It's been four years since Motley Fool co-founder David Gardner began hosting Rule Breaker Investing so he could share his ideas on investing, finances, life, and much more with you. And during those years, one of the great constants of the podcast has been the five-stock sampler. Every 10 weeks or so, he has picked a new set of five stocks from among those he actively recommends and shared it with his listeners. But he doesn't just recommend and forget: He keeps careful score, annually measuring his mini-portfolios against the yardstick of the S&P 500.
Turns out, though, that once you've been doing that for four years, the anniversaries start to overlap. So for this episode he's reviewing the results of not one, not two, but three such samplers.
In this segment, he's harkening back three years to when the world and financial markets were still in shock from Great Britain's vote to withdraw from the European Union. At that time, he picked five stocks he felt had some Brexit resonance: Alphabet (GOOG +2.92%), Euronet Worldwide (EEFT 1.05%), Hain Celestial (HAIN +3.89%), Tesla (TSLA +2.40%), and Priceline -- now called Booking Holdings (BKNG +0.38%). Did they, in sum, beat the strong three-year growth of the S&P? Today Gardner will tell us, and he's joined for his review of the sampler by senior analyst Karl Thiel, who will talk about a couple of noteworthy developments at each of these companies, and one thing to watch for in their futures.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on July 3, 2019.
David Gardner: All right, well, the first one up, we're going to go furthest back in time. Three years ago this month, Brexit had just recently happened. I thought about how that could open up Great Britain and its commerce. In general, I had a neutral to slightly positive view of Brexit. Now, I think the world since then has more and more turned against Brexit, it seems. I guess as an American who lives in a country where we went independent from the establishment, went out on our own, and had a pretty great commercial success in the succeeding centuries, I'm about economic freedom. At the same time, though, it's interesting now to look back three years later on what's happened. We won't be talking too much about Brexit. We'll be talking about the five stocks that I picked.
Joining me is longtime Motley Fool analyst Karl Thiel. Karl, welcome back to Rule Breaker Investing.
Karl Thiel: All right, thank you. It's good to be here.
Gardner: Thank you. And Karl, you and I have worked together on both Stock Advisor and Rule Breakers for ... 15? Twelve?
Thiel: Yeah, I think 15 years.
Gardner: Fifteen years. I'm pretty sure that we decided, if we're going to launch another newsletter after Stock Advisor, which was a paper newsletter back then, we needed some more staff. And I think that's how you and I got to know each other, Karl. Am I right? Right from the start, Rule Breakers?
Thiel: That's right.
Gardner: And Karl, as many of you will know, because he was part of a Dream Team earlier this year on this podcast, Karl has specialized in biotechnology. But as I look over the five stocks picked three years ago this month, Karl, I'm not sure I see any biotech in this list of Brexit-inspired stocks.
Thiel: No, indeed.
Gardner: Okay. I've already queued it up. Our listeners know, we're going to be talking about two developments of note and one thing to watch going forward for each of these five stocks. First one up, we always do alphabetical by company name, so first one up is Alphabet. Alphabet three years ago was somewhere around $717. Today, it's at $1,081 as we tape. The stock's up 51%. The market's up -- this is important, we're going to be using this throughout this sampler -- the market is up 36.3% from three years ago. 50.8% is greater than 36.3%. Karl, we're beating the market by, we'll say, 14% with this stock. Alphabet's a company most of use every day, I think it's fair to say. But maybe we don't follow the grander narrative sweep of three years and what's been happening. So Karl, as you looked over Alphabet, what do you see? Two developments of note in these past three years?
Thiel: I mean, it's a pretty sleepy company. Not much happens with Alphabet. Well, it turned 20 in 2018. It's now old enough to drink, I believe. But I really tried to narrow it down to two main things. One I just put under the broad category of political sensitivity, greater political sensitivity around the company. This wraps into the $2.7 billion fine they got from European regulators having to do with using the platform for unfair promotions back in 2017. A lot of attention they got about reentering China after they left China because they weren't willing to do some of the censorship involved. Suddenly became willing to do that again. They also got pressured into canceling their Project Maven, which was this government effort to use artificial intelligence to automatically process military drone footage. And it all came back to the oft-cited "Don't be evil" motto that they had, and whether they were really living up to this. I think that's a broad thing for not just Google, but some of the other very, very large companies that are so global and are now being increasingly questioned for the role they play in our lives.
The second one I'm going to pick is artificial intelligence, specifically the launch of its Home speaker back in 2016. They are not the leader in this field. That would be Amazon with its Echo.
Gardner: I've heard of that company.
