On this episode of Rule Breaker Investing, Motley Fool co-founder David Gardner shares his latest batch of stock picks for your buy-and-hold list. Though these companies have recently hit or continue to trade at record highs, David thinks they can still be long-term winners.
A full transcript follows the video.
This video was recorded on June 21, 2017.
David Gardner: Welcome back to Rule Breaker Investing. This podcast has taken you on quite a journey, so far, this June. We went into the future with Zack Kanter a couple of weeks ago. Then last week an episode entitled, Market Drops vs. 10-Year Pops by the ever-talented Rick Engdahl, who's not just the producer for this show but also names every one of our episodes. We also inserted a special Rule Breaker extra for those of you who spent a little time with me on Friday and over the weekend. I hope you enjoyed that.
And today we're going to be picking some stocks as promised last week. About every 10 Rule Breaker Investing podcasts or so it's time to pick up my magic wand, hope it's still got a little pizzazz in it, and start aiming it at stocks on the market saying, "We like these. Let's track them together and see how they do."
So I was casting about for what theme to pick for this list of five stocks this week, and it occurred to me that the market has done really well, and a lot of people think that the market is cruisin' for a bruisin' at some point, and maybe you do, too, and maybe it is. Not mine to say.
But I did think, "What would a Rule Breaker do in the face of lots of thoughts that the market's been too good?" And I think the answer is a Rule Breaker would go against conventional wisdom and specifically identify, this week, five stocks that are at new highs and say, "I like these over the next several years." So our five-stock list this week is going to be all stocks that are making new all-time highs. And yes, I like them now going forward, because going forward is all that matters to any of us, right now, as investors.
In keeping with the topsy-turvy, reverse, dipsy-doo approach this week, I'm going to go reverse alphabetical order with these five ticker symbols, so we're going to kick it off with stock No. 1.
Stock No. 1: And Stock No. 1 is Zillow Group (NASDAQ:Z) (NASDAQ:ZG). ZG or Z if you like the C shares. Zillow Group, of course, the online real estate portal with listings that include its Zestimates. Its use of, presumably, artificial intelligence or something like that, that attempts to put a price on every house in your neighborhood, and a company that has been super serving local realtors where it butters its bread these days getting ads paid for by people who want to represent you with your listing. And these days Zillow's not just about houses. It's also about apartments and rentals and it is a large and growing portal.
Zillow I first picked for Rule Breakers in September of 2011. It has been a fine nearly six years now. The stock, as I speak, at $47.30 just tripped over the 400% return mark. It is up 400.2%. That is a five-bagger for those keeping score at home. It's been a pretty awesome six years, or so, with Zillow. In the past year this stock is up 40%, so it's up 40% looking backwards over the last 12 months to its new high.
And for each of the five stocks, because these are stocks that are high flyers, by nature they are at or near all-time highs and they've done quite well. In fact, for each one, I'm going to mention how it's done over the last year and ... spoiler alert! ... Zillow up 40% over the last year is the one that's done worst.
The ones coming down the pipe, here, have all done better than Zillow over the last year, so I think it's incumbent upon me to make sure I mention how volatile these kinds of stocks can be. And I know I'm speaking to Rule Breakers, so I'm pretty sure you already knew this, but I just want to double underline the volatility of these kinds of winning stocks.
So for each I'll mention its most death-defying drop over the last two years, and for Zillow, Zillow went from $35 a share in mid-October of 2015, just three months later from $35 to $17, touching down at $17 in mid-February 2016. That's a drop of 51% in three months.
Can you stomach something like that? Well, I sure hope you can because you're probably going to need to for these kinds of companies. If you want to be a winner over the long term, you have to be a loser in the short term, and I was holding it back then and I certainly felt like a loser when it got cut in half in three months with a lot of people asking questions on our Rule Breaker discussion board. "What's up with Zillow?"
Well, what's up with Zillow? Let's hope it goes up. That's what we're banking on, here, and I'm going to say each of these stocks, which I'll type into my CAPS page -- I'm TMFSpiffyPop at CAPS.Fool.com [and] you can see my picks -- I'll type in any of these I don't already have on my scorecard. But for each of these I'm thinking in a two-to-four year time frame going forward. So of course I'll be invested often in these for five-plus years, as you'll see we have been, but for the purposes of scoring, we're playing a two-to-four year game with this week's podcast.
