In this episode of Rule Breaker Investing, with a standing ovation and a few tears in our eyes, we watch the curtain fall on David Gardner’s 30th and final five-stock sampler. And as he takes his exit, is it…? Could it be? Is that a bear chasing these companies around?
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David Gardner: About 300 podcasts ago, I decided, if Rule Breaker Investing were to acquaint the world with me and The Motley Fool, I had better bring my whole self to this podcast. Whole self, that can mean a lot, in my case, possibly, occasionally, too much information. TMI, it is arguable that you, my dear listener, don’t need an updated list of my biggest pet peeves or my favorite board games every year or so. But if I didn’t, well, I wouldn’t be bringing my whole self to this podcast and if I didn’t pick stocks for free on this podcast, my thinking went, “I here again wouldn’t be my whole self,” and so 300 podcasts ago, I decided that every 10 podcasts or so, I would make five new stock picks. Pick a theme, pick some of my favorites, put myself out there in public with yet another scorecard to track, another game to try to play and win, select five stocks each time out of the hundreds I’ve actively recommended, and keep my fingers crossed once again, that we would beat the market. Well, this weeks podcast represents the combination of that effort because I like big round numbers and as I already presaged, this 30th five-stocks sampler will be my personal last, and I hope it does, at least as well as the others. Speaking of which, I will reflect back this week with five learnings from my Five Stock Samplers and also, yeah, five more new stock picks only, wait, is that a bear? Let me get off stage as we roll some music on Rule Breaker Investing.[…]
Welcome back to Rule Breaker Investing, delighted to have you join me this week. I hope you were with us last week. By us, I mean me and my friend, Morgan. It was a lot of fun to have Morgan Housel share five of his great quotes on Great Quotes, Volume 13. I think that’s an hour that almost anybody would enjoy because it’s not so investing heavy, of course, it’s money heavy. Morgan has thought more and written better than most people that I’ve ever met on the topic. He’s still a young man and has so much more to do going forward. It’s just exciting to catch up with him at this point in his career and again, that’s how friends and family share podcasts and I hope you will. Next week will be two, I bet, because it’s The Market Cap Game Show. Yeah. We only do it four times a year and I have two of my great returning stars finally getting them back together, Aaron Bush and Emily Flippen, and I’m excited to see those two Fools through our new format, which I think has gotten some rave reviews ever since we tried it last quarter, so we’ll be naming our range, if you know the game, you know what I mean, if you don’t know the game, please come and join us next week.
Five Stocks Pursued By A Bear. Now, that’s one of my favorite phrases. People who love Shakespeare or who, they probably didn’t read A Winter’s Tale in high school, you probably read Hamlet, not A Winter’s Tale, but if you ever get a chance to see that tragedy comedy, I think you’ll enjoy it and Shakespeare’s most famous stage direction issues from his play, A Winter’s Tale. Antigonus exits the stage, he’s about to be eaten by a bear. Fortunately, that occurs off stage but Shakespeare’s stage direction is “Exit, pursued by a bear.” Well, when it came time to write our first book, The Motley Fool Investment Guide, each of the chapters of that first edition had an epigraph, one of those quotations that sets off the rest of the chapter, and my brother Tom and I split responsibilities on which chapters we each were going to write. I don’t know if this was the short straw or the long straw, but I got the one on selling strategies and went to sell and I thought, “Is there a better epigraph than ‘Exit, pursued by a bear’?” Which is exactly how that chapter started. By the way, spoiler alert, in so many words I wrote, when to sell? When you need the money. That’s why most of us invest. I don’t sell based on target prices or an assumption that if the stock doubles, I’ll sell, or any given time period like I typically hold for blank years. No. For the most part, anybody who has followed me knows this, I’ve tried to hold my stocks for the longest time. I have a much longer holding period than almost anybody I know and I typically sell when I actually have a reason for the money.
For example, if you wanted to buy a new house or you wanted to put a kid through school or you wanted to retire, which I never will, even though I’ve transitioned some of my responsibilities, a lot of us, that’s why we invest. So, that is a spoiler alert from that first chapter, When To Sell. But Exit, Pursued by a Bear, it was my dear producer Rick Engdahl who suggested as I wondered aloud to him a couple of weeks ago, “What should we call this final 30th five-stock sampler?” And given that it is an exit of sorts, and given that there’s been a little bit of bearishness in the market. We both thought what a spectacular title for my final five-stock sampler. Before we launch into those Five Stocks Pursued By A Bear, I thought it would be helpful to just think back on the 30 Five Stock Samplers that we’ve done together over almost six years now and come away with some insights and some thoughts about that. I suppose I have five on my mind this week, so I have five of them for you. The first one is about the statistics of these Five Stock Samplers. I always like to lead with numbers because I think it’s important. The reason I pick stocks for you, is to try to beat the market. The reason that you invest, you’re trying to create wins in your portfolio. In my mind, all of us are trying to beat the market averages. Everybody else in the world it seems is content with them.
