutely can beat the market. We'll show you how. We've been doing that, whether it's 26 years ago as a company, or how about just three years ago on a podcast? Now, I do know that five-stock sampler I picked from a year ago, we're a little bit behind the market with that one. I sure hope it'll come back. If it doesn't end up beating the market, I'm OK with that because almost every other five-stock sampler has, which means I'm not even that good, we've gotten really lucky with the spectacular performance we've had every 10 weeks with these five-stock samplers on the show. But I'm OK with losing those from time to time, too, and you should be as well.
My final lesson is, just to hail back to something I said earlier, the longer you're holding period, the better you should expect to do. I love that we modeled that on this week's Reviewapalooza podcast. You saw that the one from a year ago, we're a little bit behind the market. Then two years ago, we're up on the market. And then three years ago, we're really up on the market. While each of these is just a little snapshot of five stocks, it's not a full portfolio, I can assure you that my own results over the course of time, if you look at our scorecards on Stock Advisor, or if you're a Rule Breakers member, you'll see that the longer we allow those stocks to just shine, we get invested in them, we add to our winners and we hold, hold, hold. This three-year period that I use to assess these five-stock samplers, that's a real minimum for how I invest, for how I think you should invest as well. So, lesson No. 3: the longer your holding period, the better you will do, you should do. And that's worth remembering in a world that is far too often very short-term focused.
All right, as we close, if you haven't already, please subscribe to this podcast on iTunes. Or maybe it's Google Play for you. Or maybe Spotify. You can follow us on Twitter at @RBIPodcast. You can follow me on Twitter if you like, I'm @DavidGFool. Finally, I hope you'll give us a review. Throw me and my producer Rick Engdahl, throw us some stars! Let us know how we're doing. We read every comment.
Next week, yep, it's your mailbag! rbi@fool.com is the email address. In the meantime, to paraphrase Casey Kasem, keep your feet on the ground and keep reaching for multi-baggers. 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. Randi Zuckerberg, a former Director of Market Development and Spokeswoman for Facebook and sister to CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. David Gardner owns shares of Alkermes, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Ellie Mae, Facebook, IPG Photonics, MercadoLibre, Netflix, Tesla, and Walt Disney. Emily Flippen has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alkermes, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Carter's, Etsy, Facebook, FactSet Research Systems, IPG Photonics, MercadoLibre, Netflix, Tesla, Twitter, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Ellie Mae, Novo Nordisk, Planet Fitness, and The New York Times. The Motley Fool has a disclosure policy.