Stock No. 2: Stock No. 2 this week is Wayfair (NYSE:W). The ticker symbol is W. Wayfair, of course, the online furniture retailer. A company that these days gets about half of its revenue from its house brands, its private label brands which are completely exclusive. Untapable by others like Amazon.
This is a company that is losing money. It has not made money, yet. It is a public company, but one that we like a lot. And the market has liked it a lot because Wayfair over the last 12 months is up 85%. I first picked this stock with the help of my friend and partner, Aaron Bush, in March 2016. The stock's up about 73% for us in Rule Breakers. I hope it's up for you. I hope you're a Rule Breakers member. If you are, you're pretty happy with Wayfair.
We had to sit through some tough times. In fact, what was the death-defying drop made by this stock? Well, in mid-August of last year to mid-September of last year, if you're keeping score at home with me that would be one month, in a single month it went from $57 to $32. You were down 44% in a single month. And by the way, over the last year you're still up 85% overall.
So Wayfair has been a stellar performer. Even though the company is not making money it is growing sales really well, and in an online commerce world where these companies look like they're the winners and the ones that have bricks and mortar are the losers for the most part, Wayfair has certainly caught investors' eyes.
So the stock is at about $74.50 as I speak and the market cap on this company is $6 billion. By the way -- spoiler alert! -- all of these companies have market caps below $10 billion. Zillow was at $9 billion. Wayfair is at $6 billion. Spoiler alert! The next three are all smaller than that.
Stock No. 3: Stock No. 3 is Impinj (NASDAQ:PI). That's Impinj with a "J" on the end. The ticker symbol is PI. The stock is trading today around $54.54. This stock I first picked for Rule Breakers in December of last year, so it's just about six months old and it's been a pretty sweet six months for investors. We're up 42% in Impinj.
Now the business of Impinj on the face of it doesn't sound that initially exciting. Well, maybe you are excited by radio frequency identification -- RFID -- devices. So those are the tags that you'll see placed on everything from packages to manufactured goods, but they're by people who want to track where that thing is. So RFID tags initially an exciting concept when it came out maybe 10 years ago, or so. Really it's older than that.
But pretty commoditized these days. These tags are really cheap and it's hard to have much of an edge except that Impinj has done a great job building a platform around the RFID tags, so advanced readers and software that enables you to track everything much more efficiently. They're basically adding value to RFID.
This is a company that has spurted in recent weeks because it's allied with Amazon, and even an announcement like Amazon buying Whole Foods, which happened last week, gave Impinj a 19% bounce the same day that Whole Foods got a 27% gain. So Impinj is trading slightly sub-$1 billion and the stock is literally up 94% in the last three months.
Now would you buy a stock like that? This stock has just about doubled in the last three months. Would you recommend buying that today? You betcha. That's what we're doing. We'll see how it works out.
I do need to mention its death-defying drop. This one actually occurred before I recommended it, but from October 2016 the stock went, in one month, from $37 to $24, so you were suffering with a 35% kneecapping in just a few weeks. And you can see that that's fairly common for these kinds of stocks.
The last thing I'll mention is that this company is a recent IPO. In fact, it's IPO'd within the last year. It is up 200% since its IPO and this is a real 200%. This isn't one of those where it IPO'd big on the first day and it made it look like it had a big gain even though the first public market investors, like you and me who'd be buying it, wouldn't have gotten or enjoyed that first-day gain. Nope. These gains have happened since then. The stock has about tripled. We'll see where it's headed into the future. Let's watch it together.
Stock No. 4: Again, reverse alphabetical order. We've gone Z, W... By the way, those two companies -- Zillow and Wayfair -- both own one-letter ticker symbols. I did introduce Zillow Group as ZG, which is what the A shares are, but they have Z as well. So Z and W. It's hard, actually, to be a relatively new company and have one of those coveted one-letter ticker symbols. PI was Impinj. The next one is a "P" as well, and it's Pegasystems (NASDAQ:PEGA). The ticker symbol is PEGA. Pegasystems develops licenses and supports software for automating, tracking, and analyzing complex interrelated tasks. Now what might that sound like, you ask? And if you go to the company's web page, which is just pega.com, you'll see at the top of the web page, as I'm looking at it today, a quote from PayPal.
And it's from customer service at PayPal, and here's the big pull-up quote on the front page of Pegasystems' website. It says, "We're able to predict that you're going to call before you need to actually contact us." So if that sounds like artificial intelligence, then I think you're starting to figure out why Pegasystems has been one of the best performers on the market over the last year.
