In this episode of Rule Breaker Investing, Motley Fool Co-Founder David Gardner is joined by Motley Fool analysts Karl Thiel and Rick Munarriz to review some of his past stock recommendations and examine how they have fared against the S&P 500. Find out which companies have been the biggest winners and losers. He also has a new five-stock sampler for you this week focused on America.
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 June 9, 2020.
David Gardner: This week's podcast marks the 25th time I will be picking five stocks for you on this podcast my 25th Five-Stock Sampler. These are always from my picks drawn from Motley Fool Stock Advisor and Motley Fool Rule Breakers. Five stocks selected from an active recommendation universe of more than 225 of my favorite companies.
Among these 25 Five-Stock Samplers have been silly ones, like Five Stocks For April the Giraffe; serious samplers, like Five Stocks for the Next Bear Market; and sublime samplers, like Five Stocks to Put Under the Tree -- one of the better holiday gifts I've ever given, as those five stocks, less than four years later now, are up 187%, on average, each.
And so, yes, this week, we will in addition be reviewing two past Five-Stock Samplers, and I'll be joined by two of my favorite analysts to do just that, to look at five stocks that passed the snap test from one year ago and Five Stocks Riding the Bull Market from June three years ago.
And then I'll present my newest, my 25th silver anniversary edition, Five-Stock Sampler. And this time around, I have the United States of America on my mind. Very much so. And I suspect that even if you're an international Fool, we may have garnered some of your attention over the past month. And so, this week I'll be bringing you Five Stocks for America. Only on this week's Rule Breaker Investing.
Welcome back to Rule Breaker Investing. Yeah, we've got a lot of stocks for you this week, a lot of stock talk. Something that I try to do, well, at least every other week or so. I hope, as a longtime Rule Breaker podcast listener, you know that we're often talking about one of three things: investing, business, and life. Well, in particular, we'll be emphasizing investing this week, because as I mentioned at the top, I have my latest Five-Stock Sampler, which I'm warming up, getting ready for you a little bit later.
But if you're going to pick Five-Stock Samplers then darn it one, two, or three years later you should review them, see how they've done, see what we've learned together. I think that's arguably more important than new stock picks. So over the years, I've made quite a lot of reviewing these Five-Stock Samplers, and we call them Review-A-Palooza for episodes that sometimes are wholly dedicated just reviewing past Five-Stock Samplers. I always time up a review with the same month one, two, or three years later, and sure enough that's exactly what's happening at the start of this week.
All right. Well, I say we get started. And I like to do these reviews last-in, first-out. That means if we have two to review this week, which we do, we're going to do the most recent one first. And that means, it's time for the way-back music machine, Rick Engdahl.
That means we've just settled back in June of 2019, just a year ago, and yet, man! does it feel worlds apart. Yep, the podcast was called Five Stocks That Pass the Snap Test, the date was June 5 of 2019. Now, we have a habit of taping this podcast every week on Tuesday afternoon, and that's exactly where I am right now. Of course, from my house, just like my producer, Rick Engdahl, is from his house. And I want to welcome, presumably also from his house, my good friend and longtime Rule Breaker analyst Karl Thiel. Karl, welcome.
Karl Thiel: Thanks for having me. Yeah, I'm safely ensconced at home as usual.
Gardner: You know, you guys have a very similar-looking background from one week to the next. I guess it's just because we're all in the same place each time.
Thiel: That's right. Yeah, I should probably change up the decor.
Gardner: [laughs] All right. Well, Karl, thank you so much for joining in. And Five Stocks That Pass the Snap Test. Now, I know a lot of longtime listeners will know exactly what the snap test is, it's something I first wrote about in our book a couple of decades ago, but could you briefly summarize what we mean when we talk about the snap test?
Thiel: Yeah, the basic concept, and I'm sure you can do this better than I, but the basic concept is, if somebody snapped their fingers and this company disappeared, would anyone notice? Would anyone care? Kind of the way Marshmallow Peeps disappear from the stores for 50 weeks of the year, and I don't think anyone really cares. [laughs]
Gardner: [laughs] A great analogy. And, yeah, that's exactly it, Karl. And so, the reason that I like the snap test, I've been talking about it for a long, long time is, because I think it helps, especially people newer to the market, but it helps me every day, 30 years later, to think about where I want to put my money. And often we're going to do best when we're picking companies that everybody would notice if you snap their fingers like Thanos, and lots of superheroes start to disappear. Everybody would notice these superhero companies.
