5-Stock-Sampler Review-a-Palooza

In this week's Rule Breaker Investing podcast, we revisit David Gardner's five-stock samplers from 2017 and 2018 and find out how they fared compared with the market. Alphabet (GOOG 0.74%) (GOOGL 0.55%), Amazon.com (AMZN -1.64%), and Apple (AAPL 1.27%) were top performers. Alkermes (ALKS 1.61%) and Tencent (TCEHY 3.23%) didn't do as well. We also have Tesla (TSLA 12.06%), FactSet (FDS 0.69%), and some other companies. Also, David shares a cool tip on how to pick long-term stocks.

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 Feb. 14, 2020.

David Gardner: Two years ago, the market had had a really bad week, my portfolio was down 8% in one week. I remarked at the time that it was an interesting point to be picking a new five-stock sampler and I called it "Five Stocks To Feed The Next Bear." Well, now it's two years later, what were the stocks, how did they do and where was the bear?

Three years ago, the world was reeling. Very mixed feelings about a new American President and about how the world might be changing; some thought for the better, some thought for the worse. I decided to pick five stocks on Feb. 15, 2017, calling them "Five Stocks The World Needs Right Now." Did it? Has it? How did they do? Well, Emily Flippen joins me this week for our latest Review-a-Palooza, "Five Stocks To Feed The Next Bear," "Five Stocks The World Needs Right Now," 10 stock picks and their performance, only on Rule Breaker Investing.

Welcome back to Rule Breaker Investing. We recorded this episode on Friday, Valentine's Day. In fact, Emily, happy Valentine's!

Emily Flippen: Thank you, David. It's nice. Falls on a Friday for once.

Gardner: Yes, now, it is. And it was a great long weekend. We're recording in advance of that great long weekend, but with Presidents Day, I mean, Emily, it was the longest Valentine's long weekend of all time.

Flippen: You know, I didn't think about that, but now that you've mentioned it, it is. Yeah, people can celebrate all weekend or not celebrate; depending on their preferences.

Gardner: That's right. Now, of course, this is actually coming out on Febr. 19, but the reason we're making a little bit about what day it is, is because we're going to be giving numbers throughout this podcast of the performance of the stock picks on this podcast over the last few years. And we're not able to timestamp it with the Wednesday when this comes out. So if the market changes dramatically between this Valentine's Day -- happy Valentine's to all my listeners -- between today and when you actually hear this. Well, you'll understand.

So, Emily, thank you very much for joining me once again for this Review-a-Palooza.

Flippen: Yeah. It's great to be here again. I love taking a look -- or gander I should say -- at some of these companies and their performance over the past couple of years.

Gardner: Yeah. And we are going to be reviewing, as I mentioned, the top two different ones. One picked two years ago, one picked three years ago. Let's do them in that order. So, the first one up this week is "Five More Stocks To Feed The Next Bear." Now, I mentioned that my own portfolio had dropped about 8% in the single week leading up to picking this five-stock sampler, though, it is worth noting, the week before had been an all-time high, so it was kind of an amazing market time, but a really volatile to the downside market week that led up to it. But why did I call this Five More Stocks To Feed The Next Bear? Well, the reason is, two years earlier, I'd picked five stocks to feed the bear and those stocks did really, really well and so we decided, "Hey, at some point maybe the market will drop." -- and it had just dropped pretty badly that week -- so, we were ready for the next bear. Now, Emily, would you say that the next bear ever showed?

Flippen: The next bear has not reared its head quite yet. Maybe over the next two years.

Gardner: There was a really bad fourth quarter of 2018. You'll remember that was bad. But, yeah. And, in fact, these stocks, I intentionally selected all stocks that had a $150 billion or more market cap. So we were kind of girding ourselves and prepared. And, if you do go into a market downdraft, usually it's the companies that have big market caps that do a little bit better, they're a little bit stabler and stronger than some of the fly by-night smaller upstart companies that can really get nailed when the market drops.

Flippen: Yeah, that's true. That isn't to say, though, that large cap companies are immune, because -- and we're going to talk about these -- but looking over your list, I think a lot of people -- at the time that you were talking about these companies -- would probably say -- even with that pullback in the fourth quarter -- that these companies were overvalued.

Gardner: It is true. And so, it would be interesting to see how these five stocks have done? I will mention ahead of time, the stock market since that day, Feb. 7, 2018, is up 26%, so 26%, a pretty darn good couple of years. Take it all in all -- I'd take that every two-year period if I could, we would all be investing even more of our cash if we knew that the market could, every two years, rise 25% or more in value. So, that's the bogey, because we're all about, as you know, Emily, we're all about picking stocks that beat the market, because if not, let's just buy index funds.

Flippen: That's true. It's a tall task, though, when you're looking over such a short period and you see the market up 26%. That's wonderful and we're all happy about it and we all want to beat it, but not normal.

Gardner: All right. Well, then without further ado, let's get it started alphabetical by company name. Interesting, that I would lead with the word alphabetical, because, Emily, the first stock to feed the next bear was Alphabet, ticker symbol GOOG.