The stock is up 115% over the last 12 months. Pegasystems, today, is a $5 billion company. Its death-defying drop occurred from November 2015, when it was trading at $30 and then by mid-February 2016 -- that's just three months -- the stock went from $30 to $20. That's a 33% drop. But Pegasystems, overall, has been a stellar performer. I recommended it first in Motley Fool Stock Advisor in October 2011. It's up 245% since then. It even spent some time in the penalty box, as users of Motley Fool Stock Advisor will remember.
Pegasystems sports a CEO, Alan Trefler, who is a past chess champion. This is a smart company making its partners smarter through the use of this AI software. So Pegasystems is a company despite having risen 115% over the last year and yes, despite having clocked in, right now, at all-time highs, yup, I like it going forward the next few years.
Stock No. 5: And Stock No. 5 in this podcast -- and it's going to be in the "I" category -- any guesses? Well, if you said Intuit, you're wrong, because it's iRobot (NASDAQ:IRBT). The ticker symbol is IRBT. iRobot has been a monster performer over the last year. It's up 165%. So you're listening to a podcast where the crazy host is saying he still likes the stock going forward even after it's up 165% over the last year.
iRobot tips the scales at about $3 billion today as its market cap. I first recommended it in Motley Fool Rule Breakers -- this one was more than 11 years ago. We've held it since December of 2005. And if you think this is one of my 30-baggers, you'd also be wrong about that. Unfortunately the stock's really only up 211% over our almost 12 years of having held iRobot, and most of that 211% has come in the last year, if you heard me say earlier the stock is up 165% over the last year. So sometimes you have to wait a long time.
But Colin Angle, the iRobot CEO, declared that his technology -- recently he said this -- is "at the explosion stage on the maturity curve." And you might imagine we were thinking robots in 2005. Robots still aren't that much in evidence, here, in 2017 so we might have been a little ahead of the curve.
CEO Angle thinks we're hitting the explosion stage of the curve. And probably you know of this company's primary product, which is the Roomba, the vacuum cleaner, the No. 1 seller of any kind sold in the U.S. last year. The company also has the Braava, a family of floor cleaners and its sales nearly doubled last year.
The company's doing very well in China and, interestingly, over the course of the time that we've held iRobot it dispensed with its military robots, so it was focused there and somewhat scattered, so it's really become more of a pure play on the consumer robotics market.
Now yes, this company has had a death-defying drop in the last couple of years. It was mid-December of 2015 and you sat there in the soup for two months watching the stock go from $38 to $28. That was a 26% drop in just two months, so we need to be prepared for these kinds of things as you ride the bucking broncos of this week's podcast, we hope, to Rule Breaker glory. So just below $100 a share -- around $97.92 as I speak. This company is, indeed, at or near its all-time high.
Well, I hope you enjoyed this podcast as much as I did. It was really fun to share these companies with you. Four of them from Motley Fool Rule Breakers and one from Motley Fool Stock Advisor. For any that I don't already have typed into my CAPS page -- free at CAPS.Fool.com where I'm TMFSpiffyPop -- you'll see them there this week. And yes, we'll check in a year or two hence and see how we're doing with these.
And please remember the radical experiment that we've practiced this week. And do remember that these stocks are very volatile, which is why I mentioned death-defying drops. And do remember that all of them are at or near all-time highs.
And that's where I want to close this week's episode because those of you who really know the Rule Breakers approach know that Rule Breaker Trait No. 3 is strong past price appreciation. We like that. In a world where other people often say the way to make money is to buy low and sell high, the implication often being that you have to look for things that are down, that have gotten knocked over, and that's what low means.
But really what we see as Rule Breakers is, looking backwards five or 10 years, that we were, in fact, buying low. Even though at the time those stocks were often at or near all-time highs, it often looked overvalued to lots of market observers.
So I'm pretty sure not all five of these [are] going to work out, here, over the next several years, but we'll hope that the ones that work out work out well enough to bring the others up and give us another market-beating basket of five stocks.
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, is a member of The Motley Fool's board of directors. David Gardner owns shares of Amazon, iRobot, Whole Foods Market, and Zillow Group (C shares). The Motley Fool owns shares of and recommends Amazon, Intuit, iRobot, PayPal Holdings, Wayfair, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool owns shares of Whole Foods Market. The Motley Fool recommends Impinj and Pegasystems. The Motley Fool has a disclosure policy.