In the four-plus years since Motley Fool co-founder David Gardner began hosting Rule Breaker Investing, he has shared quite a few of his signature five-stock samplers. Using companies culled from the hundreds that he actively recommends, he has built each of those mini-portfolios based on a multiyear time frame -- because investors (as opposed to "traders") buy and hold -- and usually centered each on a quirky theme. But if the Gardner brothers and their company are dedicated to picking great investments and being a bit Foolish, they are just as dedicated to the principle of keeping honest score. And that's why, around the anniversary of each sampler's debut, he tallies up their percentage gains or loses, talks about the factors behind each company's performance, and measures the portfolios against the benchmark of the S&P 500.
Sometimes, he can check in on sampler and fit something new in, too -- be it rolling a new one, or an interview. But this past week was the second time in the podcast's history when three of those anniversaries coincided. So for this episode, it's samplers, samplers, and more samplers. In this segment, we look back 12 months to a sampler that shows that -- once you've sorted the market's wheat from its chaff -- David can make even a fairly arbitrary filter like "stocks that start with the same letter" work. In this case, with "5 Mm-Mm Good Stocks," it was Masimo (NASDAQ:MASI), Match Group (NASDAQ:MTCH), McCormick (NYSE:MKC), MercadoLibre (NASDAQ:MELI), and Momo (NASDAQ:MOMO). He and his guest host, senior analyst Emily Flippen, will run the numbers, and reflect on these companies' recent pasts, and consider their outlooks.
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This video was recorded on Sept. 11, 2019.
David Gardner: Five-stock sampler No.1 this week. This is the debut. That's right, these stocks were picked one year ago, so this is their first time ever in Reviewapalooza. The name of this theme, Emily, was Five Mm-Mm Good Stocks. Now, we'll talk about the theme in just a sec. But the day was September 5th, 2018. Emily, can you remember what you were doing a year ago this week?
Emily Flippen: Well, I don't take as great diligent notes as you may. But I do have a spreadsheet. Starting in September last year, I started studying for level one of the CFA program. So I was tracking my studying in a spreadsheet. I can see that on September 5th, I put in 80 minutes of reading that day. Whether that's good or bad, I don't know. I passed, so I guess it was good enough.
Gardner: Congratulations! When did you pass? This summer?
Flippen: Yes. I took the test in June.
Gardner: Congratulations, Emily! Emily Flippen, CFA?
Flippen: Eventually. Level 1. Now I'm in the process of studying for Level 2.
Gardner: Is Level 2 when it completes? Or Level 3?
Flippen: Level 3.
Gardner: And then that's it, right?
Flippen: And then four years of investment-related work experience. Then I can apply for the credentials.
Gardner: I see. Well, I'm just looking at my schedule, I was working that morning on our new mobile game app that's coming out this fall Investor Island from The Motley Fool, which I'm really excited about. It's going to debut in the Canadian App Store in a few weeks. Then it's going to hit the U.S. App Store, I think, next month. We're excited. Many of you have helped us beta test Investor Island. I was meeting with the team that morning. But later that afternoon, Five Stocks Mm-Mm Good came out. The hook here was, they're all companies that start with the letter M. Yep, it's that silly. I just thought, "I like all these M stocks." I think Rick probably came up with this, so we went with Mm-Mm Good. That's what unites this five-stock sampler.
Flippen: That was going to be my question -- who's the genius who came up with that name? And Investor Island, for that matter. Great naming skills! I'm not creative enough to have contributed.
Gardner: [laughs] So, for each of these, Emily, we're going to look at the highlights, lowlights and then talk through the stock. Five stocks. I'll give the names right up front: Masimo Corp, Match Group, McCormick, MercadoLibre, and Momo. Those are the Five Mm-Mm Good Stocks. We'll see if they were mm-mm good.
Let's talk first about the best one. Then we're going to talk about the worst one. The best one, picked $320 a share even at market close, September 5th, 2018 MercadoLibre.
Flippen: No surprise there!
Gardner: Today, through Monday's close, from $328 up to $571 and a little bit of change. It's up 74%. By the way, I should mention, the stock market is up 3.2% from a year ago. I love those low bogeys that we're shooting for. Just 3.2% is the hurdle we're looking for here. MercadoLibre up 74%. Off to a great start for this sampler.
Flippen: Yeah, there's really not anything bad to say about this company, at least thus far. I will say that, when you did pick it last year, the stock had already appreciated significantly.
Gardner: I'd forgotten.
Flippen: I'm sure at the time, there were people who had googled the company, maybe saw the appreciation, looked at the P/E ratio, and thought to themselves, "This is ridiculously overvalued." But it goes to show that companies that have historically performed well tend to continue to perform well. Over the past year, MercadoLibre has really just capitalized on the emerging e-commerce scene in Latin America. It's really a huge opportunity. This is impressive, given the fact that the economies in a lot of their core countries, especially their currencies, haven't been exactly stable --
Gardner: Things are pretty unstable in South America right now. Venezuela and Colombia having some spats. Argentina with its devaluation of its currency, given worries about the election this fall. You're right.