An entire generation was led to believe that you couldn’t actually beat the stock market on a regular basis, it would just be lucky over time. But I think overtime and in almost every context I can think of, I, and perhaps, you, I hope, have beat the market and usually very substantially. Maybe my favorite thought, which is why it’s insight number one here, is about the performance of these now 150 stocks. Yeah, the five I’m picking today make numbers 146, 7, 8, 9, and 50. But without knowing how these five will do, we can look backward and see 29 five stock samplers and as of this recording, 23 of them have beaten the market. That’s the first statistic I wanted to look at. That 79.3% of my Five Stock Samplers have beaten the market. Now, I want to say that it has a very high hit rate. That is much higher than I would have thought when we did this first six years ago. I would’ve guessed somewhere around 60% would be my goal, but most of the time, we’ve been at 70%, 80%, or even 90% at various points. Looking over the 29 live samplers, about half of them have closed out forever, so those numbers are locked down, and of the remaining 16, 12 of them are beating the market in many cases by so many points that it’s like it’s already over. I want to say that this is performance, I’ve said this consistently throughout the last five years or so, this is performance way better than I could have ever expected and I’m so delighted to have brought this to you. The average performance of the average pick is 95.9%. Of the 145 stocks I’ve picked so far, their average gain is about 96%. The stock market over that same time, 39.2%. So, up and down 145 stocks, with average beating the market by 56.7%, stock by stock, again, outstanding outperformance.
I think that there are many reasons why that’s happened. By the way, we’ve had our losers too, so this is not a unblemished record. What record ever could be when you invest in stocks. But I’m not going to spend a lot of time reflecting on that. There are many other podcasts in the past where I’ve shared with you some of the frameworks and my thinking that led to these picks. Each of the individual companies is an admirable company in my mind, even the ones that have underperformed. I’m impressed by the companies we picked, but of course, I would be because I’m picking them trying to make my portfolio and yours reflect my best vision for our future. While not every one of these stock picks has worked out, even the ones that fail, I still like the company, but the ones that have worked out, wow, have they ever worked out. I think those are the big two top of mind stats, 79.3% of them beating the market. By the way, that’s just out of five stocks. If you’ve got a couple of clunkers, it’s very hard to beat the market. If you have a couple of clunkers, and you’re playing these games for three years at a time, which is what most of these have been picked for. It is truly eye-popping for me that we managed that level of what I call accuracy. I defined accuracy. That’s the word I used to say that if you beat the market with a pick, or a basket, or a portfolio, you accurately beat the market. You’re accurate. In baseball terms, you got on base versus striking out, and that is a very high batting average, one I probably couldn’t sustain. In fact, thinking forward, if I were forced to pick 30 more Five Stock Samplers, I doubt I could replicate these numbers once again, but I am happy to say it did happen and it is all real. The big numbers, 79.3% accuracy, the average performance of the average stock up almost triple digits, 95.9%, 57% per stock beating the market.
Insight No. 2, I would like to reflect on the themes. In fact, I would say what you pick as you’re theme, as you think about, in this case, a five stock sampler or for your portfolio, if you’re seeing a trend or you’re thinking about the future, maybe you’re picking a few stocks within that. As we pick our themes that seems to me at least as important as the stocks themselves. To reflect on a Motley variety of themes, looking over our 35 stock samplers, I see several different categories. I’ll give a few different examples. One of them is just themed categories around something that I think of as important. For example, conscious capitalism. I’m on the board for the conscious capitalism national organization. Conscious capitalism means a lot to me, I hope it means a lot to you. In fact, the fourth of my six habits for Rule Breaker investors is to remember the tenets of conscious capitalism. Five Stocks For Conscious Capitalism, really happy, they’re whacking the market with the November 2019 selection of that basket. But I also think of Five Stocks for America. When America was hurting really badly last summer, Five Stocks Celebrating The 2018 World Cup, so the theme is one bucket. A second bucket is one where we’re really reflecting on where the world was and what it needed. I think of Five Stocks The World Needs Right Now In An Era Of Fake News, that was February 2017. Five Stocks With A Tailwind Blow, looking specifically for industries that have big tailwinds, that was suggested by one of you, my dear listeners, Five Stocks That Spark Joy, taking Marie Kondo’s concept, but remembering that companies that make products that really do spark joy for customers, probably not a bad pond to be fishing in when you are looking for winners.
One more in this regard, Five Stocks For A Thinking World. As the world gets smarter with AI and our smartphones, thinking about five winners in a thinking world. That’s the second category. Really, a thinky category, asking where are we right now and what makes sense? Then a third one, I couldn’t neglect is having fun. There were a lot of silly themes. Five Stocks That Got Trouble, simply united by the fact that each started with the letter T. But I did pick Five Stocks To Put Under The Tree, because I was thinking about Christmas and gifts for kids. One year, April, the giraffe, another one that was an acronym, and happily, there was a giraffe giving birth on the Internet that particular week. It made sense to call it that. Thanks again to Rick Engdahl. We’re just Five Stocks That are Mmm Mm Good and that’s just again, five stocks that start with the letter M. While you might, on the face of it, tend to dismiss the unserious ones, I think having fun with this, being willing to take some risks. Flyers are a little whimsical and a little silly. I think that has a place not just in every portfolio, but every life. Those are examples of categories in the themes.