Now, it's not to say, Karl, that more obscure companies that wouldn't pass this test won't still or couldn't still be good stocks, but it is to say, the more we focus on companies that would pass that snap test, that we would dearly miss if they disappeared overnight, probably the better our investment decision-making would be, do you agree?
Thiel: Oh, absolutely. Absolutely. And this is an interesting list in that regard.
Gardner: All right. So let's get to those stocks, and typically for our reviews, we like to look at the best performer, the worst performer, and then the others. So Karl, thank you for preparing to describe what's happened to these stock price movements over the last year. I should note the S&P 500, one year ago, as we record right now, is now up 13.6%. So the market is up 13.5% from a year ago this week, and we'll be judging each of these companies against that.
Now, I say we start with the worst one, because it's much more fun to save best for last or best for later. So Karl, looking over these five, this is a stock I've really favored, it's been a great Rule Breaker, a company I would happily buy today. And yet, understandably, when you can't hold big music concerts in venues and sell tickets to them, a company like Live Nation (LYV 1.04%), ticker symbol LYV, probably is a little bit stressed.
Thiel: Yeah. Who could imagine that a company that relies on large numbers of people [laughs] gathering together in person would be having a rough go of it right now? That is exactly what's happening. And, you know, they make money on ticket sales, they run Ticketmaster. And this company certainly passes the snap test.
I will say, perhaps, somewhat controversially, if somebody snapped their finger and Ticketmaster disappeared, some people might be glad about that, you know, not having that particular middleman in the way. But you know, there are venues for performances that certainly are badly missed. And, yeah, I think the question here is, when does this business bounce back?
Gardner: Yeah. And just to note, the stock was $61.95 at the close of market trading Wednesday, June 5, of last year. Today as we talk, it's right just below $54. So we're going to say it's down 13%. We're going to round the market up to up to 14%. So Karl, this one is 27% behind the market. I find myself somewhat surprised it hasn't been worse.
Thiel: Yeah. Well, if I read the stock chart right, this company was near an all-time high, kind of, you know, very shortly before coronavirus. It actually reacted pretty early. I mean, it's an international company, and it reacted back in February, not in March, like a lot of other U.S. companies started really reacting to the pandemic.
And it's bounced back off its lows, but certainly not back to its former high. And you're right, because I think, some companies you see bouncing back fairly quickly, this one is going to be like, yeah, when are people really going to be willing to pack themselves into a festival? That could be a while.
Gardner: It's true. And yet, resilience, one of the themes of this podcast, as we'll discover a little later on. I think this is going to be one of those companies that does weather the storm. It is such a big player; you mentioned Ticketmaster. And it is a little controversial, it's fair to say that, because sometimes I'm shocked by the additional amount I'm paying on top of getting tickets to a venue. And it is that middleman site that's taking, what looks to me, to be a high-margin cut. And so, the consumer in me gets frustrated sometimes by Live Nation. The shareholder or investor in me, though, has to appreciate that they presumably are adding quite a lot of value; otherwise somebody would come in and undercut them.
Thiel: You know, sometimes it feels good to buy a stock in a company that [laughs] you feel like is taking advantage of you. See, you just get a little bit back.
Gardner: Absolutely. Well, let's shift from the worst performer, which is Live Nation, minus 27% behind the market, to the best. And, Karl, that's Axon Enterprise (AXON 1.39%), ticker symbol AAXN. It was at $68/share, even, June 5 last year. Today, it's just below $102. The stock is up 50%, that's a +36% over the market, putting us back in the win column. Axon made a big move in the last week.
For a lot of people, Karl, they may not know this company name or brand, but could you just talk a little bit about the business and it'll become clear to all of us why it's highly relevant?
