You may not expect to hear this from a podcast devoted to investing, but there are more important things than money.
Yes, when it comes to picking stocks, your instinct may be to single-mindedly seek out those with the best chances of delivering the highest possible profits. But Motley Fool co-founder and Rule Breaker Investing podcast host David Gardner puts an equal emphasis on choosing companies that reflect his best vision for the future and his ideas about what he'd like to see the world become. This, of course, lines up well with the growing movement known as conscious capitalism: ethically grounded free enterprise that hews to a higher purpose than pure profit and that respects all the stakeholders.
On this podcast, it's time for Gardner to pick another of his five-stock samplers, and this time around, his theme is just that: five conscious-capitalism stocks that he expects to beat the market over the next three-plus years. Those companies are Ecolab (NYSE:ECL), Etsy (NASDAQ:ETSY), NextEra Energy (NYSE:NEE), Old Dominion Freight Line (NASDAQ:ODFL), and Salesforce.com (NYSE:CRM) -- and to understand why he picked them, you'll want to read on or listen in.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Nov. 13, 2019.
David Gardner: Make your portfolio reflect your best vision for our future. For those who are saving money and investing it through life, I have good news. You should be reflecting your values and your hopes -- not mine, not your broker's, yours -- with the investments that you choose. So, good news, you should be doing that. You don't ever need to cynically do the opposite. But, it gets even better. Great news. The great news is that you will do better, very likely, and make more money as an investor over time if you put your money where your mouth is. It's not a trade-off, it's a win-win. And so, then, the task is to grow your circle of competence. Raise your awareness and your consciousness about what companies are out there, what companies are doing good things in this world, and adding the ones that make the most sense to you that best fit you to your portfolio. And maybe I can help.
This week, I have five stock picks. I bet you know at least one or two of these companies. I bet you don't really know at least one or two of these companies. It's my latest five-stock sampler podcast -- Five Stocks for Conscious Capitalism. Only on this week's Rule Breaker Investing.
Welcome back to Rule Breaker Investing! Last week, it was Something Old, Something New, Something Borrowed, Something Blue. This week, it's just five stock picks. And as I said at the top, I've got not just good but great news. I really do believe, if you're investing in a way that expresses your ideals through your money, you are going to do not just well, you're going to do better than you would have otherwise. And for me, throughout my life, I've discovered that. And for the people that I know who've listened to this and made their money, follow their own whims, in some cases, or confidence, convictions, ultimately, their hopes, they've done really well. You've done really well. I know I'm speaking to a lot of people who do invest that way. Part of the reason it works, by the way, is that when you're thinking about the future, you're very open to new possibilities, new technologies, new business models, cultural shifts. Now, a lot of these things are better than what they replaced, right? I certainly prefer, personally, e-commerce to commerce. I'm grateful that the world has both. But I definitely have, over the last 25 years, appreciated e-commerce. Just this morning, it was time for me to reorder my favorite Keurig coffee cups for my Keurig machine at home. And I just spoke to my Amazon Echo. And I said, "Reorder this," and it took about 15 seconds for me to do that. And I was informed by my machine that it would be delivered tomorrow. I turned to my wife and I said, "That's pretty amazing. 25 years ago, imagine that I was just speaking to a machine that reordered something for me that would be delivered the next day." That would have seemed like magic one generation ago. Today, it's a rather blasé experience that a lot of us increasingly take for granted. So, the new things that come along, usually, if they're going to be mass adopted, it's because we favor them over the old way of doing things. And so, yes, by thinking forward with your money, you're typically going to do better than if you didn't otherwise.
Now, whenever I make stock picks, and I do a new stock every single month, have since March of 2002 in Motley Fool Stock Advisor, and I pick two stocks every single month, have since October 2004 in Rule Breakers, so I'm picking three stocks every single month, and five Best Buys Now for each of the services. So I have about 13 stock picks that I'm making every single month, and have done so for a couple of decades now. And when I make those selections, I'm adhering to my own advice, I am trying to make my stock picks reflect my best vision for our future. But as I do so, I'm very conscious, and I want to make it very explicit here, that this is my own personal take on where the world's headed and where I'd like to see it go. I don't expect that you would agree with me in all cases. You see things that I don't see, and maybe vice versa. It's kind of a tango, where I'm always listening to our community, my listeners here on this podcast, my Fools here at Fool HQ and on the discussion boards. We're constantly learning from each other. That's the story, that's the social story of the internet that I've loved. So, I'm the first to say, if I pick something that is not consonant with how you think about the future, don't buy that stock. After all, if you're following Stock Advisor and Rule Breakers, and I sure hope you're following both services, you've got 13 new ideas every single month. You certainly don't need to act on all of them. Sometimes maybe not even one of them. But I'm the first to say that while I'm picking stocks toward that ideal, each of us sees something different. So, listen or not, and act on what makes sense to you. My favorite members who come up to us at Motley Fool member events, sometimes they've been with us 20 years, and they're my favorite members because they make it clear that they're being discriminating on their own. They're like, "I like that one, David," or, "Your most recent pick, I don't think that one's going to work out." They're thinking for themselves. It's exactly what I try to do and what I try to exemplify for you.