So, that’s insight No. 2 for you, thinking thematically can really lead to good things, and after all, it wasn’t that I thought thematically, and then pick one stock as, let’s say my one stock for artificial intelligence or my one stock for the electrification of vehicles. No, we ended up picking five stocks, a basket, which I think is a much more effective way for most of us to invest, than rolling the dice on a single company. Themes, insight No. 2.
Insight No. 3, and you’re going to see this happen again today. On this five stock sampler, I tended to go back to certain stocks over and over again. A number of stocks I picked in three or four of these 35 stocks samplers, but not always my best. For example, Shopify, which has been a gigantic winner for so many Motley Fool members and Rule Breakers as well, never once did Shopify appear in any of the 35 stock samplers. It’s not like we’re just riding a single titan or two over and over. Nope. But companies like several that I’ll be sharing with you a little bit later, kept recurring. I think the insight here is that, get ready for it, winners win. Typically, when we find a good thing with John Candy in Splash, we stick with it. We find companies that are leaders. Turns out, you can keep adding to them and rebuying them over time. I think I’ve said that ad nauseam, and it’s such an important thing to keep in mind at all times. I don’t think this is just true of the stock market and investing. I think in a lot of ways, it’s true business and it’s true of life. I think this is a profound and important lesson to always keep top of mind. Winners tend to win, and so I tend to go back to certain stocks. MercadoLibre is a good example, it won’t be in this week’s podcast though it certainly could. I also never wanted to lean on any stock too much, so arguably had I included MercadoLibre, it would have been just too many appearances at one stock in my samplers. I do like to keep it Motley, keep it diversified, but keep picking and repicking winners over time. Insight No. 3.
Insight No. 4, the numbers that I just shared with you, 95.9% return on average across 145 stocks. We’re all premised on the idea that the game ends after three years. One of these samplers was a five-year sampler. I have another Five Stocks Celebrating The 2018 World Cup. Since that pops back every four years, I made that a four-year sampler. It’s still awaiting July 4th of next year. But for the vast majority of these, I kept it to three years. But here’s the insight. I hope you didn’t sell. I never would sell based on a game, nope. Most of these I’d picked well before they ever showed up in the samplers, they had one for years before they ever showed up in the samplers, and in every case just about we’ve kept these as actively recommended stocks. I own many of my portfolio, I hope you do in yours. Here’s the good news, if you hold, the numbers get even bigger. I haven’t spent the time or use my spreadsheet to calculate the full total returns of all of these companies, but let me just share a few samples to make the point. Five Stocks To Put Under The Tree, picked December 7th of 2016, ended on December 6th of 2019. At that point, I reported it to you with pride saying that these five stocks that we put under a tree in 2016 were up 107% by December 2019. Case closed, game over.
Yet today, those same stocks have gone from their 107% average total return, waxing the market up to 269%. Total return more than 150% ahead of the market. That is true of most of the samplers, the numbers are truly eye-popping and a few of you who’ve taken some time to create your own spreadsheets and track how these five tax samplers have done, can see it. Therefore, I mentioned Five Stocks For April, The Giraffe, from April of 2017, admittedly a little bit silly, didn’t look so silly by April of 2020, when we close the sampler out at a 91% gain against the market’s 23%, so 68% on average for each of these five stocks over the market. Again, a 90.6% total average return for Five Stocks For April, The Giraffe, now from 90.6% up to 247.6%. Thank you, Axon Enterprise (NASDAQ: AXON), for 6-bagging in the meantime.
Probably, my favorite example of all of this phenomenon was five Brexit inspired stocks, first picked in July of 2016, closed-out in July of 2019 with a little bit of a sad phase. These five stocks were up 37.1% on average, unfortunately, the market at that time was up 39.9%. So I reported it as a -2.8% loss. Yeah, that’s one of the six of the 29 so far that lost to the market. But why is this my favorite to talk about? Well, one of those five stocks was Tesla. Tesla, as we closed out this sampler in July of 2019, was at a split-adjusted $49 a share as we closed out that five stock sampler, up just 10% with the market up 40%. So, it was a loser and a big contributor to why that five stock sampler underperformed. While Tesla today is a little bit higher than $49, it’s at $600 as I speak, it is a 12-bagger, that overall five stock sampler, the overall return has moved from 37% to 331% averaging over five stocks, not just Tesla, by the way. Thank you, Alphabet, for tripling, and Euronet Worldwide, for doubling.
