Every 10 weeks or so, Rule Breaker Investing podcast host and Motley Fool co-founder David Gardner picks a set of five stocks to recommend and shares them with his listeners. There's always a time frame, and usually a clever theme -- but the one he's offering on this episode may take the cake. Or the soup.
As you may already know, all the recommendations he makes in such sets come from among the 220 or so stocks he oversees in the actual Motley Fool Stock Advisor and Motley Fool Rule Breakers portfolios, which together we call the Supernova Universe. And as he reviewed that big list for this episode, it crossed his mind that he could randomly narrow it down to companies starting with one letter and still pull a solid mini portfolio for his fans. Challenge accepted: In this segment, you're getting five stocks to hold for the next three years, all of which start with M.
A full transcript follows the video.
This video was recorded on Aug. 30, 2018.
David Gardner: This is my September 5th, 2018 podcast and it's time to pick five new stocks.
Now occasionally I have fun with these lists. They're not always themed in an entirely thoughtful way. For example, I remember picking five stocks for April the giraffe. That was the one where I picked five stocks and then asked what united them, and as it turned out the first letter of each of the company names spelled out the word April. It was done in the month of April and let's hope April the giraffe is happy whenever we next review them.
So, yeah, we're having fun from time to time. And that's what I'm going to go with today. This might sound a little cocky and if it is, then that will probably come back to haunt me some years later when I look back and say, "Why was I so cocky to do that particular podcast?"
But I've decided that you can pick almost any letter out of the alphabet and look up and down the 220 or so stocks that I oversee in Motley Fool Stock Advisor and Motley Fool Rule Breakers. You can look over all of 220 or so, group them by the letter that starts their name, and probably for any given letter [probably], find five winners over the next three-plus years.
At least, I hope so, since I've just picked, somewhat arbitrarily, the letter "M." And if you put five "M's" together, it starts looking like a little bit to me. I started thinking, "Mm! Mm!" Let's hope this is good. "Mm! Mm! Good!" So we're going to go with five companies that each start with the letter "M" for this stock sampler.
I'd be remiss if I didn't mention, again, that you can gain access to all 220 of those stocks and our opinions, our latest opinions on which are Best Buys Now, etc., if you were to join our services. And I think it always makes sense for me to advertise Stock Advisor and Rule Breakers, which I don't spend many weeks doing on this podcast, but for these five-stock samplers, this is where these stocks live.
So I mentioned the URL earlier, but JoinRB.Fool.com. Sure hope you will, and when you do, you're going to find a lot of other "M" stocks besides the five I'm showing off this week. So, "Mm! Mm! Good!" and I'm going to be presenting these in alphabetical order.
And I used to do this by ticker symbols, but then one of my many Foolish listeners said, "Hey, Dave, aren't you the first guy who says it's not about the tickers and let's not talk about ticker symbols? Really, it about the companies, themselves, and shouldn't we honor them with company names?"
And I said, "Yes, I certainly try to use more company names than ticker symbols on this podcast, so I'm definitely going to organize A to Z not by ticker symbol, but by company name." And so let's kick it off with Company No. 1, and that's Masimo Corporation (MASI 0.09%). The ticker symbol is [MASI].
Now Masimo is the purveyor of non-invasive monitoring products for healthcare. A quick, easy example. If recently you found yourself in the lab or the hospital and somebody put around your index finger something that was a small clamp [it didn't hurt, particularly, but they put a little clamp on your index finger], that's known as a pulse oximeter.
And what that's doing is monitoring the oxygen level in your blood. And if you're having a fairly simple non-invasive routine done on you, it's probably not a big threat to your blood oxygen but, on the other hand, if you're having serious surgery, if surgeons aren't aware of potentially declining blood oxygen rates, you can actually lose patients and sadly thousands of people, worldwide, every year are lost because of the failure to monitor blood oxygen rates.
That's the pulse oximeter, and Masimo is really the worldwide leader in that technology. Now, the good news is the company has many other products besides that, so it's definitely not a one-trick pony.
Now for each of the companies I'm going to present a little bit about the business. I'm going to give you the market cap when we first picked it and two things that I like about each of these.
What's the market cap of Masimo Corporation? The answer is $6 billion today. When was it first picked? It was picked in Motley Fool Stock Advisor. I selected it on December 16th, 2016. It was at $66.55 back then. Here we are not quite two years later. I'm happy to say it's gone from about $66.00 to $118.00. Remember, I'm taping this last Thursday, August 30th; so when we actually review these stocks some years hence we'll be picking our prices at market close today, September 5th. But as of now, anyway, it's about $118.00.
And now what are two things that I like about Masimo Corporation that I think you should like, too?