We're going to be much more successful, both on an individual level, and also on a community level, if we're all thinking as independently as we can, and, of course, letting our money follow those instincts. So, I pick stocks toward the ideal that I put out there for you. Each of us thinks differently. So, as I said, listen or not, and act when it makes the most sense to you.
Now, this week, this five-stock sampler is Five Stocks For Conscious Capitalism. We've made quite a bit of Conscious Capitalism in the month of October, so I'm pretty sure that you know that the four foundations are: companies that seek a higher purpose, they have usually beautiful purpose or mission statements, and their employees work hard toward that purpose, holding that purpose, if and when necessary, above profit. And, in so doing, often earning more profit over the course of time than companies that don't seek a higher purpose. No. 2: they're optimizing for all stakeholders, not just taking one stakeholder group -- like shareholders -- and just trying to max it out for them. No. 3: conscious leadership, servant leaders. Companies that embody the kind of leadership that you and I were taught in school or church or by our families. Coming from a place of humility, and working toward high purpose. So, conscious leadership. Probably, that CEO doesn't have a special parking spot, and always the best of everything around the company. Servant leadership. And finally, No. 4: conscious culture. A culture that people want to be part of, that every stakeholder can bathe in, that employees love to come to work for your company or these kinds of companies. So, those are the four foundations of Conscious Capitalism. And the five stocks that I have for you this month are not perfect. I don't think any company is perfect. But we can definitely identify elements of Conscious Capitalism in these five companies.
And by the way, lots of others. I'm always wearing that lens when I pick stocks. Many companies are at different stages -- sometimes they're big, behemoth organizations that have been around for decades and need to reform their ways, in some cases. Others are just starting out and maybe have it all right right at the start, but then, as they grow, rocky times ahead, sometimes they hit that whitewater phase that Les McKeown has taught us about from his book Predictable Success. And sometimes they make mistakes. I don't think any company is perfect, but I always like to hold up the exemplars. I especially like it when I think they're good stocks to own from this day forward, which is what I do with my five-stock samplers. We're looking at the next three-plus years and saying, "I think these companies are going to beat the market as a group over the next three-plus years."
Alright, without further ado, let's get started. Five Stocks for Conscious Capitalism. Stock No. 1. The vast majority of the time, we go alphabetically by company name. I'll be doing that this week. So, company No. 1 is Ecolab. The ticker symbol is ECL. This is a company that today has a market cap of $55 billion, just to give you a sense of relative sizes. Our smallest company I'll be presenting this week is at $5 billion, and our largest is it $140 billion. So, Ecolab is kind of somewhere in the middle there.
Now, a lot of you may be aware of this company. You might see an Ecolab truck driving around your neighborhood, or you might work in a hospital where Ecolab is a critical partner. But this is also more of a B2B company, a business-to-business company, so a lot of us don't have a direct association with Ecolab -- which, by the way, started from the name Economic Laboratories decades ago, and has evolved over the course of time into a company that has helped cleaning up the world, which is why I really like this business. In fact, from a recent Motley Fool write-up, we said the company keeps a huge swath of the world's economy clean, including food and beverage, hospitality, farming, healthcare, commercial laundry, and water treatment. It's a fantastic business. Ecolab's products and services are absolutely critical, driven in large part by regulation. It operates under long-term contracts with high switching costs. Much of its work takes a skilled local presence, and doing it all efficiently requires large, hard-won economies of scale. As a result, over 90% of Ecolab's revenue is recurring. So, with Ecolab, you have a company with a low risk profile, a long record of success. It pays a small dividend, a 1% yield. So, for those who like a little income coming back to them, you'll get it from this $55 billion company.