So, a bunch of these stocks continue to go on to create much bigger wins. So I’m happy to say, even though I love that 79.3% hit rate, it would be even higher if you just kept holding past when I arbitrarily at the three-year point and the games. I think anybody who’s a true Fool knows with me that we hold such stocks for long periods of time. I’m typically shooting for three decades, not three years, but for the purpose of this podcast, insight No. 4 is when you create three-year games. It’s delightful to win by as much as we have, but if you want to make a lot of money, hold. Which I guess takes me to my last insight shared, for now, insight No. 5. That is that, I think what I like most about these Five Stock Samplers are that they are embodiments of what I’ve been saying, teaching, I would say, coaching, through this podcast for years and years now, and before this podcast for a couple of decades at fool.com and counting.
What I love about these Five Stock Samplers is that they are walking the walk. I talk a lot of talk that by nature is what podcasts are, and so much of the coverage of markets is done by the financial media often talking on the Internet, on TV, sometimes, writing things down, but very little scoring going on, in my experience, anyway. It’s hard to know, especially if you’re new to the investor world who to trust, who actually knows what they’re talking about. Some people sound really smart, but if you were to see their investment results, you’d be walking the other way. Well, speaking of walking, these five stock samplers have walked the walk, and I think that’s such an important part of my teaching. I also want to say that these are proof positive, that you can beat the market. I consider myself an amateur in the true sense of the word, I love this topic. I assume you listened to Rule Breaker Investing because you at least have some affection for it too. Many of us have been led to believe that you couldn’t get these kinds of numbers, or you would need some kind of a supercomputer or have an edge, a secret edge with the big guys, or getting insider information, or have to be really active, like constantly jumping in and out of the markets, or follow the markets from one hour to the next. But no, that’s not been true of any of these, each of these 35 stock samplers has been freely offered to you by somebody who is a fellow armchair investor, who is simply playing the game differently from the way most other people play it, which is why I think it wins.
Speaking of winning, there’s no place that I’d rather win than right in front of you, and the time that we spend each week together. So, these Five Stock Samplers are proof positive anytime one of your friends comes up to you and says, “Why would you bother buying individual stocks that’s not worth doing?” You should just get the market averages with the mutual funds cut taken out, causing everybody in the world to be below average using, for the most part, the mutual fund industry as their savings vehicle. That’s why I’m a big fan of investing directly in individual stocks, which we’ve been doing for a few decades now. I guess the last thing I want to say with insight No. 5, and I’ve already said it earlier, but this has pleasantly surprised me. The performance of these 35 stock samplers has exceeded what I would have thought when we first started. It’s a reminder that life can really be much better than you were thinking it ever would be. That’s often been my experience over the course of life. Many people seem pessimistic about the world, whether it’s the present or the future. I’ve never felt that way. I’ve always asked, in a world that often asks, “What if things would go wrong? I’ve tried to ask, “What if things went right?” Admittedly, I sometimes have rose-colored lenses perched on the end of my nose, and yet, at the same time, I think I’ve benefited from having that attitude and believing that things could be even better than I thought that they might, and indeed that’s exactly how this podcast has been in six years, how its Five Stock Samplers have been, and really how The Motley Fool has been for me, and I hope for you, in my case for 28 years and counting. Life could actually be better than you’d ever think, and that’s exactly how I feel about these Five Stock Samplers. In summary, there were five insights for you. The first was about the statistics and the performance of this remarkable group of 150 companies. The second was about picking your themes. The third reminds us that winners win, and we tend to go back to certain horses, because turns out if you’ve got Secretariat, why wouldn’t you raise with it every time that you could?
The fourth, if you really want to see some eye-popping numbers, don’t play a three-year game, keep holding for a lifetime, and boy, will you be rewarded, which kicks into insight No. 5, which I just closed with, which is you might be very pleasantly surprised by what happens, but especially if you’re walking the walk. If you’re a believer, indeed, greatness will come out. Anything could happen in the short-term, but usually, over the long term, it’s about quality. If you find and invest in quality, you too will have proof positive, a portfolio that beats the market, I hope substantially over the only term that counts, the long-term.
Now, it’s time for Five Stocks Pursued By A Bear. As usual, word play counts on this podcast. One thing that links these five stocks together is a lot of people have recently exited them feeling pursued by a bear. The stock market has not been pretty for a lot of our Rule Breakers in the first six months of this year, particularly the last four months. In fact, most of my Rule Breakers and my personal performance pick somewhere in February of this year, and boy, how the markets have treated us since February, well, a lot of great companies have lost a lot of value. Almost as if a bear has been pursuing them, and a lot of, I would say the weaker hands out there, have exited the stocks feeling pursued by a bear. The first thing that unites all of these is they have made substantial drops. There are two other trades that unite these, but before I go to the second one, let me say a little bit more about substantial drops. A lot of you may know that one of my watchwords has been dips wait for dips. I can see some of you jumping forward saying, “Wait, hold on, David, you said don’t buy on a dip.” I want to make it very clear that my official version of that line is dips wait for dips. I almost never wait hoping the stock will go lower. However, all of us should certainly, opportunistically, take advantage if we have some fresh powder in the form of cash, the cash line sitting there on your brokerage accounts statement. That is an opportunity opportunistically to find the best the market can offer you. While the names of these companies haven’t really changed from three months ago or a year ago, boy, have the prices. So, I want to make it clear, in a way, yes, these stocks have dipped, but I did not wait for this dip. We’re simply going to take advantage of this dip as we have in some five stocks samplers passed by picking Five Stocks Being Pursued By A Bear.