Flippen: Yeah, Alphabet, at the time, was really all about the investments they had been making. So when you look back to 2018, the company had been investing a lot in things that were really innovative at the time, like, Nest Home Security, Fiber Technology, Waymo. And it's interesting, because people were looking at these investments and wondering, is Google turning into less of a kind of pureplay ad search company and turning into an investment group? And over the past couple of years, they really delivered on that proposition. Now, we're looking at things like Google Cloud and the Google Play Store, as it expanded their business. And growth has, I'm going to say slowed -- I feel like saying, "slowing growth" is implying that Google could grow at the rates that it was previously forever. But in that process, it has solidified its dominant market position. So, it's no surprise -- as I'm sure every listener probably knows that Google -- Alphabet, I should say, has done so well over the past few years.

Gardner: All right, in fact, the stock was -- thank you, Emily -- at $1,048.58, so $1,048 today tipping the scales right around $1,515, stock up 44.5% against the market's 26%. So, we'll round that, we'll call that a plus-19% in the win column, 19% ahead of the market here over the last couple of years. Now, Larry and Sergey have kind of stepped down and pulled away, there's been a change in management. And some people think that we should be focused more back on the main Google business. And some of the additional side businesses, you mentioned, could be distractions. And it seems as if our new CEO has some sympathy in that direction. But one thing feels right to say, and that is that, Alphabet remains one of the more innovative companies in the world today.

Flippen: That's completely true. And recent news, they started breaking out revenue from , which was always kind of one of those ancillary plays for Google. And it's interesting to see if that strong, almost 40%, revenue growth coming out of something that wasn't part of Google itself, its core business, or Alphabet's core business, even just a few years ago.

Gardner: My brother was on the show last week, described himself as largely "living inside YouTube" on a daily basis. I certainly love YouTube for about 13 different reasons. Emily, are you a YouTube fan and user?

Flippen: I will admit that I sometimes get sucked into the YouTube void. I've talked about it a little bit on podcast. But I recently did a report for Norwegian Cruise Line, and that involved me watching way too many cruise line reviews on YouTube. Now, my entire YouTube feed is recommendations for people reviewing Norwegian Cruise Line. Which, given the pullback because of the coronavirus, might actually be a good time.

Gardner: And for me, when I look over what YouTube suggested to me, it's suggesting yet another board game replay or rules introduction, because I'm all about YouTube for board games. So, 1,001 different delights on YouTube and what an incredible asset for Google, which paid -- was it like $1 billion for YouTube? -- just an unbelievable acquisition, so visionary. And so, yeah, we're really glad that two years ago we picked Alphabet.

So, company No. 2 in this five stocks sampler, alphabetically, this is another little company you and I have talked a lot about, and most of our listeners have probably heard of -- ticker symbol is AMZN. Two years ago, we picked Amazon. The stock was at $1,416 at the time, it's now up to $2,145. So, Amazon itself is up 51% over the last two years. So, that's a plus-25 in the win column, since the market, Emily, has been up 26%.

Flippen: And I, unfortunately, don't know the market cap of Amazon when you initially recommended it. But at the time, you had recommended it right after a really strong earnings report. And I alluded to this earlier, but people at the time were, you know, pulling up articles and then saying, "Amazon, it's overdue for a correction," "horribly overvalued." They had nearly 40% increase in sales, 70% increase in operating income for a company that was already so large. And a lot of these great results were fueled by "she who will not be named," the Amazon Echo.

Gardner: Right. And you say that, because if we say her name, some of our listeners listening to our podcast on that Amazon Echo device, and if we say her name, it triggers her right in the middle of them listening to our podcast.

Flippen: So we'll try not to trigger "she who will not be named" on this podcast. But it did lead to a really strong holiday quarter for Amazon. And in that same window -- I mean, it's amazing how much two years has done for Amazon's just core business. Rolling out their own delivery service. Two-hour grocery delivery, which recently became completely free for Prime members, which I'm a big fan of. Opening up or attempting to open up two new headquarters, purchasing Ring. It seems like the innovation with Amazon just won't stop.

Gardner: I love my Ring. For those who don't know, it's a doorbell, it's a video doorbell. It just takes a video of people who come up to your door. And it also has some other treats, like, it plays different tunes. You can make your holiday jingle on your ring door. But, wow! I think another really smart acquisition. We talked about Google with YouTube. Ring is nothing on the same scale as YouTube is for Alphabet. But for Amazon, it reminds us that Amazon is thinking a lot about smart homes.

Flippen: Exactly. And there's still so much innovation that could be held with Amazon in the future. That's what I love about Amazon, is that, you never know what the next two years could hold for this company.

Gardner: Isn't that great?! And I love that we're looking back over two years. And part of the fun of reviewing these five-stock samplers is just to be reminded of how dramatically the world can change in just a few years, especially for world-beater companies like these five stocks. So, spoiler alert, this five-stock sampler is going to be a market-beater. It's about to get a little bit better and then a little bit worse. But here we are after two stocks. Emily, we've got Alphabet up 19% over the market and we got Amazon up 50% overall, 25% ahead of the market.