Thiel: But they are the No. 2 player, and they're actually gaining scale. I think this is interesting. Voice assistance, according to this statistic that I just saw -- and now I'm not quite sure where I got it from -- voice assistants are now supposedly handling an estimated 40% of all searches. They say that one in six Americans now have one of these speakers. And I think that's growing. That feeds right into their AI effort to deliver better information.
Gardner: Okay. Karl, thank you for filtering down so many things you could have talked about. I mean, Waymo, we didn't talk about that; YouTube. There's too much to talk about. But this is a quick review of a sampler, so I've also asked you to give us one thing to look at going forward. Among many choices, Karl, what do you want to focus some attention on here with Alphabet?
Thiel: I guess, for better or worse, the company still relies overwhelmingly on ad revenue. That's where the dollars and cents comes from. And, let's say competition. Facebook has emerged as a major competitor to them. And now Amazon has emerged as a No. 3. They've weathered it all pretty well. I don't think it's any sort of existential threat to them. I think Facebook has taken a lot of share from them, but the market has grown enough that they haven't suffered much. Probably the same with Amazon. But I think that's what I'm going to say we should look at going forward.
Gardner: Okay, great. Interestingly, all three of those companies are active selections of ours in Rule Breakers and Stock Advisor. And all of them have been winners. And yes, you're right, they're big companies, and they're under extreme scrutiny at this point by many people, in part just because they are so big, so relevant. They've also been so good for investors, people acting by definition for the long term. And we are shareholders. So, OK, Alphabet's a plus 14%.
Company No. 2 is Euronet Worldwide, a company not as well-known as Alphabet, I think it's safe to say, and yet a much better performer. This stock is up 133.5% as of market close this Friday, June 28th. That's a good performance against a 36% gain. So we're getting ourselves 97% in the plus column for Euronet Worldwide. Spoiler alert: this is the best performer in this five-stock sampler. Karl Thiel, two developments of note for Euronet Worldwide.
Thiel: I think the most interesting story for Euronet over the past few years is the thing that didn't happen. They made a hostile bid for MoneyGram back in 2017, outbidding Ant Financial. Ant Financial is the financial arm of Alibaba. They really went hard on this, claiming that Alibaba basically wasn't as safe on national security grounds to have access to some of this information. MoneyGram's often used by military personnel. And they actually managed to scuttle the deal, but then have not closed it themselves, either. To the best of my knowledge, it's just floating out there. They haven't officially said that they're not interested anymore.
Nevertheless, the company has done a lot of acquisitions. That leads into my second point about them, which is that this is a company that has three main lines of business. They have their EFT business, which is a bunch of ATMs --
Gardner: Yeah, ATMs across Europe and some in India, right? This is a global company.
Thiel: Absolutely, yeah, pay attention to the Worldwide part in Euronet Worldwide, not the Euro part. They have their money transfer business. And they have this epay business, which we singled out as being really interesting early on. Online transfer, it seems like it had the potential to maybe be a Venmo-type type thing. Epay has actually a little bit flatlined. It's really been the EFT business, the ATM business, and the money transfer businesses that have grown. That seems to be where they're really focusing their efforts and a lot of their acquisitions.
Gardner: Okay. Karl, any quick thought -- I mean, this stock more than doubled over the last three years, what's the big picture there? Why do you think that happened?
Thiel: I think some of it -- and this is kind of my point to look at going forward -- they have had tremendous growth in the Asia Pacific region, particularly India. Now, some of that is at lower margin. But I think there's a lot of enthusiasm about them really being able to keep a lot of new business in a lot of emerging economies.
Gardner: Okay. We'll leave it right there for Euronet Worldwide -- again, the best performer in this five-stock sampler. Coming right after it alphabetically is, yeah, it's fair to say it's the worst performer in this five-stock sampler, and one that badly harms the ability of this five-stock sampler to continue my record of market-beating five-stock samplers, because the third company we're talking about is Hain Celestial. The ticker symbol on this company is HAIN. Karl, you and I have watched this over the years. This is a company that in Motley Fool Stock Advisor, I picked years ago. We have since sold the stock from the service. It was a disappointing loser. Initially a great pick within the organic food space. Really loved Hain Celestial -- Celestial being the tea brands, Celestial Seasonings. Hain Celestial, kind of a conglomerate of healthier foods. But we sold it disconsolately last summer. It hasn't done much since. Karl, this is a look-back three years ago for this five-stock sampler, so we've kept it going for our scoring purposes here.
