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 around 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 launching a new one, or an interview. But this past week was the second time in the podcasts history when three of those anniversaries coincided. So for this episode, it's samplers, samplers, and more samplers. In this segment, he and his guest host, senior analyst Emily Flippen, look back to that first sampler, compiled before he realized he was going to need to come up with a lot of clever gimmicks. It was the plain and simple "Five Stocks for the Next Five Years": Activision Blizzard (ATVI +0.00%), Casey's General Stores (CASY 1.99%), FireEye (FEYE +0.00%), MercadoLibre (MELI 1.24%), and Middleby (MIDD 1.32%). How are they doing? Let's just say this one is something of a nail-biter.
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This video was recorded on Sept. 11, 2019.
David Gardner: Alright, if that was 2017, let's go back in time further. The very first five-stock sampler ever picked was Five Stocks for the Next Five Years, which was published on September 2nd, 2015. By the way, it's sometimes hard to look this far back on iTunes, presumably Google Play. It's hard to find more than about 100 podcasts ago. But given that we've been doing our weekly podcast more than 220 times at this point, you can imagine, a lot of our great work is buried somewhere there in the internet. But if you do know the title, like Five Stocks for the Next Five Years, you can usually Google and find the sound files for any of the podcasts that we've done in the past. This one, no exception.
Sept. 2, 2015. Emily, do you remember what you were doing that day?
Emily Flippen: Not that day exactly. But, again, generally that month, I remember that I was a junior in college. That first semester of my junior year, I actually lived in Florence. I did a semester abroad there, which was probably the most basic -- excuse the language -- semester abroad that an American can do. I went to Florence, Italy, and yes, I did drink a lot of wine and eat a lot of pizza.
Gardner: [laughs] I love that you're calling that your semester abroad, because your entire four years was abroad. You went to NYU Shanghai.
Flippen: I needed a break from the four years of Chinese food, so I did take a semester and I went to Florence, and I treated myself.
Gardner: Well, that does sound absolutely delightful! I did go to my calendar, and I see that that morning, I was rooting about the basement of my house, trying to clean things up, specifically looking for Magic: The Gathering cards that a numskull friend of mine had left in a bag somewhere on the first floor of my house years ago. For anybody who follows Magic: the Gathering, and there are not that many of them -- although Richard Garfield, its founder, is a past guest on the show. Really enjoyed having Richard on last year to talk about his most recent game design. Anyway, Magic: the Gathering. Those cards appreciate over time, kind of like a good baseball card. Some of the earliest days of the beta -- I have some beta Magic: the Gathering cards. And this friend of mine was like, "Hey, I left some of those in your house. Could you find them for me?" I'm happy to say I did ultimately find them. You're very welcome, my friend Tom, that you got your Mox Pearl.
Alright, it was Five Stocks for the Next Five Years. How has the stock market done since Sept. 2, 2015, four years ago, right about this week? The answer is, the market is up 51%. That's four good years. That's a higher hurdle than the 3% we needed to jump over with Five Mm-Mm Good Stocks. Emily, let's see how we've done here.
What were the five stocks? Well, alphabetically by company name, they were Activision Blizzard, Casey's General Stores, [whispering] FireEye, MercadoLibre, and Middleby. Sorry, did I skip one? I did say it, didn't I? I did say the company name.
Flippen: I heard it slipped in there.
Gardner: Good. So, those are the five. [whispering] FireEye. One of them has been really, really bad. That's one whose name I won't say on this podcast because of how deeply upset I am at the company and how it's performed. [whispering] FireEye. It has the ticker symbol FEYE. Let's start with the worst. Worst is first, Emily. The stock was at $37.47 in 2015. It's down to $13 and change today. Down about 63% when the market was up 51%. Five Stocks for the Next Five Years? Not that one.
Flippen: Yes. He who shall not be named was a good idea that was just executed poorly. This particular company, [whispering] FireEye, faced significantly higher costs than expected when they migrated to their cloud based model. Their renewals just became abysmal. The top line growth really dropped off a cliff. And they really needed some inept competitors, and what they got was some really strong competition.
Gardner: Cyber security, a big field these days.
Flippen: When you look at the field, even today, they're operating in a field that is presumably, and should be, a very, very lucrative field to be in. The problem is, when you operate in a lucrative field like that, other people aren't unaware of the fact that that is an area that is growing and have high demand. Palo Alto Networks really put the nail in the coffin for FireEye. Oh no, I said it! [laughs] That's not to say that they're completely buried in the ground yet. It is to say that Palo Alto Network's suite has really trumped this company's product. Stolen all their customers.
Gardner: I am happy to say that Palo Alto Networks is a stock pick for Motley Fool Rule Breakers. I wish I'd selected it for this sample. I sampled improperly. We've also had some nice winners. Fortinet has been a very fine stock for Motley Fool Stock Advisor members. I tried to make up for this inadequate early cyber security pick by picking a few others along the way. But that doesn't help this five-stock sampler. So, that puts us minus 114% in the hole. Let's add further to that hole with The Middleby Corporation, which is a company that we admire. In fact, its longtime CEO recently came on The Motley Fool board, Selim Bassoul. We're really happy to have Selim on our board. He's a remarkable man. Maybe in part because he recently retired as CEO, but I don't think, really -- anyway, the stock up only 9% when the market was up 51%. That's 42% more against us, Emily.