So, we're plus-44 in the win column as we hit stock to feed the next bear No. 3, another company, I think, people probably have heard of, Apple, ticker symbol AAPL. I will remind that one of my big pet peeves is when people think that Apple ticker's symbol, which it is not, is APPL, which it is not. Although, it has previously been pointed out by my producer, Rick Engdahl, that maybe Apple should never have gone with the whole AAPL decades ago. Anyway Emily, Apple.

Flippen: I don't think it was your intention with this five-stock sampler to make me feel like I should be investing in only companies with As in their names, starting with As. But Apple has definitely led me to believe that based off its performance, surely after you recommended on your podcast, back in February 2018, it pretty quickly thereafter became the first U.S.-based company to be worth more than a $1 trillion. So, $1 trillion market cap. Made a lot of -- it fed the bull, actually, because once the company kind of reaches that scale, it shows you the power of their -- I guess, you could say -- ecosystem.

But it's not been an uncontroversial company. They've had some litigation issues with Qualcomm. And it's been a volatile company to invest in. But ultimately when it comes down to it is, Apple was really successful -- or has been really successful in making the transition from being a device manufacture to being a services company. They're stopping breaking out, the revenues from their different iPhone units and they're trying to make themselves not just iPhone not just iPad not just Macs, but things like Apple iTunes, Apple Music -- and in my opinion the most innovative part of their company, Apple Arcade, a subscription-based -- app-based games service. So, there's kind of like Amazon, lots of opportunities here still with Apple.

Gardner: My favorite game downloadable from the App Store is Investor Island, but after Investor Island, which is The Motley Fool's mobile game, there are many other great games. And you're right, Apple packaged them up and made a new subscription service to games in their App Store. And it's such a good point, Emily. I remember two years ago there was a lot of malaise surrounding Apple. The perception was, they've sold about all the iPhones you could at this point. Everybody's got an iPhone and people aren't upgrading, buying the next one as frequently. And that was probably true, but it was maybe missing the real story, as you just pointed out, which was a shift from hardware back to software and services. And so, wow, what a stock pick this was! Apple was already pretty big two years ago when it was trading at a $159.54, today it's at $325.20 as we record. That is more than a double. So, Apple, one of the largest companies in the world that looked like it was slowing down, it was overvalued, has more than doubled in these last two years. So, that adds a big plus-78 to this stock sampler, bringing us to 122 points of alpha outperforming the market after Alphabet, Amazon and Apple.

Now, before we go to the final two stocks Novo Nordisk (NVO -1.93%)  and Tencent, it probably is just worth thinking aloud together briefly about what kind of a world is it, when you can already have such amazing, successful, large companies and yet in just a two-year period they have gone on to crush the market further; in Apple's case, more than doubling?

Flippen: It's a reminder to not lose sight of the bigger picture and investing. And whether it's something new that we don't see repeated historically, don't discount a company just because it's already really big. These companies have scale in a way that I don't think we've seen over the past -- you know, I would probably say, three decades. So, in that way, don't discount them just because of how their businesses exist today and lose sight of what the businesses could be in five years.

Gardner: Totally agreed. And, in fact, you and I share an experience, we did it at different times, you have more experience here than I do, but we've both been to China. And last year, I came back from China and on the July 24, 2019, Rule Breaker Investing podcast, we entitled it, "A Rule Breaker In China," and I just gave my thoughts having, for the first time in my life, been exposed to China. And one of my thoughts, and I still feel it today is, I remember coming back saying, "However big you think the biggest company is today ... " and I was using Starbucks as an example, " ... it can get a lot bigger." Because once you think about our whole world and actually get out there and see it, you start to realize a trillion-dollar market cap isn't nearly as big a number as you think. We're going to see in the next 30 to 50 years, companies with tens of trillion dollars of market cap, I think, because the world is large.

Starbucks has been about as successful as an American company could be penetrating China. And yet, even though there are a lot of Starbuckses in the big cities of China, there's still so much room for more Starbuckses in China and globally. So, Alphabet, Amazon, Apple. Emily, these companies, in a lot of cases, aren't even doing that much in China yet. And I think China is going to open up even more in the future.

Now, I'm curious, since you've spent a few years in China, your perspective here.

Flippen: I couldn't agree more. And I think China, as much as I think there's amazing opportunities there, you lose sight of other emerging markets as well. We know India, for instance, is another amazing emerging market that doesn't get nearly as much press as China does. Although, obviously, I'm a little partial to China. I love the fact that we're talking about it here, sipping on our Starbucks drinks. But I will say, around the same time that you were traveling through China, not too long thereafter, I traveled around the Pamirs, so toward Western China, just out there. And I was amazed by the lack of brand penetration there at all; even in some of the bigger cities. I mean, it's a reminder that there are areas that companies like Starbucks, like McDonald's, like Walmart, whatever company you want to pull out, have zero presence in. So, I couldn't agree more with your point.

Gardner: One of the huge stories. We probably don't talk about it, because it's so obvious in some senses ironically, but the macro trend of globalization, just over the course of our whole lifetime, this is a huge moment in human history where we're all much more connected by far, both, with our information and our commerce than ever before, and yet, we're only still discovering that and seeing what it can mean. And so, these kinds of companies, these leaders have the resources to grow, they have the smarts, they have the profits in place, they continue to look to me to be beautifully positioned.