Hain Celestial, picked at $51.50 three years ago. It's down closer to $22 right now, down 57.5% against the market up 36.3%. So, we're going to give ourselves a minus 94% in the -- I wish I could say "win column -- loss column, pretty much wiping out any good that Euronet Worldwide has done for this five-stock sampler. Karl, two developments of note -- cough, cough, cough, splutter -- for Hain Celestial.
Thiel: To me, what stands out for Hain Celestial is what it hasn't been doing, which is acquiring companies. This is a business that was an acquisition engine. It went out and looked for small brands in the better-for-you food space. And to the best of my knowledge, their last significant acquisition was Better Bean better being back in 2017.
Gardner: Which is stunning. This was all about a growing portfolio of brands within the health food space.
Thiel: Right. I think in some sense, this is now a Beyond Meat world, right? Beyond Meat has no interest in being acquired by anybody. They're doing great on their own. I think related to that, Irwin Simon, the founder and CEO, stepped down after 25 years, replaced by Mark Schiller. There's been some other management turnover, and that may be related to the decision to slow down the acquisitions for now.
Gardner: Okay, yeah. For those who are still -- sometimes people hold onto the stocks that we recommend selling and keep hoping. And sometimes they're right, we'll see. What would be something to watch going forward for Hain Celestial?
Thiel: This is perhaps too vague, but an articulation of a new strategy. I haven't really heard that yet from them. I mean, it's not to go out and buy everything left and right, so what's it going to be? The company has a bunch of good brands, it's doing OK with that, but I'm not sure what their strategy is going forward. And that's what I'm waiting on.
Gardner: Okay. In this world of Beyond Meat and the Impossible Burger and the Awesome Burger and all of the new burgers, how about the Hain Burger? Could that be it?
Thiel: It's worth a try.
Gardner: Would you want to take a bite of the Hain Burger?
Thiel: I am anxious to try all of these new burgers, actually. We had a talk about this on our Rule Breakers podcast a while back.
Gardner: Right, for Rule Breakers members, yes.
Thiel: We are hungry for it.
Gardner: Okay, so, Hain Celestial, let's quickly sweep it off the stage because I don't want to see it anymore. And let's go to stock No. 4. Talk about change. This is a company that changed its name in between when I picked it three years ago this month and today. It used to be known as Priceline, but it's now called Booking Holdings. But we're going to keep it in original alphabetic order, so Priceline, now Booking Holdings. The ticker symbol now BKNG. Three years ago this month, it was at $1,338 and change. Today, it's at $1,874 and change. Good news for us, it's up 40%. Not quite as good news for us, the market's up 36%. We can give ourselves a plus 4%. So, this has mostly been treading water, although I don't think any of us is going to be disappointed holding our Priceline that we made 40% over the last three years.
Thiel: Yeah. I think one of the most interesting points about this company is that it is booking.com, not Priceline anymore. Just as a reminder, Priceline bought Booking for $135 million.
Gardner: That's astonishing.
Thiel: One of the greatest acquisitions in travel history. Just a reminder that mergers can be huge value builders. It's obviously been so powerful in this case that Priceline subsumed itself into the Booking brand. That also has come with some management turnover recently with a new CEO and a new CFO, as well.
That's certainly one point. The other one is alternative accommodations. Booking is in a dead heat with Airbnb for alternative bookings -- homes and overnight rentals. Which is not, at least if you're like me, that's not usually what I think of the booking.com brand as being. I think of it as being conventional hotels, and obviously, they have properties around rental cars and dining and everything else. But they said that 40% of their active customers booked alternative accommodation properties in 2018.
Gardner: Karl, have you used alternative accommodations in the last two years?
Thiel: Yes. I almost exclusively use Airbnb when I travel.
Gardner: Airbnb is a private company, Karl. That's not our stock pick. How about supporting the home team here?
Thiel: It's even worse than that, actually. We invested in HomeAway for a long time in Rule Breakers, which is not only a home team, but also based in Austin. Although I have used that before. I guess I've been pulled into the Airbnb brand. I will look at Booking next time I have to find a place.
Gardner: All right, it sounds like the wind is changing. Well, for this stock, what's one thing to look at going forward for Booking Holdings?
Thiel: At this point, obviously, online travel booking is not a new idea. It's a pretty penetrated market in terms of getting people to look online. It's really, can they continue to take market share? And to me, that also means moving into new verticals, so looking around their dining and their rental cars. But I would say keep an eye on alternative accommodations and how they keep going for the business.