I should mention, I first picked this stock in June of 2016 for Motley Fool Stock Advisor. It was at $114.38 on that day. Today it's at $190, so it's up 66%, which is great. The market, by the way, since June of 2016 is up 59%. So, it's only beating the market by about 7%. You get a little dividend added in. But we're all about going forward, and my expectations would be that this company continues to beat the market. Is this a skyrocketing 10-bagger over the next five years? I sincerely doubt it. But if you're talking about a company that is helping clean up many other industries, and doing it in a way that is both profitable and recurring, I really favor Ecolab, and have, obviously, for years. So, Stock No. 1, symbol ECL, Ecolab.
Alright, stock No. 2. Let's stick with the letter E. On November 23rd of 2016 -- basically three years ago, kind of this week-ish -- I picked this stock at $13.12. Today, it's $42. This is a company that, if you're a Market Cap Game Show fan, you're going to probably recognize as the example that we use almost every show going back to when Matt Argersinger kept missing Etsy, and it became an inside joke for Rule Breaker Investing listeners. But, yep, company No. 2 is Etsy. It's up 220% over the last three years. The market's up 48%, so it's more than a triple. It's been spectacular.
But here's some surprising -- I would say relatively surprising, but good -- news about Etsy. The stock has declined dramatically since August 1st. So, in just the last three months or so, Etsy, even though it's more than a triple over the last three years, has dropped from $70 down to $42. Quick math reveals that when you go down $28 a share from $70 to $42, that's exactly a 40% drop. So, you have one of the best, most protected e-commerce businesses that I can think of operating in its own niche, pretty Amazon-proof in my mind, and it's literally lost 40% of its value since the summer. This is a great entry point for new investors in Etsy.
Now, to remind you a little bit about this business, this is not a retailer itself. Etsy is just a software platform. It is uniting buyers and sellers. It is merely a marketplace, and Etsy takes a cut of the market. So, it's a hero to independent retailers, especially craftsmen, handcrafted goods. In a recent quarter, how many people were selling on Etsy? Check this -- 2.3 million sellers. So, even though I'm describing it as a niche business, and it only has a market cap of $5 billion today, it has millions of people selling on it, and indeed, it had 43 million active buyers in the summer quarter, just that quarter alone. Doing about a billion dollars of gross sales or so on the platform just on a quarterly basis. You can see that Etsy is for real. And yet, with a little bit of a slowdown in its most recent quarter at the top line, and then margins dropping back a little bit as well -- I think very correctable and not big problems at all -- we have an excellent opportunity right now to pick up, I think, a differentiated e-commerce brand at a good price. So, how could I not think about Etsy before we leave the letter E?
In fact, let me quote from a recent Motley Fool article to give you some extra insight into the Conscious Capitalism that I see inherent in Etsy. I quote, "Consumer research shows shoppers prefer independent sellers over traditional big-brand retailers in a quest for unique and socially conscious products rarely available at the bigger stores. Etsy and its sellers also attract millennials, the largest generation, who are leading the charge with their preference for businesses that put corporate responsibility ahead of profits. On this front, Etsy is, for example, working to reduce its carbon footprint through actions like moving toward using only renewable electricity to power its offices and being the first global e-commerce company to offset carbon emissions generated from shipping by funding projects that reduce carbon emissions." So, you can see how well-positioned Etsy is to grow with the largest generation ever yet created in this world -- that is, as Paul Rice said on this podcast last year, that's practicing conscious consumerism, i.e. I'm buying from you, not them, because I prefer your practices and what you represent for our future.
Have I pounded the table enough for this one? I think this is an amazing business. I think it's beautifully positioned, and it's just lost 40% of its value in the last three months. Have fun!
Alright, stock No. 3. This one, we go down to the letter N. This company is $109 billion of market cap, just 22X Etsy's size. It's the largest electric utility in the United States of America. And here's some good news -- it's also the cleanest electric utility in the United States of America. 97% of its energy comes from natural gas, nuclear, wind, and solar. The company that I'm talking about is NextEra Energy. The ticker symbol is NEE. I first picked it earlier this year for Motley Fool Rule Breakers. It was late January at $176.96. Today, tipping the scales at $222, so it's up 26%. A really nice start for NextEra Energy. The market over that time up 19%, so it's a bit ahead of the market. I will mention, of all five of these stocks, this is the one that pays a real dividend, a bigger dividend. I mentioned earlier, Ecolab gives you a 1% yield. This company gives you a 2.3% yield.