Well the first is results, baby. Results, results, results. I'm going to read a little bit. This is from Jason Moser. I know many of you will know Jason from Market Foolery. But if you're a Stock Advisor member, you could go to the Masimo page and see his latest update looking at its earnings from last month.
I quote: "Masimo's second quarter," Jason writes, "was another good one with total revenue of $212 million. Product revenue of $202 million grew 11% excluding currency effects with non-GAAP earnings per share up 33% to $0.73 per share. Shipments of 58,700 grew 18% from a year ago, giving the company an installed base of 1.683 million worldwide vs. just under one million in 2011. Product gross margin..."
By the way, this isn't the most fun thing to listen to, probably numbers, but I hope you're able to follow along mostly with this. It's almost over. But the main point, here, is look at these results.
"Product gross margin grew 170 basis points to 65.8% and operating margin of 24.6% was up 160 basis points as the company continues to leverage its growing installed base with sales of consumables and its attractive razor and blade business model. Masimo continues," Jason concludes, "to maintain an excellent balance sheet with cash and equivalents now at $430 million and zero debt."
So, yeah, there you have it. I like the results. The financials. Everything is looking up at this company and it's across a diversified base of products worldwide. And the second thing I like about Masimo Corporation is its risk rating. This is something I talk about periodically on Rule Breaker Investing. We rate every stock under coverage from 0 to 25 on our risk rating scale. The lower the number, the lower the risk.
One of my favorite things to find in the world [and yup, they're out there] is to find low-risk companies that can offer superior returns. One of the old saws of investing, I think, is often wrong, and that is "risk equals reward." I don't believe that. I think part of the magic of Rule Breaker Investing is that we find situations where there's not a lot of risk and sometimes substantial reward. And I think Masimo Corporation kind of represents one of those companies.
So its risk rating is just 6, which puts its risk closer to something like Apple than to something like FireEye. So Masimo Corporation, a very safe bet, but one that I think can substantially outperform. It has in the past and I expect that in the future. After all, I'm picking it fresh, here, for this five-stock sampler to kick off "Mm! Mm! Good!"
Stock No. 2 is Match Group (MTCH +0.00%). The ticker symbol is MTCH. Match Group. What does the business do? Well, I bet you've heard of it. I've certainly talked about it before on Rule Breaker Investing and this has been a wonderful Stock Advisor performer for many of our members.
Match Group is, of course, the biggest online dating company in the world. What is its market cap? Today its market cap is $14 billion. Now I first picked this stock in Stock Advisor on April 15th [tax day!] 2016, so here we are just over two years later and the stock, I'm happy to say, has gone from $11.34 to $49.64. It has been a wonderful four-plus-bagger in just two years for Stock Advisor members.
I don't think I have to explain much about Match Group, Match.com, Tinder, OKCupid, and a lot of other dating sites. Different strokes for different folks. Match Group oversees a large number of dating sites on yes, the biggest dating platform in the world.
And what do I like about this? Two things. Well, the first thing I like about it [I hope you were listening carefully to what I said just a minute or two ago] is the biggest online dating company in the world has a market cap of just $14 billion. Think about how important love is and finding a partner. Finding the right person. Finding something that can last you, I hope, your whole life long. Think about how important that is.
A lot of other sites -- even sites like Facebook -- human relations are so important, so love runs through Facebook, but really Match Group is the company that is connecting people and uniting them, and it's the biggest company in the world doing that. And think about how relevant that will be 10 years from now or 35 years from now. Just as relevant as it is today. It's timeless and this company's market cap is only $14 billion.
I was delighted when I found the stock a couple of years ago and I've talked about it on Rule Breaker Investing, the podcast, a number of times since. But it was kind of a sleepy IPO. It came out of the gates and not many people paid attention to it. And we recommended it in Stock Advisor. I'm happy to say I guess the world has started to notice, because the stock has been a four-bagger in the meantime, but still; look how small this company is relative to the size of its opportunity and the likelihood that it will convert on that opportunity in the years to come.
It was great to have Mark Penn of Microtrends Squared on the podcast just a couple of weeks ago and a number of you have said, "Hey, yeah, I went on to buy Mark's book. I'm really enjoying reading the book," and I'm glad you are. And if so, you'll remember our conversation about "internet marrieds."
You know, Mark was talking about that 10 years ago in his first book, Microtrends, but here he was deciding he was going to make that a revisited chapter, so he reincluded it, again, in the same way that I would rerecommend Match Group stock again to you as I have done in Motley Fool Stock Advisor. But he was just pointing out, in our conversation, how common it is, today, to find people over the internet.