Gardner: Okay, great. That brings us to stock No. 5 to close out this five-stock sampler from July 13th, 2016, five Brexit-inspired stocks. The fifth company -- well, before I mention the company, if you're doing the math with me, if you're playing along at home, we're ahead right now. We're plus 21% when you sum up those four picks. We're up, we're up about 5% on the market. Stock No. 5 is Tesla, ticker TSLA. Tesla three years ago this month -- as of this taping, anyway -- we picked it at $220.53. Today, Friday, June 28th, closed $223.46, up less than $1 from where it was three years ago. That means it's flat. The market's up 36%. Karl, that plus 21% just went to a, womp womp womp, minus 36% overall, 15 alpha points divided by five, we are 3% points behind the market with this five-stock sampler.
Now, I'm frontloading all the math here to give the spoiler alert right then. We are losing as we're going to be closing out this Brexit-inspired stock list. But before talking about that, let's go right in on Tesla. Karl, a lot of people follow Tesla. Some people follow Elon Musk more than Tesla. It's almost like he's bigger than this multibillion dollar company. But Karl, two developments of note for Tesla over these last three years.
Thiel: Well, they both make my list. My first point has to be the Model 3. It was unveiled in 2016. It was launched into limited production in 2017. It really hit its stride in 2018, when they finally managed to start doing 5,000 cars a week. Got it down to that $35,000 price point earlier this year. That's been fantastic. I see them all over the place now.
Gardner: Yep. I have one and I love mine. In fact, I also have a Model S because we had some extra cars with kids that were no longer kids driving automobiles with their driving licenses. And eventually I sold a few of those and converted them over to Teslas. I have to admit, I enjoy driving my Model 3 more than my Model S in part because it's a little smaller, tighter. The parking spaces at Fool HQ are annoyingly tight. I think all of us here in Alexandria who come to Fool HQ to go to work all feel that way. So it's natural for me to take the smaller, slightly newer car. Anyway, I agree. That's a huge story for Tesla. And even though they haven't cranked out nearly as many as Elon said they would at this point, it is a spectacular car and a great achievement for this company.
What's the second development of note?
Thiel: I'm going to lump this together under the general rubric of Elon Musk's mental health. It was all good and fun back in February 2018, when he was launching Roadsters into outer space. Then in August, he put out the note about taking Tesla private, which launched off an SEC investigation.
Gardner: Funding secured, Karl. Funding secured.
Thiel: [laughs] And he was forbidden from tweeting without having it vetted. He went on Joe Rogan's show there and was smoking pot, and also gave an interview talking about his own struggles keeping it all together while nano-managing the company. I think that became a significant not just entertaining story to watch, but pretty significant for Tesla shareholders, to wonder what it meant for the company.
Gardner: Yeah. Sometimes big personalities and big people, especially if they're micromanagers, which I sure hope Elon isn't, I hope he's not that much of one -- but if we are, and this is true of smaller companies, but usually, the more that person does, the slower that company moves. This is especially true of entrepreneurial, smaller companies. If you have somebody who's trying to do it all out there, it's really hard for that company to scale. Anyway, Tesla has still scaled pretty spectacularly over the time that's been in the public markets. But for this five-stock sampler, it is flat.
Now Karl, what's one thing to watch for Tesla going forward?
Thiel: I would put it down to financial health. Back in May, Elon Musk told Tesla employees that the company will run out of cash in about 10 months unless hardcore cost-cutting efforts were made. Now, obviously, the company is still burning through a lot of cash. It's got a fair bit of debt at this point. For a while, he was saying that he didn't think they were going to have to raise anymore. Obviously, that's not true. I'm guessing that Tesla is a little bit of a rough place to work right now. I think they are cutting everything and really, really pushing on the Model 3. The question is, is the Model 3 at extremely low margins cannibalizing Model S sales at better margins? And can they just get over the hump to break even? Because as you say, it's a great car. It's a great product. I think the world's better off if this company succeeds.
Gardner: Yep. Karl, we'll call that the $38 billion question, because that's the market cap as we record this podcast here in the end of June 2019. Well, I've already mentioned the overall performance. If you hear my tone a little down, that's because I'm a little disconsolate that this group of five stocks, which we patiently have followed, updated a few times, including today, this is a market loser from where it was July 13th, 2016. Now, there is a little bit of a silver lining here, because technically, this one's not over. This podcast comes out the first week of July. We won't actually end the horse race until July 13th, 2019. If we can just get a little oomph, a little giddy up here, we do have a chance to cross the finish line with a winner. But we probably won't spend much time reviewing it, we'll just put it back in the homebrew spreadsheet and move on. For now, we're going to say this was a loser. But Karl, you are a winner. Thank you for taking the time to update us on these five fascinating companies, at least several of which I still love. Hain Celestial. Karl Thiel, thank you.
Thiel: Thank you!