Okay, well, I'm hyping it up a little bit, because the final two stock picks haven't done so great here. Let's go next to Novo Nordisk, the ticker symbol is NVO. The stock was at $49.96 -- let's round that to $50 -- two years ago, today it's at $63.50. So, I mean, it's up 27%, it's 1% ahead of the market, so good for Novo Nordisk, but obviously, nothing like the three that we just described. Now, diabetes, which is a big focus for Novo Nordisk, remains a gigantic worldwide problem with lots of different companies working on different solutions, but Novo Nordisk, Emily, is really the leader.

Flippen: It is. And it is a reflection of the fact that it had such a large market cap at the time that you recommended it. A lot of times, the pharmaceutical companies like Novo Nordisk they can be volatile and they can be slower growing at points than other companies. Obviously, like Apple or Amazon, Alphabet, these are easy companies, to say, they're not growing as quickly. But it's also easy to forget how strong the market has been.

So, while Nova Nordisk hasn't greatly outperformed the market, I think the fact that it has done 27% over the past two years is something that should be notable, besides having, like you mentioned, some of the most solid treatments for insulin for Type 2 diabetes across the world. It managed to consistently grow across all regions since 2018. They're investing in the development of new drugs to help treat the cardiovascular diseases associated with the side effects of diabetes. And it's not a particularly high-growth company, and that's why I wanted to point out its strong performance over the past two years, because it's not the company that would consistently grow in the double digits, as you would expect from other tech-based companies.

But it's important, as we talked about, to not lose sight of the market, and diabetes is a major issue, it is an issue that is becoming worse. Lots of people are trying to fix it. And Novo Nordisk is right there in the game.

Gardner: The stock, again, $50, two years ago. That really bad fourth quarter of 2018, when a lot of stocks lost about a third of their value or worse in just one quarter. We sometimes forget that when we talk about this never-ending bull market. But I will point out, Novo Nordisk touched down around $42 during that quarter. So, just a few months after picking these stocks, toward the end of that year, it had dropped from $50 to $42; that's a 16% drop. That's kind of in keeping with what I was saying at the top of this podcast, which is, it's usually these big bruisers that can be relied upon not to drop as much as the overall rest of the market. Again, a lot of our rule breakers were well down more than that. But then from that $42 position in the fall of 2018, for it to now be almost $65 today shows real resilience for this company. So, we're going to give it a plus-1 in the win column, that brings us up to a 123 points of alpha overall. We continue to wish Novo Nordisk good luck.

And I'm glad you mentioned that, it is up 27%, let's be clear, that's a pretty great couple of years for a company. All five of these stocks, market caps $150 billion or more, but that doesn't make us afraid to pick them.

All right, the final stock for this five-stock sampler, Emily, is Tencent. Now, of all these stocks, this one, unfortunately, has been the worst. The ticker symbol is TCEHY. You and I were just talking about how important China is in commerce. And China, well, Tencent is certainly a leader across a few different dynamics of Chinese business today. The stock was at $53.40 two years ago, today it's at $53.31. It's basically unchanged, but of course, the market's up 26%, so we have to subtract 26 for this fifth and final stock. Emily, what's been happening with Tencent?

Flippen: I think the first thing that comes to every listener's mind is probably the trade war. And it's definitely weighed on a lot of Chinese companies. Chinese companies like Tencent, despite their scale, despite their diversified revenue streams, they're still largely hit, because they don't hold the same valuations in the market today as U.S.-based tech companies.

But I want to make sure people don't forget what happened in 2018. That was the Chinese government coming out and essentially restricting the sales or the release of any new games, which makes up a large part of Tencent's business. So, Tencent, the quarters they're posting after your recommendation on this podcast at the beginning in 2018, actually posted decrease in sales over subsequent quarters for their gaming segment, which really hurt this company. And after that, it's since come back up. So, the fact that the stock is relatively unchanged is actually a minor victory in the case of Tencent, because it was fighting such an uphill battle.

But they do have some good news that I think might be worth mentioning. Over the same time period, it's not just all trade war and government restrictions on games. They had a successful spinoff of their music division, so Tencent Music was successfully spun off over the next year. And, you know, it's not really quite a pure play gaming company anymore, it's almost becoming like an investment company with investment spread all over the country.

Gardner: It is one of those everything kinds of companies. It is the world's largest video game company. It is one of the world's most valuable technology companies. It is one of the world's largest social media companies. And it's one of the world's largest venture cap firms and investment corporations. So, this is a very vital company. It's kind of disappointing, of course, that the stock is flat with where it was two years ago. So, largest, largest, largest, largest, this company's market cap today, just over $500 billion in U.S. dollars. You know, a company we're going to continue to hold on to.

I should point out here, as we close up this first five-stock sampler, that every one of these stocks is part of one of our services, either Motley Fool Stock Advisor or Motley Fool Rule Breakers. And most of these stocks, of course, our members are in at prices much lower than the ones I picked two years ago on this podcast. That's why we call this a five-stock sampler, you're getting a sampling of the stocks that we pick in our services. But since we tend to buy and to hold, and because we've been running our services for a couple of decades now, we often have very low cost basis in these stocks and we continue to hold them through thick and through thin and really feel really well rewarded for our patience, especially when you find great companies like these.