And that leads me to the second thing I like about Match Group. There's a little thing -- you may have heard about this little trend that's coming. It's not here, yet. Well, it's out there, but it may not have really changed your life much yet, but that trend is artificial intelligence, AI. Start thinking about the possibilities of what AI might be able to do. AI might, in the next 10 or 20 years, be able to find you the single-best person on the planet that might match up with you.
Now, if you're already married, I certainly hope you've already found that person, but if you're in the market, or if you're young, or if you're one of my Rule Breaker Investing listeners who's a teenager... And by the way, I always love hearing from you. Love hearing your stories. Any Rule Breaker Investing teens, drop me a note. We'll feature you on Mailbag. I always love hearing from people who are learning about investing through this podcast or just getting started investing for the first time.
But think about who Match.com or Tinder -- some years from now once AI is really starting to get effective -- think how fascinating a suggestion that you might meet or visit this person. Because out of all the people using our AI, we think this is the person you should at least talk to. Think how powerful that is. So I believe that an AI-powered dating platform, which is inevitable [going back to Kevin Kelly's wonderful title for his great book and we've talked with Kevin on this show in this past year, as well]. Think how inevitable, and really interesting and powerful AI-powered matchmaking will be in the future. And guess who's going to be the leading progenitor, very likely, of that technology on their platform? Yup, the company we're talking about right now. Stock No. 2 for this five-stock sampler, "Mm! Mm! Good!" Match Group.
And now what's "M" Stock No. 3? Well, the next one, the ticker symbol is MKC. It's not really what you'd expect McCormick & Company's (MKC +1.27%) ticker symbol to be. You'd think it'd be maybe [MCK], but that's been claimed by another of my stock picks, which we can talk about another day, but yup, MKC is the ticker for McCormick. Yeah, it's the spices and seasoning company since 1889.
So not every one of our stocks in my Supernova Universe, as I call it [all combined picks from Stock Advisor and Rule Breakers], not every one of them is some ritzy, new, glam technology company. Nope, this is McCormick, the spices and seasoning company. I first picked it in October of 2014. It was at $62.00 then. Happy to say it's about $123.00 now, so it's been a stellar performer. In fact, I note, as of this taping anyway, McCormick up exactly 99%, so not quite ringing the double gong for Motley Fool Stock Advisor members, but 99% ain't bad when the market's up 67%, from a spices company, about four years ago.
So why does McCormick show up in this podcast and why is McCormick one of the stocks that I picked? And what do I like about McCormick that I would make it one of our five "Mm! Mm! Good!" stocks over the next few years?
Well, first of all, as I was saying of another stock earlier, this one has a surprisingly low risk rating. Maybe it's not that surprising because, after all, this is a spices and seasoning company. It's not like they're experimenting with some crazy new business model or taking risks with their product set. Nope, it's McCormick, the spices and seasoning that we all know.
But that's part of what I love about this particular company. It is a branded, known player. Many of its spices and seasonings you know. You know their names. You know the company name, McCormick. Many of you do. And that's something to celebrate, because this is a company that is pretty dominant within its field. There aren't a lot of players that can mount meaningful competition to McCormick, and so its risk rating is just six, which is very low; an almost Google-like low risk rating.
And that's right. Google [or Alphabet] (GOOGL +0.13%) (GOOG 0.28%) is a low-risk stock. A lot of people would think, "That's really risky, isn't it? The whole Google thing?" No, not really. Not over any meaningful period of time. These are strong, substantial businesses. Of course, McCormick is a lot smaller than Alphabet, but within its field, it is a meaningful leader and a player. So that's the No. 1 thing that I like.
And the No. 2 thing that I like about McCormick is its dividend. It's one of those Dividend Aristocrat companies. One of those companies that pays a good dividend and raises it from one year to the next. And so that's why I like it in this mix of companies because yes, we definitely have some high tech in here. We have already talked about a medical products company and the world's No. 1 dating site company, so I like to mix in some spice. A little bit of seasoning in this group of five companies, and McCormick provides that.
Well, that brings us to Stock No. 4. And as we stay on the alphabetical train, we're next going to move from Mc to Me, MercadoLibre, one of my favorite long-term companies and yes, one you've already heard a little bit about earlier this podcast, because it was in my very first five-stock sampler that we talked about earlier. MercadoLibre makes a comeback, and yes, I like it just as much today as I did three years ago or 10 years ago.
MercadoLibre with its market cap of $15 billion. That sounds like a lot when you consider that we were talking about this stock three years ago on this podcast when it was at $5 billion. But when you think about the whole sector of Latin America globally, and you think about owning the equivalent of the eBay, the Amazon, and the PayPal of that area of the world, I feel really good about this company going forward.