Let me briefly break that term down, because I'm assuming not every Rule Breaker Investing listener knows what I mean when I say yield. You probably know that some companies with extra profits, usually at the end of a year, will decide, rather than reinvest all of that in its business or leave it in a bank account, it gives it back to shareholders in the form of a dividend. The way that we express that in terms of the value of that dividend is, we look at the stock price itself. In the case of Ecolab, I mentioned earlier Ecolab is at about $190 a share right now. Well, the company pays back $1.90-ish to you and me for every share that we own, which is 1% of 190. So, that's dividends. The dividend yield, the percentage of the share price that you will be paid back as income over the course of a year, usually on a quarterly basis.
So, yeah, NextEra Energy, like a lot of other utilities, pays a higher dividend. These are more regulated businesses that are cash cows for the most part, and pay higher dividends because you often don't get much stock price appreciation. You don't have monster runs in the stock market. Although, NextEra Energy has been kind of a horse of a different color, distinguishing itself in that regard. But, most utilities pay a dividend in order to entice anybody to buy their stocks. Otherwise, they're fairly stable businesses without a lot of growth.
But why do I love NextEra Energy? Well, how about because of NextEra Energy Resources, which is a big part of its business? It is literally the largest operator of wind and solar in the world. If you didn't already know that, here in the good old U.S. of A, if you're a United States citizen, you should know that the largest operator of wind and solar power in the entire world is a division of NextEra Energy. The other part of the business is Florida Power and Light. If you're paying utility bills in Florida to FPL, you're paying money to NextEra Energy. They take it in both ways. But this is a very admirable company, making the world cleaner with its energy.
Does that sound like the kind of business you'd like to be a part owner of? Certainly does to me. Credit to Jim Robo, by the way, he's the CEO. He became the CEO in July of 2012. The stock has pretty much -- you can take a look at a stock graph online if you want -- gone straight up ever since. It's up over 200%, the market up about 120%, from $70 when he joined to $222 today. And that's for a utility stock, ladies, gentlemen, and Fools everywhere.
Alright, stock No. 4. We drop down to the letter O. The ticker symbol is ODFL. We're talking about Old Dominion Freight Line. I first picked this stock for Motley Fool Stock Advisor in May of 2017. The stock was at $85.13 on that day. Play it forward to now, two and a half years later, it's gone from $85 to $194. It has been an outstanding performer, up 128% versus the market's 36% over those two and a half years. ODFL today, a $16 billion market cap.
For this one, I just want to tell a little history. Anytime you have a company that's operating in its third generation of a family ownership model, I love to look at the history. If you look into it, I'm assuming Wikipedia has this right, Earl and Lillian Congdon in the year 1934 started Old Dominion with a single truck running from Richmond Virginia, to Norfolk, Virginia. Sadly, some years later, Earl died. Lillian takes over as president of the company, later joined by her sons. More recently, fast forward to modern times, their grandson has been CEO up until last year. The family remains in the business, owning more than 10% of the shares for this less than truckload shipper. So, this is a company that specifically does not fill up its trucks with just one thing, like bricks. Nope, that trailer's filled up with a bunch of different things. And usually, the truck is going a number of different places, so there's a lot more logistics when you're operating a less than truckload business.
I was looking back to see a little bit of history. The Motor Carrier Act of 198 -- some of you may remember this -- partially deregulated the trucking industry -- this is Wikipedia reminding us -- dramatically increasing the number of trucking companies in operation at the time. This enabled Old Dominion to break out of its Virginia regional operation and start spreading throughout the South. Even though the company name, Old Dominion, makes you think about Southern Virginia, for those who would recognize that, in fact, this is a much larger company today. Deregulation, by the way, increased competition and productivity within the trucking industry as a whole, which is often what it will do. So, Old Dominion has been a beneficiary.
But, if you look into the sustainability that Old Dominion practices -- back to Conscious Capitalism here -- I want to mention it's part of something called the SmartWay Transport Partnership, a collaboration between freight shippers, carriers, and logistics companies to voluntarily achieve improved fuel efficiency and reduce emissions from freight transport. These technologies include wide based tires, reducing highway speeds, idle reduction, automatic tire inflation, improved freight logistics, improved aerodynamics, longer combination vehicles. So, this is an example of the sustainability that Old Dominion has baked into its business.
But, talk about sustainability. People often stay with this company for a long time because Old Dominion has made a big point of cross-training people or being open to employees changing their jobs. You want to drive? Great. You came in as a marketer? You can end up being a truck driver or vice versa. So it's always been treated its employees very well. That's why Forbes has named it as one of America's most trustworthy companies, and one of America's best employers. So, this is a company that shows up on those lists. Talk about conscious culture. And it's a trucking company! Who'da thunk it?