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All right, well, let's print it. Here's the official tally here as we tape, again, last Valentine's Day, a few days ago. These stocks were up as a group 45.4% on average, the market was up 26%, simple rounding takes us to a 19% beat per stock up and down this five-stock sampler over the market's return of 26%. So, yeah, we racked up about a 100 points of alpha off of these five stocks and it's pretty remarkable.

Before we move on to our next five-stock sampler, to think, that all of these were companies with a $150 billion market cap or vastly more in some cases. In a world where, Emily, sometimes it seems like, especially new investors, less sophisticated, think it's all about penny stocks and they're chasing smaller companies with no real prospects, these are the kinds of companies that we want to be invested in for life.

Flippen: It's easy to forget that penny companies are usually penny companies for a reason, and companies that have strong operating histories tend to be in the best position to grow into the future. It's not to say that there aren't some great, small companies out there, but every investor should be exposed to the companies that have made themselves an important part of our lives, and those are companies, like, Alphabet, like, Amazon, like, Apple.

Gardner: Well said. All right. So, that was February 2018. We're about to go even farther back in time, that's right, we're going back another year before February 2018, Emily, February 2017. And I'm looking back at that week of Feb. 15, that's the date of the podcast. But I just see one fun thing I did that week, that Friday we did the "MBA in a Day" here at The Motley Fool. So you know how some schools have charity auctions and you go and you bid on what other parents offer and somebody walks away with, they get to stay in your house for a week or I don't know get a free massage. What we've always done is, we've offered the opportunity for a student to come to Fool HQ and get their MBA in a day, which means they're probably going to be on a podcast, they're going to write an article, they're going to be getting some coaching about investing. So that was one fun thing I saw from my week of Feb. 15-ish, 2017, Emily. Do you remember what you were doing then?

Flippen: Well, I took your advice and I went back on my social media feeds and scrolled back to February 2017 and it was not quite exactly the time that you're filming this podcast, but within a week or two I was actually at Shanghai Disney World. I was celebrating my last semester in college and we had a group outing to the newly opened Shanghai Disney World. Disneyland, I should say.

Gardner: Amazing. Yes, and could you just, because I've never been, what were your impressions?

Flippen: I think I've been to Disneyland/Disney World once when I was a very small child. So, it was really kind of my first memorable Disney experience. I'm a big roller coaster fan. I was looking forward to some crazy roller coasters. They had a great Tron Roller Coaster, but that was it.

Gardner: Tron?

Flippen: I believe so. Yeah, Tron.

Gardner: Yeah, sure, the movie.

Flippen: Yes, like the movie had come out the time and so it was a popular ride there. It was a great roller coaster. But lots of thematic rides. Less roller coasters and more like experiences. So, it was a really cool experience, but it left me wanting for a little bit more thrill.

Gardner: You know I have to say, side note here, I've always felt that way about Disney World and Disneyland. I think it's because I grew up going to Kings Dominion and Busch Gardens, which are in the Greater D.C. area, actually really closer to Richmond, Virginia than Washington D.C. But those were full of roller coasters and radical rides. And so, when I first went to Disney, which I didn't go to Disney as a kid, so it wasn't until I took my kids.

"It's a Small World After All" and other things, it just didn't feel like it had the same sizzle. But I think in part, it's because it's aimed at the whole family, including really young kids, whereas maybe you and I like the crazy stuff.

Flippen: Exactly. And I'm sure when I went to Disneyland, when I was much younger, I probably enjoyed those experiences much more than as a young adult.

Gardner: There we go. Well, it was an interesting time in the world and I was thinking about what five-stock sampler to do that week. And I decided to latch on to five stocks I thought the world needed right now. There was talk in particular around that time about fake news and what you could trust in the media and what you couldn't. So, that was certainly influencing me at the time. And so, I thought about what five stocks does the world need right now? I should mention, if you actually want to go back and hear the thinking, you could always just google "five stocks the world needs right now, Rule Breaker Investing," and you'll find your way right to that full podcast. It's no longer still on iTunes, because iTunes only keeps up with the last hundred. And that means three years ago, it's less accessible. So, I have to admit, I didn't go back and listen to what I said, but I'm happy overall with what I picked. Let's get started with these five stocks.

All right. The first one alphabetically, is Alkermes, ALKS is the ticker symbol. Spoiler alert, this is the really, really bad pick that I made three years ago. Emily, the stock was at $56.89 at the close of market Feb. 15, 2017, right around $57; today, it's about $17. It's down 70%. Apparently, Emily, the world didn't necessarily need this stock as much as I hoped it might.

Flippen: [laughs] Well, Alkermes is definitely preventing the strong track record of our A-based companies here, but it was a good idea and I'd argue that the world needed it, they just couldn't quite get there. Alkermes is a biopharmaceutical company focused on central nervous system diseases. Really, the time of the recommendation the big news was around value proposition. Depending on the success of ALKS -- that's Alkermes' ticker symbol -- ALKS 5461, which was a drug aimed to treat major depressive disorder. And so, a really big market opportunity, had some promising studies. And there was a ton of back-and-forth between Alkermes and the FDA. In fact, it didn't get settled until last year and the FDA officially struck down the drug for treatment of major depressive disorder. And that's largely been what has fueled the fall in the stock price.