Flippen: I will say that this manufacturer of commercial cooking equipment and appliances does operate in a very cyclical business, as you might expect. It faces a lot of those same problems that we talked about earlier. Before this earnings call, the stock was actually an outperformer. It wasn't until the most recent earnings call the stock has really been hammered for Middleby. That's largely because of a few different reasons. They have exposure to the European market. Concerns about Brexit and slowdown there has hurt their exposure in that regard. Slowdown in demand for U.S. industrial purposes as well. Not to mention the impact of tariffs, which people are always concerned about with companies like this. It's really hurt their short-term margin expansion.
Here's what I will say. My parents have recently purchased a townhome in Dallas, moving down to the city. My mom was pumped because it came with a Viking range in it. That's one of Middleby's namesake brands.
Gardner: That's right. Acquisition a few years ago. It's probably its biggest, best-known brand.
Flippen: That brand in particular has been performing really well for them. If my parents have anything to say about it, this one might come back yet.
Gardner: Unfortunately, your parents, as good as they are, can't help --
Flippen: Not yet.
Gardner: So, we're minus 156% with three stocks left. Let's take them alphabetically. Activision Blizzard. Really happy to say this longtime video game entertainment leader is up 95%. That's 44% points ahead of the market over the last four years.
Flippen: Despite all of its controversies that we've seen over the past few years, 2015, 2016, 2017, even were great years for Activision Blizzard. You can think back to the success of a lot of their brands like Overwatch and Diablo. More recently, the relaunch of Classic World of Warcraft. These are all great legacy brands that kept bringing in recurring revenue, recurring subscribers. To be clear, it was down 26% in 2018 alone. So it's not been an easy ride for investors.
Gardner: That's right.
Flippen: The majority of these gains were gained in 2016 and 2017, back when there were fresh installments of a lot of these games. But it does go to show the fact that this company does tend to move not only with gamer sentiment -- I wouldn't call it investor sentiment. Gamer sentiment -- but also with launches of their popular brands.
Gardner: Our cost originally for Activision Blizzard for Stock Advisor members, August 9th, 2002 $3.14. Actually, six months later, it was down, cut in half, so I added at $1.60 or so. Today, around $56, it has been a mega-winner. It's a reminder that a big, vital business, and a leader like this, held over time, can do fantastic things for your portfolio. But you're right, Emily, it was down with the video game doldrums. It seemed like every was playing Fortnite last year, no one was talking about anything else. Companies like this company were harmed a little bit as a consequence. But, this remains a long-term buy and hold, big-time winner. And, I'm happy to say for this five-stock sampler, it's up 44% on the market, which means we're now at minus 112% with two left.
Casey's General Stores is next. Emily, sad to say, it's only 9% ahead of the market. It's up 60% or so. 9%, not bad. Not really helping this five-stock sampler that much. Any thoughts briefly on Casey's?
Flippen: Let me first say that I was raised in Texas, so I'll always be a loyal Buc-ee's fan. But until Buc-ee's becomes publicly traded, I will settle for its Midwest equivalent, which is Casey's General Stores. It actually didn't really start to outperform until recently, until the end of May this year when they started to let some of that revenue slide to the bottom line. They had some gross profit increase, which helped. Gross margin expansion. Cost-cutting measures. In fact, same-store sales during May were up nearly 6%. Great recent performance from this company.
Gardner: Thank you! I have not been to a Buc-ee's.
Flippen: You should go, if you're ever in Texas.
Gardner: Does it have pizza? Casey's has great pizza.
Flippen: Buc-ee's has great everything else. Honey roasted nuts, for instance. More Texas-based food.
Gardner: Sounds good! Speaking of sounding good, I've got one final stock that's part of this five-stock sampler. Emily, are you familiar with the concept of the deus ex machina?
Flippen: I am, and I'm trying to figure out how you're going to relate it.
Gardner: My recollection from my undergraduate studies is, this typically would happen at the end of ancient Greek plays, when something would swoop in at the end and save the day. I believe it comes from the Latin "God out of the machine." So, a machine is wheeled on the stage, and out comes somebody God-like to save everything. The name of this godlike company, the fifth stock that was included on Five Stocks for the Next Five Years: MercadoLibre. I'm really happy to say that MercadoLibre four years ago was at about $110. Today, at $571, this stock is up 420%. For listeners, that's 369% ahead of the market. Three of these companies did beat the market, but this one stock has caused this first-ever five-stock sampler to average a gain of 103.9% against the market's 51%. These five stocks, as a sampler, are 53% ahead of the market four years later.
Flippen: That's generally how the market works as well. The vast majority of companies in the market do not perform well, but the ones that do really do. We're happy to have MercadoLibre in here. Since we already talked about it a little bit before, I'll just bring us back to 2015. Let's look at some of the numbers that MercadoLibre was posting in 2015. Back then, the day it was picked, revenues were only 30% of what they were today. The earnings call that was published only a few days before recording that podcast four years ago, MercadoLibre was doing $1.65 billion in gross merchandise value, with payment transactions of about $18 million. Now, that $1.65 billion in GMV grew to $3.4 billion, and that $18 million in transactions volume, now $6.5 billion. This company looked like a riskier bet back in 2015, and it's really expanded on its value proposition.
Gardner: And it's been a spectacular company. A true blue Rule Breaker. It only takes one. Now, we are not premising to just try to roll the dice and hit a home run once. In fact, I'm happy to say that, not just in this group of five stocks, the majority of them did beat the market. But all three of these samplers well ahead of the market, powered by a number of stocks, but when you have a single home run stock -- and we have a knack for finding those at Rule Breaker Investing -- they were really can power your overall returns. So, you see -- admittedly, only in a group of five stocks. There'll always be a lot of luck in any group of five, for better or for worse. But we're awfully fortunate to have had MercadoLibre called out four years ago this week.