Flippen: MercadoLibre, meanwhile -- while they operate in other markets as well, more stable markets like Mexico and Brazil -- despite the fact that they've been surrounded by countries that have really been unstable, the company itself has been relatively stable, and not in the sense that it is a stable performer, but in the fact that they've managed to continue to post amazing growth. Their gross merchandise value, their different processing platforms. Mercado Pago is doing a great job expanding into the Brazilian market, for instance. All of these things have improved drastically just over the past year. I would not feel shy, again, buying it today, even though we talked about it being up, what, 74%? Despite that great appreciation, it's a great company, it performs well, and I have no doubt it'll continue to do so.
Gardner: I hate to overplay this, but winners do win. MercadoLibre, first picked in Rule Breakers for members Feb. 18, 2009, at $14.13 a share. So from $14, our original cost, up to $571. It has been the single best-performing stock in Motley Fool Rule Breakers, and it has just continued to be the gift that keeps on giving.
From the sublime to the ridiculous, I'm sorry to say that the company arguably with the most ridiculous name here also has the worst performance: Momo, ticker MOMO. Emily, it's down 20%. It was at $45 a share a year ago. It's down about $36 right now. Down 20%, what's happening with Momo?
Flippen: It's unfortunate that the stock has responded the way it has. Momo's core business has been definitely pressured, largely because of factors that they can't control. So they actually had an impressive, astounding 40% of revenue growth over the past year. But it's a notable slowdown to the numbers that they were posting a year ago. The big story is really that the government has had a field day in regulating a lot of their businesses, notably cracking down on in-app purchases associated with their live streaming revenue. These are the things that were really lucrative for Momo and they suddenly fell off a cliff when the government decided that the content that, maybe, some live streamers were producing was not exactly family friendly.
That being said, it does have a dominant positioning in the Chinese market. It's an interesting company. But, the macro environment, Chinese companies plus government regulations, has really pressured this company.
Gardner: Emily, I think a lot of people probably don't even know what Momo does. They hear Momo, people talk about momentum stocks, and that's what a lot of traders say when they talk about it. So, in a sentence or two, what is the business of Momo?
Flippen: Momo has often been called the Tinder of China. The premise of the company was that they had one of the most popular dating platforms, dating apps in China. It actually moved more toward a livestreaming based app with dating involved. I would suppose the closest connection it has here in the U.S. is the Tinder of China, although there are some significant differences in the business model.
Gardner: Alright. With Momo 23% behind the market, if you net out that 71% with MercadoLibre, we're looking pretty good. I'm happy to say the other three companies -- Masimo, Match, and McCormick -- are all beating the market. This is a spectacular start for Five Good Mm-Mm Stocks. I'll give the final accounting in a minute, but Match is up 54%; Massimo and McCormick both up about 26%.
Flippen: Well, I'd be remiss if I didn't talk about the actual company that owns Tinder, the Tinder of the U.S., Match Group. Over the past year, it's Tinder, Tinder, Tinder. It's really been an amazing growth driver for the company. That doesn't mean that they haven't been expanding involvement in other areas. What I found exciting was, they picked up strategic investments in new apps as well. One notable one: Harmonica, which is dedicated to helping hook up the 1.8 billion Muslims in the world. There's still lots of ways for Match Group to continue to expand its offerings as opposed to just being Tinder and Match and Plenty of Fish. The point thing there that dating isn't going anywhere, especially online dating. It's been a great performer.
McCormick has done really well, too, because of their cost-cutting program. Despite the fact that McCormick has never been a growth company, it still has a great product. Being conscious about how they spend their money and where they spend their money has allowed them to really expand their margins. Increased cash flow to investors in the form of increasing dividends. They've actually had 33 consecutive quarters of dividend increases. It's an impressive company, as well.
Gardner: That's amazing! A lot of people would think, why do we have McCormick? Why did I pick it in Motley Fool Stock Advisor back in 2014? It seems like, as you mentioned, a real grower, and I do love companies that grow. But I also love companies that serve something special that's hard to compete against. I love the macro trend -- talk about tailwinds -- I think food is getting more and more interesting. It's getting more and more diverse. There are more choices all of us have. And spices, darn it, that's what brings the spice to food and life, spices.
For five years now, McCormick has paid good dividends. We got it at $61.50 in 2014. Touching the scales around $150 today, it's been a winner.
Flippen: Masimo has also been a winner. Nothing too exciting there. Really strong demand for their core product. Great international expansion. Drastically improving their net income margin. Just a good business overall.
Gardner: Remember, this is just year one of three years of review. We hope that things will keep going this well for these five companies. I'm really happy to say, on average, they're up 32.1%. The market is up 3.2%. So, "Five Mm-Mm Good Stocks" sure have been 29% ahead of the market in their first year together.