Biopharmaceutical companies are lumpy like that. They -- I want to say binary -- not all companies, and Alkermes isn't one of them -- not all companies are binary, but they do depend on the success of drugs. And when they get drugs that seem like they have a lot of potential, a lot of opportunities and then they don't work out, that's reflected in the stock price.

That being said, they've had some success for diseases treating MS and other really important issues that many, many people are facing, but unfortunately, it has not been a great few years for Alkermes.

Gardner: It really has not. This company is based in Dublin, Ireland. Yeah, the emerging stories of our time is the importance of mental health. And so much of what Alkermes does is focused on things like addiction, opioid addiction, schizophrenic, some diabetes as well, depression as you mentioned. So, I really appreciate that this company is so focused there. This is not a fly-by-night biotech either; revenues of about a $1 billion. So, it's a very fine company, but as you mentioned, it had a big disappointment with that drug and the stock has taken a big dive. So, down 70%.

So, in contrast to the five-stock sampler we just talked about, where all the companies had market caps of a $150 billion or more, this company's market cap is below $3 billion today, right about $2.7 billion. So, we continue to hold out hope and to hold our shares of ticker symbol ALKS. But we don't add to these kinds of companies. A rule breaker tends to add to our winners, not to our losers. And so, this is one that if it wants to start winning some day in future, we might take a harder look. For now, we just sort of passively hold our shares. When stocks lose that much of their value, they start to matter less to your portfolio unless you've done something silly like add to them all the way down, which I've tried never to do in my life. And I really have avoided doing that in my life; as an investor, I'm much better off for it.

So, thus much for Alkermes. Stock No. 2. picked three years ago this week. The ticker symbol is GOOG. We've talked about this one. Emily, it's Alphabet. Now, Alphabet three years ago was at $819; today, as I mentioned, it's right about $1,517 now as we talk. So, the stock is up 85% from three years ago. We did talk about Alphabet a little bit earlier. Let's talk about it a little bit more.

Flippen: I love when you ask me to come on the Review-a-Palooza episodes, because I get to go back and do my Google time machine -- oh, well, that's ironic; my Google time machine, not related to the fact that we're talking about Alphabet right now -- and pull up news articles back from when you first recommended it. And part of the reason why Alphabet has been such a winner is because there has been so much skepticism around the business. And something that you got when you recommended Alphabet in this podcast in 2017 versus 2018, was a lot more antitrust concerns coming around in 2017. A lot of concern about their dominance in the advertising and search markets, and that has led for the company to be extremely volatile. They were, at the time, experiencing really high increases in the number and the price of paid clicks on their site and that had a lot of investors and regulators concerned.

Gardner: Thank you for pointing that out. You know, so much happens in the world, especially if you're a company like this, we really do need to get back in the way back machine, even though that's only three years ago, to get back in touch with what was happening and how it felt to be pickings or buying that stock, if you were listening to the podcast that week. I should mention, by the way, the stock market over the last three years is up 43.6% -- we'll round that to 44%. So, that's the bogey that we're aiming at with each of these stock picks. So, when I mentioned earlier that Alkermes was down 70%, that's against a market up 44%, so talk about being in the hole on this one. We start out with a minus-114, which is more than the whole plus of the previous five-stock sampler we just did. So, let's see if we can dig back out of that. Alphabet does help. Alphabet up 85%, so we get to give ourselves a plus-42 back as we claw back our way, we hope, to winning.

So Emily, after two stocks, we're still at minus-72, cumulative 72% behind the stock market. Let's go to stock No. 3. The ticker symbol is FDS. FactSet Data Research, a company that does a lot, but among other things, it tends to be quoted often aggregating analysts' earnings predictions projections for upcoming quarters, that's an example of FactSet very illustrious and wide-ranging business data service. This company was at $179.82 three years ago, it's now up to $299.50. Good news, that's up 67%. So, we can give ourselves, Emily, a plus-23. What's been going on with FactSet Data Research.

Flippen: I love this pick, because it's so applicable to what we do here at The Motley Fool, and that is aggregating financial data. Well, FactSet doesn't make decisions themselves, they do play an important role in that with many people. And one of their biggest customers are banks. And as banks have needed and desired more readily accessible data, then FactSet has definitely benefited.

When you recommended it there was a lot of concern that information was becoming increasingly free. And I love that, the fact that investors can go and they can find earnings predictions, whether they're good or bad, but they can find that information just by doing a quick Google search. But FactSet ultimately provides business-level software solutions. So, they won over a lot of very big wealth management firms from competitors like Reuters, which has really propped up their business. And that process, they've consistently improved their margins, grown their bottom line faster than their top line; which was really never mind-blowing, but has always been steadily fine. So, they've kept a pretty high customer retention rates and that's definitely benefited their business over the past few years.

Gardner: You talk about a pretty passive business, one that just kind of cranks away, doesn't get a lot of headlines. Can you or I, right off the top, name the CEO of FactSet Research Systems?

Flippen: I cannot.