The second trait that unites all five of these companies is that they are the out and out leaders within their industries, which to you, I hope sounds a little bit like that first trait in Rule Breaker stocks, the first trait top dogs, and first movers in important emerging industries at each of these. In some cases, these companies really created the industry that they lead, but each of them is a clear leader in what they’re doing. By the way, trait No. 1, they’ve all substantially dropped from where they were, so start rubbing your hands together with me and recognize that all five of these really are classic Rule Breaker stocks. It’s not just that they’re top dogs, first movers in important emerging industries, they have the other five traits of Rule Breaker stocks as well. Most of them have all six of them. I’m not going to be running through the framework with each of these companies. No. I’ve stopped doing a lot of my stock research and I may not even have the very latest developments on each of these companies, but here I am with you in June of 2021 knowing what I do about these companies and what I think about the world feeling really good about the next three years. Again, trait No. 2, out now leaders, true blue Rule Breakers.
Finally, trait No. 3, years ago one of my earliest podcasts for Rule Breaker Investing, I talked about one of my long-term tropes, and that is dark clouds I can see through. You can go back and Google that and find Rule Breaker Investing, Dark Clouds I Can See Through. I think it was only about a 20-minute podcast that week, you could relisten to that. I haven’t gone back there and heard what I said in a long time, but I’ve always loved that theme and I hope I got it right in those 20 minutes. But here’s the Cliff’s notes version if you don’t want to spend 20 minutes with me. I love it when the world has questions because there’s this obvious dark cloud in the world’s mind that is sitting cartoonishly poised right over top of that stock or company, with lightning bolts coming down. It’s just raining over that company, it’s a dark cloud. But when I feel I can see through it, in other words, when I feel that thought is misplaced, that the conventional wisdom might be fear, but it has it wrong. If I can see through that dark cloud, those are sometimes some of our best stock picks for the long term because fear has enveloped that company, misunderstood and you and I can really take advantage if we’re brave enough to buy those companies and hold them because what happens, if quality outs over time is that all of those skeptics, and all of those fearful market players all of a sudden, well, not really suddenly it happens drip by drip. Over the course of weeks, months, and years, they start to realize they were wrong, that the Internet is for real, that e-commerce actually will work, that Jeff Bezos isn’t it crazy, that Amazon will make money and the list goes on, of those aha insights that caused one fund manager or individual investor after another over time to all of a sudden realize, over the course of about 25 years, some of them, that Amazon was a great stock. That it was a world bidding company, adding a lot of value to many lives. That’s what seeing through a dark cloud can do for you.
Each of the five stocks I will be sharing with you, you can agree or disagree with me as I share them with you, but I feel as if there’s a little dark cloud poised over each one of these, and that makes me feel good. Again, to summarize the three traits, we’re finding stocks with substantial drops, they are well down in every case from where they were just four months ago. No. 2, they’re out now leaders and Rule Breakers, and No. 3, there’s a little dark cloud there, and that makes me happy. One final disclaimer before I hit stock No. 1, we always do these by company name alphabetically. My one disclaimer is I won’t be sharing a lot of recent research with you on each of these companies. Now, if you’re a Motley Fool member, each of these is an active recommendation and you can find all the research you’d like, probably more than you want on each of these five companies through our website. If you can ask questions on the discussion boards, for each, there is unlimited learning opportunity for you. But given my own shift and responsibilities, I’m no longer keeping that close an eye on these companies. If there’s some amazing development for or against one of these in the last few days, I may not be aware of it. But you know what? I always try to be about 10,000 feet higher anyway with the three-year view. My disclaimer is, if I’m missing something or I don’t say a lot in depth about these companies, this particular five stock sampler, I hope you’ll understand why.
