Why Take-Two Interactive Should Score Big in This 5-Stock Sampler for a Troubled Market

The stock market is heading lower -- indeed, all the gains the major indexes made in 2018 have evaporated. So this might not feel like an opportune moment to advocate for stock purchases. Even so, about every 10 weeks, Rule Breaker Investing podcast host and Motley Fool co-founder David Gardner picks a set of five stocks to recommend, and shares them with anyone who wants to listen. Well, it's that time again, and he has more than enough companies to choose from. To narrow his options, he set four rules for this sampler:

1. The stock had to have been a big-time winner for the Rule Breaker portfolio over the long term.
2. It had to have hit a new high in September.
3. It had to have fallen at least 20% from that high in the weeks since.
4. The company name had to start with the letter T.

In this segment, Gardner talks about a powerhouse in the video game sector, Take-Two Interactive (TTWO 0.10%). Even if you don't know it, or don't play many video games, you probably know titles like Grand Theft Auto, and the currently super-popular Red Dead Redemption 2. It's another company he has recommended more than once, and he explains why he'd add it to his portfolio again today.

A full transcript follows the video.

This video was recorded on Nov. 14, 2018.

David Gardner: Stock No. 2, I just mentioned it. I do think Take-Two Interactive had a short attack at some point a few years ago. You could check my math. The ticker symbol for Take-Two Interactive is TTWO. This could sound a little confusing. We had 2U, then we had Take-Two. Take-Two Interactive, though, is a completely different company from 2U. Take-Two Interactive is one of the best video game companies our time. The Houser brothers behind Rockstar Games of Grand Theft Auto fame. Red Dead Redemption 2, which is an outstanding video game, one of the greatest, in my experience, of all time up to this point, just came out this fall. That comes from Take-Two Interactive.

Where has the stock been recently? It hit a high of $138 a share on the final day of September, 9-28. It went from $138 to where it is today, $108. That's a decline of 22% for a company that really literally did release one of the best products in its industry of all time. I love this company. I first recommended it in September of 2007 at $17. Then I added another recommendation three months later. It was at $19 at that point. It's gone from $17 to $19 to where it is today, as I mentioned, around $108. So, yep, it's been a big-time winner for Motley Fool Rule Breakers, a six-bagger twice over.

I should also mention on a side note that I also rerecommended it in November of 2015, three years ago this month. A lot of people at the time were probably thinking, "Well, hold on, now. You already recommend this stock eight years before. It's already more than doubled. Why would you rerecommend it again?" Well, from that $35.62 cents, I'm happy to say it's tripled in just those three years. I'll say a little bit more about this company in a second. This is a reminder, as a fellow stock market investor, you and me, that since winners win, we should be looking to add to our winners. I'm never afraid to take a stock, buy it at one price, watch it go up some and then buy it again, and watch it go up a lot more, and years later, buy it again. Take-Two Interactive, and how we've treated it at Motley Fool Rule Breakers, is a great example.

What are two things that I like about Take-Two Interactive? Well, the first one is, if you've listened to this podcast for a while, you know that I love games. I certainly love video games in addition to all my tabletop, board, and card games. Red Dead Redemption 2 is something that I really love. I've already spent hours just in the last few weeks playing the game. I love it. I highly recommend it. It's a Western. It takes you back to the end of the Old West, just as we're transitioning into the 20th century. You're going to be playing a principal cowboy in a gang that's a bunch of ne'er do wells, but they're trying to come to grips with the world changing around them. It's a cinematic video game. It's beautiful, especially on my Xbox One X. It's stunning in 4k. But also, I want to play up the writing of it. It's written like some of the best movie scripts or some of the best exchanges you've ever seen on the big screen. You're going to see that kind of level of quality, because that's how Rockstar does it in this video game. I highly recommend the game. It's a great reason to like the stock.

Now, the company's much bigger than any single product, so let's not get carried away. Red Dead will definitely pump up the numbers, I predict, in the next earnings report. But this is not a one-trick pony -- talking about horses out west. This is a company that has a lot of different excellent products. The second thing that I like about this is that I think there's a chance that Take-Two Interactive could end up being bought out in the future. I'm not invested for that reason. I might have thought that in 2007 when I first recommended it. Here we are, 11 years later, the company remains independent. I love it when my companies remain independent. I still wish Marvel, one of my favorite stock picks of one generation ago, hadn't been bought by Disney. I can only imagine how well we would have done as Marvel shareholders. But you do get paid a premium when another bigger fish comes along and eats your smaller fish. That seems like it's implicit in a stock like this. It could certainly happen, although I would be rooting against it. There's stock No. 2, Take-Two Interactive, TTWO.