Gardner: Nor can I. I am a little bit embarrassed about that, but I can't. But that's kind of part of the story here. In fact, I first picked this stock for Motley Fool Rule Breakers in August of 2009. So, this has been just about a 10-and-a-half-year hold. The stock was at $49 back then. Again, it's $299 today. So, it's up more than six times in value. Just passively holding what is today about an $11 billion company. And a stock that I would be very comfortable buying today going forward right here around $300 a share.

So, FactSet Research Systems is part of the solution, not part of the problem, for this five-stock sampler. And good news, there really is only one problem child in this five-stock sampler. We've already covered it: Alkermes. Things get better from here. But adding back 23% of market-beating gains; thank you ticker symbol FTS. FactSet has brought us to a minus-49 now. So, we're still about 50% behind the market going into these final two companies.

And so, the fourth stock the world needed right now, back in February of 2017, ticker symbol NYT. This is The New York Times Company (NYT 0.18%). Now, before we get into this, let me mention, some people look at the New York Times and they think, "That's pretty slanted politically." I mean, they have a viewpoint that they tend to right around. And whether or not you feel that way, what I've always felt is that the New York Times is rigorous in terms of its reporting. And I remember three years ago, with so much talk about Facebook and could you trust anything that you're reading online? I thought, you know, the New York Times, whatever you think of it otherwise, is a great example of something that does seek the truth, they are pretty rigorous, again, everybody is faulty, every journalistic establishment out there probably has some bias and is blowing a fact-check here or there. But the New York Times is a brand and what it means internationally is important.

And sure enough, the stock has done well from $15.95 -- some people say Donald Trump has actually helped them by calling them out a number of times over the course of the last several years -- it was at about $16 back then, Emily, today it's at $39. So, this stock is up 147% in the last three years.

Flippen: I'm going to divert and I'm going to make this kind of an anecdotal story. And I promise I will tie it back. But as I mentioned earlier, my sister and I were traveling across the Pamir region, we didn't have access to very much, but my sister who lives in Singapore does have a subscription to The New York Times and particularly their crossword puzzles. So, we pre-planned, we got some crossword puzzles for us and spent a good two weeks bonding and struggling over crossword puzzles while we were traveling across the Pamir.

And that business, not the crossword puzzle business in particular, but their digital subscription business for things that aren't just news. Although, obviously, news is a big part of that, but cooking, crossword puzzles, little experiences that people can pay a small monthly fee to subscribe to, has really been the thing that has kept New York Times so relevant in keeping up with, both, people who are interested in news, interested in politics and will pay you for that, but also people who are just looking for little experiences. And The New York Times obviously played very well off of the political climate that continued not only throughout 2017 but 2018, 2019 heading into 2020. And those things have really benefited The New York Times. But I don't want to downplay how proactive the company has been in moving their business from print media to the online experience, which has really just kept this company an outstanding investment.

Gardner: And that indeed has been the case. And, yeah, I can even throw in things like book reviews, right. A lot of people love it for that. Or just travel. In fact, there you were traveling in Pamir. But, yeah, New York Times, as a stock, the big story here is the shift to digital and that was the premise of our original recommendation which was in November 2015. The stock has tripled from there.

But the shift from paper to digital, a lot of newspapers didn't make it. In fact, just last week, the McClatchy chain of newspapers declared bankruptcy. So, Emily, it wasn't easy for everybody to make that transition. But the premise here is that, I don't know that the nation, once it went digital, needed a different newspaper in every city. We didn't need a different television station in every city. We just really needed a few great newspapers and a lot of streaming channels as it turns out. But, you know, you think about The New York Times and its future and I'm pretty sure it was here before I got on this earth, pretty sure it's going to outlive me. It's one of those companies that's kind of a forever company. One of the types of stocks I like to pick.

So, The New York Times, Emily, has been a spectacular performer here over the last three years. So, 147% return over a 44% gain by the market. That is a substantial market-beater; 103% of performance. So, what used to be negative is now plus-54, and we haven't even gotten to the best stock pick yet. What was the fifth company, Emily, that the world needed right now three years ago this week, that we picked on this podcast three years ago this week?

Flippen: I'm scared to name it, it's almost like "he who must not be named" when talking about companies on podcasts.

Gardner: Well, we're going alphabetically. So, I will give our listeners a hint, the company starts with the letter T. it's a very increasingly well-known company whose CEO is arguably better known than the company itself.

Flippen: It's true. It is Tesla, as I'm sure everybody already knows. When you recommended Tesla -- again, I shouldn't say recommendations, because these are not your initial recommendations, the cost basis on Tesla, in particular, is much lower. But when you talked about Tesla in 2017 on this podcast, it was at around $280 I believe, close to all-time highs. So, the argument against Tesla, even back then, was very similar to the argument against Tesla to this day. That is to say that, this electric car manufacturer/retailer has an eccentric CEO and a balance sheet that makes people extremely concerned, diluting shareholders, is it ever going to be profitable? And Tesla has just destroyed the market over the past few years. It's been a company that I've been wrong about numerous times.

I was having a conversation with Aaron, maybe a week or two ago.

Gardner: Aaron Bush, our colleague.