Stock No. 1, the company name, Axon Enterprise, the ticker symbol A-X-O-N. This is the fifth time Axon Enterprise has shown up in a five-stock sampler from Rule Breaker Investing. It first showed up in Five Stocks For April, The Giraffe, in April of 2017. It popped up later for Five Stocks That Passed The Snap Test in June of 2019, Five Stocks for America in June of 2020, and Five Stocks that Teach Rule Breakers, which by the way, was my very most recent five-stock sampler. I’ll note one of the few losers so far, but I think you’d understand why, the market has not been very kind the last couple of months to my kinds of stocks. Back to the well once more, fitting in with an earlier insight shared with you. Axon Enterprise has dropped in the last few months from a high of around $210 to $155, so it’s down more than 25% just from a few months ago. Spoiler alert, the fall that will follow are all down substantially more than that. This is the stock that has, let’s go with it, dipped the least in the last few months and yet it’s down from 210 to 155. Boy, if I don’t like this company, it’s positioning, making law enforcement more transparent, which the world needs, and more effective through non-lethal weapons, which I also think that the world needs. It has excellent management. They’ve been in it to win it for the longest time. There is no Pepsi to Axon’s Coke. Axon Enterprise is stock No. 1 pursued by a bear. Again, we’re not looking backwards at the last few months, or at the last four, Five Stock Samplers where this stock every single time has been a big winner, even including the recent drop, nope. All that really matters is the next three years. If you’re giving me an industry leader with this kind of technology and innovation and relevance today, under a $10 billion market cap, which is true as we speak, I’ll take it.
Stock No. 2. Well, from the letter A, we drop all the way down to the letter P, and I’m thinking about Peloton (NASDAQ: PTON), ticker symbol P-T-O-N. Peloton, like most of these companies, doesn’t need much introduction from me. I don’t think of it as just a hardware manufacturer, although, certainly, its bikes which were recently recalled, in what I consider to be a pretty gutsy move by management to try to make good with the hardware recall that has already gotten a lot of attention, and that’s a black cloud by the way. The black cloud specifically being, can the company recover from this? Nope, it’s not just a hardware player, it’s like a software entertainment media company that happens to sell bikes. Right near your home theater if you have one, a lot of people have a Peloton. The company is focused on music, coaches with personalities, with some star power. Peloton is beautifully set up. Part of the reason I like the stock, which by the way has dropped from $160 to $110 in just the last few months, is that a lot of people wonder, is this a fad? I remember people wondering that about Starbucks. Back in the day when Starbucks was a new company, everyone was like, “Where is the big coffee chain that ever mattered?” Coffee houses are such a short-term thing. They may exist in Europe, but don’t seem to work in America. I know Starbucks is getting a lot of buzz, people were saying back in 1990. Here we are, some 30 years later, Starbucks has become a global behemoth.
I love it when people talk down well branded companies doing unique things that have them out front, and people are saying that is a fad. People said that about Pokemon. When Pokemon first came out, those Pokemon card games, that might or might not work. I know there’s some video games, but this is surely a fad, and here we are 20+ years later, I think Pokemon is bigger than it ever was before. Here’s another one that came to mind very recently. In fact, my home newspaper, The Washington Post, just did an article saying these things are cool again. It’s a funny thing, the media will often build something up, because it’s a new thing, so it gets a lot of positive publicity. This happened to our company as well, you’ll be on the cover of some magazines. Then the narrative arc often somehow denigrates you, pushes you down, knocks you down, bad things can happen. In our case, it was 2001, the stock market crashing and staying down for a while. But how about Crocs? That’s the one I’m thinking of right now. Crocs, clearly new and embedded, made a big splash. The stock rocked for a year or two when they first came out, and then, boy, Crocs were uncool. A lot of people still think of them as uncool. I’m not sure everybody opened up their Washington Post last week and agreed with the article saying that Crocs rock, and yet look at the stock and the company.
Another thing that looked like such a fad in the minds of many people, and that is a classic dark cloud for me. Something’s certainly our fad. But once you see, in my case, a public company with enough sales and momentum and brand awareness, they give themselves a lot of permission to fail or stumble for a while, change it up and come back, and I’m pretty sure Peloton’s going to do that as well. Peloton is stock pursued by a bear, No. 2.
From the letter P we move on to the letter T. This time, I’ll hold off briefly saying the company name and its ticker, and I’ll just tease a little bit by saying this is it’s third appearance on one of my Five Stock Samplers, having previously appeared in November 2018 with the Five Stocks That Got Trouble, that’s right, with the capital T. Then again, in September of 2019, about a year-and-a-half ago, Five Stocks With A Tailwind Blow. I’m looking at its performance from those two Five Stock Samplers and seeing outstanding numbers. In September 2019, the stock was at $240, today, it’s at about $585. So yes, it’s more than doubled, which really destroys the market. Even prettier if you just rewound back to November 2018 when it was one of the Five Stocks That Got Trouble. The Trade Desk (NASDAQ: TTD) back then was at $116.5, again, $585 today. It’s a five-bagger from just 2.5 years ago. Some people think, “Gosh, it’s already made its move.” They look at that market cap, $28 billion, and they think, “I could’ve had it so much lower.” Indeed, if you’ve been with us as a Motley Fool Rule Breakers member in February 2017, you could have gotten it a lot lower. We first picked it at $34.30, again, that is less than five years ago, it’s up 17 times from that price. This is a stock that’s been recommended over and over. But if you’re one of those people with anchor bias, you anchor in and you say, “The Fool had it at $34, why would I buy it today at $585?” Well, I’ve got some good news for you. Remember, one of the three traits of this group of five stocks is they’re all substantially down. If you think we’ve put up some impressive numbers for The Trade Desk thus far at $585, you should know it was almost $1,000 earlier this year. This stock has dropped from over $900 in February to 585 where it is today. Back up, dear Fool. If you felt like you missed it, this looks like a pretty good time to enter The Trade Desk to me.