Thiel: So probably what you need to know is that the name of Axon used to be TASER, and that is what they originally -- well, they still do -- that used to be exclusively what they made, the Taser weapon that is, you know, a less lethal weapon that is used by police forces across the country. They changed their name because their big business became more and more focused on body cameras and on Evidence.com, which is the cloud system that's used to collect body camera data and other data, Taser data, all the video and store it securely.
So yeah, this is a company that, I mean, I don't think I really have to explain too much why it's gotten a boost in recent days. I mean, obviously, there is a huge amount of controversy about how policing is done in this country. This is a stock that was -- actually, in the last year, it was lagging behind the S&P a little bit, it was kind of tracking with it recently, and it's just really jumped up in the past week.
You know, I just run a couple of data points here. I mean, one, I just thought was very interesting, for about a week ago, the police chief of Louisville, Kentucky, was fired because his officers did not have their body cameras turned on during a fatal shooting. And I mean, obviously, I don't really know the details of that particular shooting, but it was just the very fact that they did not have those cameras turned on was enough to result in the police chief being out.
I mean, I think that's -- I don't know what policing is going to look like in the next 10 years. Hopefully, it looks a little different than it does today, but you know, it's hard to not think of body cameras as being part of that. And I will say that TASER itself has this vision that they outlined recently for what it looks like in 10 years, which is that tasers basically replace bullets, they think that their technology can improve enough to do that. Body cameras mean that there's not that much report writing that has to go on, because it just goes into Evidence.com and it's been able to intelligently interpret that data. And that almost all communications and dispatch with officers in the field are conducted via the cloud.
So I mean that is a pretty big change, and Axon, they're seeing an uptick in demand from consumers to own tasers, that's, you know, [laughs] interesting. I think, people who maybe want that instead of a gun in the house or don't want to use a gun in the house. And there are also --
Gardner: It all sounds like a better world to me, Karl. When we think about, I hope, the world getting better, it doesn't in every respect all the time, but in my experience, at least over the course of the 27 years at The Motley Fool, it's gotten pretty continuously better, especially with technologies. Thinking about Tesla cars on the roads today and [laughs] how much better that was then the gas-guzzler I was driving the 1990s.
But I think what's compelling about Axon is its leadership position. If this is the Coca-Cola of the field, I don't really see any meaningful [PepsiCo] helping to construct the future of security and policing and the technology behind it.
So it was interesting to watch Axon, Karl, jump up. It was about 18% in a day just a few days ago, just reacting more to political events not any company announcements or earnings.
Thiel: Right. And, yeah, I mean, I don't think any company can catch up to them on taser. Body cameras initially seem like more of a commodity product, but the way they pair that with Evidence.com really gives them, I think, a hard-to-overcome lead.
Gardner: All right. So the company is 36 percentage points ahead of the market. I like that a lot more than the ones behind the market. Looking at the other three quickly, Karl, we've got, in alphabetical order. We've got Fair Isaac Company, we have Nintendo and Twitter. Now, each of these is really interesting to discuss on its own, but for this particular week we're giving them a little bit of a short thrift. I would want to point out that the next-best performer has been Fair Isaac. It's up 41%, the market again up 14%, so that's a +27%. Fair Isaac, of course, the company behind FICO credit scores. A lot of people may not know that FICO is the ticker symbol of Fair Isaac; it stands, of course, for Fair Isaac Company, so. And then Nintendo and Twitter. Any highlights you want to pull out from any of those three companies?
Thiel: Yeah, I mean, when you singled out this company a year ago, you were just kind of weighing their market cap against their profile and the importance of their mission. I think that's true. They've just had steady performance. I mean, any time a company runs a credit check on you, they're making money. And interestingly, more and more people are subscribing to services themselves where they can keep track of their own credit score. And that's important in an increasingly, you know, cyberinsecure world. So I think that has driven part of the business.
Gardner: Twitter, on the other hand, Karl, is one of the two market losers in this Five-Stock Sampler. Twitter is basically unchanged from a year ago. It was $36, and today it's $36. But the market, of course, is up 14%, so any thoughts on Twitter or Nintendo, which is 3% ahead of the market, up 17% over the past year?