Flippen: Aaron Bush, yeah. And we made the decision to sell it out of our Odyssey 1 portfolio on my request and it was -- I think in terms of opportunity cost, the worst investment decision I have made to date. So, it is to say that there's always been clear arguments against Tesla back when you talked about it on Rule Breaker Investing, those arguments are still there. There's been SEC investigation, doing drugs on podcast, cash crunches, but you never lost sight of what the future looks like five or ten years in the future, and that is, the importance on electric vehicles and Tesla has definitely ridden that wave.

Gardner: Well, even though our cost for Rule Breakers members is about $31 a share going back to 2011. From that standing start, at a new high you pointed out, Emily, at $280, three years ago. Not in probably my wildest dreams would I have imagined then that the stock would be trading at $808.5 today as we record on Valentine's Day 2020. So, the stock is up 189% from where it was three years ago. Again, the market up 44%. So, we're going to give ourselves a plus-145 just from Tesla alone. When you take all five of these stocks together, we add up their points of alpha, it's cumulatively plus-199. That means they averaged beating the market by 40% a peace. So, a remarkable performance for yet another five-stock sampler on this podcast. On average, the market up 44%, these stocks on average up 84%.

So, I think it's fair to say, for most of these companies, the world did need them. And when you're thinking about what to add to your portfolio, one of the better questions you can ask yourself is, would anyone notice, would anyone care if this company went away? For years, I've called that my snap test. I've done that a lot in this podcast. Emily, we snapped our fingers and Tesla just disappeared. Did anybody notice?

Flippen: I definitely think the world will notice the lost, not only cars, but technology, importantly.

Gardner: How about if Google disappeared; would anyone notice, would anyone care?

Flippen: My life would come to a grinding halt.

Gardner: [laughs] And I think everybody would notice the New York Times company as well. I will say, I'm not sure as many people would notice FactSet Research Systems or Alkermes -- I mean, I'd like to think, but, in fact, those are the two relative underperformers against this. So, is that not a good gut check for each of us.

Thank you for listening to us all the way through this Review-a-Palooza and maybe that's the money takeaway you waited to the very end to hear, that the snap test guiding you as an investor will often lead you to make the better decision by thinking about what does the world really need right now, not just in 2017, but how about 2020 or 2027?

Well, Emily, thank you for another wonderful Review-a-Palooza. It's a pleasure to do this together, when the stocks have crossed the market isn't it?

Flippen: It is. And I can't express to you how, when you first sent me these stocks to review last night, looking at that performance, my immediate reaction, I think, I sent you a Slack message, something on the line like, "Oh, my gosh!" I mean the outperformance in these picks in particular is honestly amazing.

Gardner: There's something magical about these five-stock samplers. I was talking about with my producer Rick Engdahl, and he was saying, "You know, why do you do even better with those, do you think, than your normal stock pick?" And I think, if that's true, which I think it probably is true, I'm not this good. I think it's that I care extra, I put an extra effort to think, "What is a good, curated, short list of stocks?" Also, there's something about forcing myself to come back on to this podcast a year, two, three, five years later and relate to you, our dear listeners, how we're doing, that really probably makes me work extra to make sure we're going to beat the market.

Sure enough, the vast majority of these 23 five-stock samplers we've historically done have beaten the market. And as a group, well, the cumulative outperformance has been spectacular. 

Well, coming up next week, it's going to be our mailbag. That's right, it's the final Wednesday of the month, so we would love to hear from you. Of course, the email address is [email protected], if you'd like to be part of our mailbag. It's going to have to be pretty spectacular what you send us, though. The story you tell, the poem that you write, the question that you ask, because I've already gotten a couple of dozen great entries and we haven't even hit the latter half of this month here as we record on Feb. 14. But, yes, mailbag coming up next week.

Emily, what's coming up for you in, like, two weeks?

Flippen: Yeah, I think by the time this is released or around thereabouts, I will be on my way to go hike Mount Kilimanjaro.

Gardner: That is incredible.

Flippen: It sounds incredible, but there are a large number of Fools here who have done it far before me, so I'm learning from their own wisdom.

Gardner: Well, certainly, Matt Argersinger, well known to Motley Fool members and Millionacres these days, he's been on the podcast a bunch of times in the past. But, Matt, did it when, on his ...

Flippen: Honeymoon. [laughs] Which I thought was quite the trial for your very new marriage. But it's obviously worked out for him well.

Gardner: So, Emily, why are you going to climb Mount Kilimanjaro?

Flippen: Well, some of us just like to put ourselves through extreme pain. No, I'm joking. Friends and I had talked about doing it, we got very cheap roundtrip tickets to Tanzania and thought, "Why not now, if any time?" Unfortunately, I am not in nearly good enough hiking shape, so it will truly be a test for me.

Gardner: Well, you've still got a little bit time ahead of you. You look pretty darn fit and trim to me, though. And I'm pretty sure, I wouldn't make it up Mount Kilimanjaro. So, I'll be there in spirit. We're all behind you, Emily. Congratulations ahead of time on that adventure.

Flippen: Thanks. I hope that I'll be back at some point.

Gardner: Quite sure you will. And, Emily, and I hope that you'll be back with us next week. That's right, it's mailbag. Have a great week. And remember Fool on!