So, certainly, in an age of e-commerce, Old Dominion is a leader within what it does, LTL, less than truckload carrier. And stock has performed admirably over the last couple of years. But, of course, we're not about the last couple of years. We're about the next three-plus years. So, let's see how Old Dominion Freight Lines does added to Five Stocks for Conscious Capitalism.
Alright, company No. 5. It's last in alphabetical order, but its ticker symbol would have placed it first. The company is Salesforce.com, the ticker symbol is CRM, which is shorthand for customer relationship management, which is what Salesforce does today as a worldwide leader. A software platform, a cloud-based software company, still led by the man who helped found it in 1999, Marc Benioff.
I first picked this stock, well, really, this came from my teammate, Tim Beyers. We picked it in January of 2009. The stock was at $6.89 back then. Today, it's about $161. So, a great pick by Tim. A great pick for Rule Breaker members. It's up 2,238%. The market up 362% over the course of those 10 years. It has been a spectacular, really, one of the best stocks anybody could have bought in the year 2009. Salesforce today tipping the scales at $140 billion market cap.
Marc Benioff came over from Oracle and help found this company. In its earliest days, he presented something that I think is very consciously capitalistic -- the model he calls the 1-1-1, the 1% model. This is how it works for Salesforce. And as it's gotten bigger, these numbers get bigger and do more good every year. Benioff said, "We're going to give stuff away in this world. As a for-profit business, we're going to be generous. So, the first thing we're going to do is, we're going to give 1% of our revenue every year to charity. The second 1% we're going to give is our product. We're going to give 1% of our products away for free. And the third thing we're going to give is our employees time. We're going to take 1% of their time each year, every single employee, and they're going to go volunteer for something that they want to volunteer for." So, that's the 1-1-1 model. By the way, while I think Benioff is rightly credited with bringing that to American business, many other companies today have signed this same pledge. You can read more about that on the internet if you want to look up salesforce.org and see the 1-1-1 pledge.
Isn't this the American dream? You create a start-up within the tech world, you manage that for now 20 years and counting, you create amazing amounts of value for shareholders, and then you're just throwing off money to charity and throwing your employees into all kinds of volunteer experiences. It's really wonderful. So, what is 1% of Salesforce' revenues? Well, if I'm seeing it right for 2019, revenue's about $13 billion. So, that means they're giving away about $130 million a year by just being Salesforce and doing business right.
Marc Benioff came to speak at the Economic Club of Washington just a few weeks ago. I had an opportunity briefly to go up and introduce myself to him. I gave him the same line I gave Jeff Bezos a year ago. I said, "Marc, of all the people in this room," and there were thousands of people at the interview for the Economic Club of Washington when he came and visited -- he has a new book out this fall. I think that's why he's making the rounds. But, I said, "Of all the people in this room, I think I have the second lowest cost basis in your stock," because Rule Breakers has a cost basis of just $6.89. We've patiently held that stock for 10 years and counting. Of course, Benioff has the lowest cost basis on his stock of anybody in that room.
So, there you have it. Five Companies for Conscious Capitalism. Ecolab, Etsy, NextEra Energy, Old Dominion Freight Line, and Salesforce. Looking up and down the couple of hundred stocks that I have under active recommendation in Rule Breakers and Stock Advisor -- and if you're a member, you can look at them all as part of our services -- I probably could have picked at least 50 to 60 other companies, each of which, in my mind, exemplify business done right. Conscious Capitalism. Again, nobody's perfect. No company is perfect, certainly. Everybody's on a path. But these companies are leaders down that path, showing us, having dipped their swords in the fire, wheeling those swords over their heads and showing us the way to a better world, shining the path toward business done right. So, Five Stocks For Conscious Capitalism. I'm going to enter them into my spreadsheet. We'll track them, of course, over the next three years and report back every year, as we do with five-stock samplers.
Which reminds me to mention that next week's show, it's a Reviewapalooza. Next week, we'll be looking back at three of our past five-stock samplers, each of which was picked in the month of November, whether it was November 2018, 2017, or 2016. We'll be reviewing how those stock picks have done. I haven't even peeked ahead, so I'm not sure whether it's going to be good news or bad. These have generally been good, but the market's been a little rocky recently, so it'll be fun to review three five-stock samplers on next week's Reviewapalooza show. In the meantime, stay conscious out there and Fool on!