This company is a leader in programmatic advertising and it runs a platform where buyers meet sellers and shake hands, buying advertising for the sellers, whether it’s a bus wrap or an Internet site. The sellers are sellers of space for the advertisers to buy that space, and The Trade Desk helps oversee that. It has a visionary founder in it when it’s still quite young with many years ahead, Jeff Green. The company’s $28 billion market cap is the darn side bigger than the roughly $2 billion when we first recommended it. But I think this market cap could be measured in the hundreds of billions, 5+ years from now. So yeah, let’s make The Trade Desk, stock pursued by a bear No. 3, this sampler.
Onto stock No. 4 and as I think about this stock of all five of these, this is the only one that hadn’t already appeared on multiple Rule Breaker Investing Five Stock Samplers. This is its very first appearance and in part that’s because Unity Software (NYSE: U), ticker symbol just the letter U, Unity wasn’t public until pretty recently. This is the company that mobile game developers, developers of games on smartphones these days use predominantly to develop the game. It’s the platform that they build on. I had the pleasure of interviewing its CEO, John Riccitiello earlier this year with my son Gabe. Gabe is a software developer, I’m a stock picker, and we had a wonderful conversation in front of a lot of Fools. Since then, the stock hasn’t done so great, in fact, in just the last few months, it’s dropped for about $150 to $100, so a drop of 33% in line with a lot of these others. In fact, the last stock I will be going to very shortly has just about been cut in half. Unity, like the other four stocks in the sampler, has taken a substantial hit and yet it is the out and out leader, in its field, a little bit of a dark cloud over Unity is the perception that there’s a lot of competition out there and there certainly is. A lot of other software developers out there, especially those making AAA games like the ones people pay $60 for their video game consoles, use the unreal engine to make those games. By contrast, it looks as if Unity is doing something less sophisticated with just a few games on the little phones, even though that’s a huge market and it’s got about 70% of the market. Unreal, it is impressive, also impressive, you have to acknowledge Roblox, which has been a pretty good stock recently, making a game world and I really do mean a world with a lot of commerce in it for kids. Or even something like Epic Games, which is the Fortnite creator, for those who know or have played the game, Fortnite has some of its own platforms.
Yes, it’s a competitive world out there and I think that looks a little threatening especially to Wall Street people who may not be software developers or play games that often. But at least to me, well I’m not a software developer, but I recognize the strength of the Unity platform, and the positioning of this company. We got off to a really nice start after its IPO, it’s sold off by a third in the last few months, so yes, stock No. 4 pursued by a bear this week is Unity Software, which brings us now to stock No. 5, and before I go to it, I want to mention, there were a number of others that I thought of and could have easily picked this week. This is a great theme, after all, when you can find companies that are out now, leaders, and Rule Breakers in their industry, there’s a dark cloud positioned over them and they’ve all made substantial recent drops and yet by any meaningful measure of time like three year period, they’ve been huge winners, that’s probably going to be, and I hope so anyway, a good list of stocks. For the fun of it, a couple of others that I looked at but they just didn’t quite make the cut for me, Chegg, which is an educational platform initially a company that got started selling textbooks electronically to college students but today has a whole adult lifelong learning platform. A very impressive company, it’s a Rule Breaker stock that sold off pretty substantially from its highs.
Then a second one, a little company some of us may be aware of, called Twitter, ticker symbol T-W-T-R. Twitter, again, substantially off of its recent highs and yet a company that has done well over the long term and I believe more importantly is positioned well for the future. Again, the future is all that really matters as an investor for you and for me, not what already happened but what’s about to happen if and when you buy these stocks. I like Twitter for the future, I like Chegg, but not as much as stock No. 5, pursued by a bear, Zillow (NASDAQ: ZG)(NASDAQ: Z). Zillow has appeared three times in the past Five Stock Samplers. First, it was May of 2016, Five Winners in a Thinking World, I mentioned that one earlier. Then in June of 2017, Five Stocks Riding the Bull Market, and finally, April of 2018, Five Stocks I Own That You Should Too and I hope you do, and I, of course continue to own it now, years and years later. Zillow seems well-positioned for this five stock sampler because after all, the stock has dropped from 200-110 in just the last few months and yet still remains a big winner for all of those past Five Stock Samplers, and for anybody who has held the stock for any meaningful period of time. I love the company’s positioning as a well-known, well-branded company that offers real estate data for really the entire U.S. residential house market. If you think about how hot home prices, some inflation coming, certainly, a lack of supply of new homes, we’re seeing that. You can imagine how strongly Zillow’s positioned, not only that, but the company recently went into the business of buying and selling, that is flipping homes based on its own internal data and that gamble has worked out wonderfully.