Thiel: Twitter, it's a frustrating company in a way. I mean, talk about a company that truly passes the snap test. I mean, this is a company that is just front and center in how we, sort of, share news. And yet, they continue to have a little bit of a tough time monetizing that. I mean, they've had decelerating revenue in 2019 and so far into 2020. Usage spiked in the first quarter of 2020, but advertising went down. And I do think they come back from that, but it's a little frustrating to see how hard it is to make the financial results of this platform match its relevance.
Gardner: It's been kind of a Dr. Jekyll and Mr. Hyde stock. I first picked it in December of 2013. So that's a long, patient hold now for almost seven years. It was at $55 back then, down to $36 now. So the market has about doubled over that time. Twitter is down 39%. But then I re-recced it in January of 2017 from a losing position, which I don't often do, and that has more than doubled, from $16, up over $36. So depending on [laughs] when you entered Twitter, you love it or hate it. The longer you've held it, though, I think the less you like it, ironically.
Thiel: [laughs] Yeah. And then, you know you asked about Nintendo. I mean this is one that is, you know, it's beating the market by a little bit. Video games sales were record high in April, up 73%. Everybody is home playing video games. And I just think, you know, Animal Crossing has become sort of the symbolic game of COVID, right? [laughs] I mean, I've heard so much about that game on The Switch; although, I haven't actually played it myself, but I'm kind of intrigued. But this is a company, the stock dipped a little bit early on in March, and it's more than made that back. It's just been a really steady performer.
Gardner: That's great. Well, take it all in all then, this Five-Stock Sampler -- again, this is just one year into a three-year journey, but, Karl, these stocks average a 19.1% gain, the market averaging around 8% to 14%. So we're going to say we're up 5%, which puts this one in the win column one-third of the way through the race.
Any final thoughts about the snap test or our world today, Karl Thiel?
Thiel: I think it's a great way of looking at companies. If I had to say what are the most relevant snap test companies on this list, I'd have to say Twitter. Such a great snap test company and yet it's been frustrating. On the other hand, Axon, perfectly makes sense that you would be in this stock.
Gardner: Yeah. Well, thank you very much, Karl, for all your work at Motley Fool Rule Breakers and the work you do on Stock Advisor and for joining us from your perch in Texas. Stay safe out there, and I hope you have a great week.
Thiel: Thank you.
Gardner: All right. Well, thus it was for Five Stocks That Pass the Snap Test. Now, let's go two years further back.
The date was June 21 of 2017. So this is three years ago, almost all of my Five-Stock Samplers have been a three-year game. So we're going to say the game is just about up for this one. We are reviewing it today, but the truth is, I won't do final statistics until the 21 of June. So 12 days left for these stocks to catch back up. And if I'm foreshadowing a bit of doom, well, that would be accurate for this Five-Stock Sampler, Five Stocks Riding the Bull Market.
I want to welcome in my longtime friend and Rule Breaker analyst Rick Munarriz. Rick, welcome.
Rick Munarriz: Thank you, David.
Gardner: So Five Stocks Riding the Bull Market. And what I remember about this, Rick, three years ago, is I intentionally selected five stocks that were all at new all-time highs. And I was sermonizing a little bit that this is what we do in Rule Breaker-ville. A lot of people are afraid of 52-week highs, we like and buy at and add to our winners at 52-week highs, or in this case, all-time highs.
Munarriz: Makes sense to me, buy high, sell higher, yes.
Gardner: There we are. Buy high, try never to sell, but when you do, we sure do hope that you sell higher. So yes, indeed. And, Rick, you and I were talking off-air beforehand, you mentioned, last time we review these, I had you on. Now, I didn't remember that, because I, kind of, pick one analyst willy-nilly from one review to the next. You've already done this group of five stocks once before.
Munarriz: Yes. I am your early-summer call when we go over this list, apparently. So yes. And I'm more than happy to look at them again; you're riding the bull market, the collection of stocks.
Gardner: All right. So in reverse alphabetical order by company name, we have Zillow Group (ZG -2.15%) (Z -2.05%), Wayfair (W -5.82%), Pegasystems (PEGA -2.61%), iRobot (IRBT -1.05%), and Impinj (PI -2.44%). So those are the five stocks we're talking about now. Rick, the market over this time, I had, is up 32.7%, as we record, we'll round that to 33%. So the market is up 33% over the last three years. Let's see how these five all-time highs stocks have done.