It was first picked in Rule Breakers in February of 2009, just a few days after Valentine's Day that year, so now nine years later happy to say it's gone from $14.00 to $327.00. Yup, it's been one of our monster winners in Motley Fool Rule Breakers. That service -- a lot of love for MercadoLibre -- but here we are picking the stock freshly, right now, going forward over the next several years, and that speaks to my confidence in the company's ability to maximize value of electronic commerce for a whole area of the world that a lot of us love and care about.
You know, it's fun to note two things that I like about MercadoLibre. One is I've now picked it once in 2009, then 2012, then 2014 [this is all in Rule Breakers], and then 2017. So this is a four-time pick. But what I'm underlining about that is often when you find a great thing, you should be adding to it over time. You shouldn't just say, "Well, I paid X for it and I'm never going to buy it again. I got a great price in 2009." No, you should be adding in 2012, 2014, and 2017. Here I am in 2018, September, saying, "I like this stock over the next three-plus years." And so, yeah, MercadoLibre fits shoulder to shoulder with any other company I could think of today for what I expect with confidence from its future.
A second thing I like about MercadoLibre; well, as I do this podcast it's down about 9% on this particular day. There's some concern about the Argentine peso. There's also concern about Amazon launching food and drink sales in Mexico. So you're seeing potential competition from Amazon. That's been a story for several years, now. That's not new to MercadoLibre shareholders. But you're also hearing about the weakness of an important country, Argentina, in its Latin American bloc.
But with all that said, over the last nine years in which this stock has multiplied many times over, I'd like to point out that it's doing so with still an unstable aspect of Latin America. Certainly there are several prominent countries that are not necessarily the best players or the most reliable players; and yet, the inevitable [for me the inevitable] growth of electronic commerce in Latin America. It's been a great 10-year story up until now and I love the next 10 years for electronic commerce, so I love the company that is the active leader in e-commerce across that important bloc of the world.
So, yeah, you betcha. If we're going to talk about "M" stocks which, while picking a random letter out of the alphabet we are [we're talking about "M" stocks this particular five-stock sampler], I'm definitely going to include MercadoLibre.
And that brings us to our final "M" stock. We're going to go down to the letters "MO" and we're going to say "MO" twice because the company name is Momo (MOMO 0.49%) and the ticker symbol is, in fact, MOMO. Now, this is a company that operates in China. It started as a Chinese dating app, so you've already heard a little bit of other dating earlier this episode talking about Match Group.
Well, think about dating in China. Match Group not as much of a player in that area of the world; but since I like dating businesses, how could I not like Momo which entered Motley Fool Rule Breakers in May of 2017. It's gone from about $39.00 then to about $45.00 now, so it's been a nice 20% gainer, about in line with the market. The market cap of this company is $9 billion, so we're not talking about some fly by-night small cap, here. This is a fairly substantial, small, emerging midcap company.
And while it's often called "the Tinder of China," [Tinder, of course, one of Match Group's properties], and while it's often thought of that way; in recent years Momo has added a live video-streaming component to make it a very compelling platform. In fact, you can see it in the company's growth, which is amazing.
Get ready for these numbers. Sales in 2014 were about $45 million. By 2016, sales were $553 million or $0.5 billion. That said, the company in the most recent quarter finished sales for the quarter [at] $494 million; so we're now talking about a multibillion dollar sales company and that's something I really like about it, the extreme growth that we're seeing from Momo.
The second thing I like about it is it's a relative unknown. I mean, had you ever heard of it before this podcast? Well, good news. If you're a Rule Breakers member you certainly would have, because it's a recommendation of ours. And certainly if you're in China looking for a date you might well have used or know Momo. But much of the rest of the world doesn't know about Momo. You might know something like Periscope, which is a site, Periscope.TV, where you can see live video streaming of different places around the world. Well, imagine that in this context for Momo in China. That's a substantial part of its business.
So, yeah, this one is a little bit less certain, let's say, than something like McCormick, which is probably a slower and steadier paced, and maybe a more dependable pick, but this also could be a spectacular stock. That's why I wanted to have it in our motley mix of the "Mm! Mm! Good!" companies.
So there you have it, my five "Mm! Mm! Good!" companies. Masimo Corporation. Match Group. Next came McCormick. Then MercadoLibre. And finally, Momo. A truly motley group of companies with geographical diversity worldwide, as well. A fun group of five stocks. I'm going to look forward to reviewing the results of how these stocks have done over the coming years.
In fact, we're just going to make it official that this is a three-year game we're playing with these five companies and with this stock sampler. We're always thinking three-plus, but just the game that I like to play on this podcast; let's make this a three-year game.