The stock has certainly slowed down over the last few months, but we’re still so early in the growth story for Zillow and I would say also for its competitor, Redfin, R-D-F-N is the ticker, another great Rule Breaker stock that I probably could have picked, but I’m just sticking with Zillow. I really like the position of these companies as the Internet is increasingly used in the world of real estate, Zillow is the leader out and out with a market cap of about $20 billion and yet it was about $40 billion in just February of this year. What’s the dark cloud over Zillow? Well I think some people questioned the company’s decision to go into the actual business of real estate and I understand why they might, but I like it and I also think it just seems anytime the Zestimate comes up. Zillow’s zestimate for what your home might be worth anytime that comes up in conversation especially if you’re around industry professionals they are ripping on the Zestimate. I look at Zestimate sometimes and I think, well, that’s not accurate either, maybe they didn’t account for the addition that’s on that house or maybe something has gone wrong with the property. But for the most part think about how ambitious and difficult it is to try to put a price on every residential property across America. Of course, you’re going to be wrong some of the time, maybe even a lot of the time and yet it’s enough that people have a conversation starter and generally it’s enough that Zillow feels comfortable in select cases using the data to make purchases itself. Anytime it’s not as good as what industry professionals are used to, but it’s good enough for the rest of us, that reminds me of Clayton Christensen’s definition. The dearly departed Harvard professor invented the concept of disruptive innovation, if you know that phrase that’s because of Clay’s work. One of his great insights was that a product that isn’t as good as what the professionals use but is good enough for you and me that’s often where disruption starts, as it wins the attention and loyalty of a growing consumer base and all of a sudden, the world changes. So, I like Zillow’s positioning where it is today at $110 a share over the next three years.
There you have it, Five Stocks Pursued By A Bear. Alphabetically, Axon Enterprise, Peloton, The Trade Desk, Unity Software, and Zillow Group. Let’s hope 30 is our lucky number. Now, I guess I want to say a quick word about the end. When Rick and I started this podcast in July of 2015, I hadn’t even been thinking I would pick stocks and then I decided a few months later that would be a good idea. I don’t think I ever would have expected that we would never seize one week of doing this podcast and every 10 of them we would actually pick new stocks, but we’ve delivered on both of those. I don’t think I ever would have thought I would pick 150 stocks for free in public through this podcast. I could imagine if you’re my loyal, long time listener, you’re thinking, it’s over, and I guess, in a sense, I want to say this, this isn’t the end. Especially in the sense that these are new picks that I’ve just made for the next three years. So we’re looking forward, not back. Now, I will continue to track these, I will update you on their stories as well as the more than 15 other Five Stock Samplers that continue to be tracked and updated once a year on this podcast. Yes, we will be talking about stocks quite a lot going forward on Rule Breaker Investing and perhaps in time I’ll think of some other way to bring new stock-picks if you like them for free to this podcast. But I also want to say, this is always done for free.
The Motley Fool business isn’t built on free media, it’s really built on memberships. It’s people who, I don’t know, catch shine to this podcast, or a five stock sampler, or any one of our other several wonderful podcasts and decide, maybe I should look more into this Fool thing. My friend was telling me about The Fool maybe, and maybe I should actually sign up, try a 30-day free trial, become a member. That’s what gives me the most joy of all to grow The Motley Fool membership. I understand the allure of stock picks and I love that we’ve scored them and I hope we’ve taught many a lesson. We’ll keep teaching these lessons going forward and keeping you up-to-date and maybe I’ll find some facility for thinking about how to do some new Five Stock Samplers in future. Anyway, to close, I have loved doing it at the end of these 30 episodes, Five Stock Samplers, it’s one of my best gifts to the world, it’s part of our legacy that I hope I can take pride in at the end of my life. There are few things I’ve enjoyed doing more than my Five Stock Samplers bringing them out to you about five times a year. Well, next week, we’re doing something we do about four times a year. In fact, exactly four times a year so get ready for the market cap game show with its new format and returning champion of all-time, Aaron Bush taking on Emily Flippen. We’re going to have a lot of fun. In the meantime, I hope you have a great week and I hope if you are pursued by a bear in whatever way shape, or form that you will make an effective exit. Fool on.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Axon Enterprise, MercadoLibre, Roblox Corporation, Starbucks, Tesla, Unity Software Inc., Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Axon Enterprise, MercadoLibre, Peloton Interactive, Redfin, Shopify, Starbucks, Tesla, The Trade Desk, Twitter, Unity Software Inc., Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool recommends Chegg and Euronet Worldwide and recommends the following options: long January 2023 $1,140 calls on Shopify, short August 2021 $65 puts on Redfin, short January 2023 $1,160 calls on Shopify, and short July 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.