But before we start with the worst of them, which is, Impinj, ticker symbol PI, Rick, I follow you on Twitter, you have been a very longtime Twitter user. In fact, so early on, Rick, what is your handle on Twitter?
Munarriz: Sure, enough it is @Market. The word "Market" is my Twitter handle until someone steals it from me. I don't know, it's happened before. But, yes, I was an early Twitter user. I'm not as frequent a Twitter user as I should be with that kind of handle, but yes, that's my handle.
Gardner: How about that. So I'm sure somebody else on Twitter has the @FirstTwitterUser handle, but you have the @Market. "Market" is a big important word; you've got it. And I've enjoyed following you, of course, over the years, not just as a friend but as a fellow Twitterati.
And, Rick, recently on Twitter, I see you taking selfies of yourself at amusement parks that are reopening, like Legoland, and I think it was maybe Universal. And so, I'd love for you just to give us a minute or two on what the experience right now is for you, one of the longest-time aficionados of amusement parks that I know, going back?
Munarriz: Yeah, definitely. And I love -- obviously, I have a passion for theme parks and amusement parks. And I am in Central Florida right now, which is basically theme park central. Yeah, and it's definitely a weird experience. I mean, Florida is really the first one. Legoland, Florida opened on June 1. Universal Studios opened on June 5. SeaWorld June 11. Disney World isn't going to open till the midsummer, till, like, July 11. But I have to tell you, it's definitely a very strange experience to be on a roller coaster wearing a little surgical mask. So it's required at just about all the parks and it's something that it's part of the new normal, the lines are all spaced-out six feet apart, there is basically hand sanitizer at the end and at the beginning of every ride. A lot of weird precautions. And oddly enough, or maybe not so oddly enough, very light crowd so far as far as attendance-wise, because tourists aren't really coming to town, it's mostly locals, but even locals are like, "Well, I'm going to wait and see," you know, let's see how it happens.
But it's amazing, if you really enjoy theme parks, here in early June, it's amazingly low wait lines for the couple of parks that have already opened so far.
Gardner: So basically Fast Pass everywhere -- is that the general feel about it?
Munarriz: Yes, fast pass for free. So yes, it's pretty much that way. It's definitely a slow season, and it's beyond slow season, because, like, you're on a roller coaster and every other row is empty. Sometimes you're in a big car vehicle, like, eight-seat car vehicle on a ride, and you're the only person there or your family is the only person there. So even with lower capacity, they're still managing to do that. Obviously, it's not very good financially for these companies, but as a theme park aficionado, it's an enjoyable experience and it makes me forget that I'm wearing a mask and have to stay far apart and have to be careful with what I touch and all those precautions -- which are absolutely acceptable to me in this climate.
Gardner: Okay. Good. That was going to be my last question for you before going to Five Stocks Riding the Bull Market, and that is, Rick, is it fun? And it sounds like you just told me that. And I know, you and I are adults, I would say, near the middle of our tether, respectively, but do you see 10-year olds having fun, is it eerie, weird, or is it amusing?
Munarriz: You can. I mean, the sad thing is you can't see the 10-year-old smile, but it does seem like people are having as much fun, if not more so, because it is this kind of environment where you're having these parks to yourself, which is really a rare kind of experience, almost a VIP exclusive experience. So yeah, it's definitely lesser of the experience that you'll probably remember, but if you can hold on, if you don't have a problem with wearing a mask for, basically, a prolonged amount of time, it's definitely relatively safe and a healthy thing to do to be out there in the great outdoors and contributing to the economy in some degree.
Gardner: You bet. And I know I said that would be the last question, but I love this topic too. So are you finding some of the big animated characters wearing masks [laughs] as well? Is Mickey Mouse going to be rocking an N95?
Munarriz: The saddest thing is that Mickey won't be wearing the N95, but it's only because they will not have the meet-and-greet stuff. Basically, in Legoland and Universal, like, there was Spider-Man and Captain America were there at Marvel Super Hero Island at Islands of Adventure at Universal -- it's a Disney property, but Universal owns the theme park rights there in Florida. And you can't get close to them. They're up on a stage. And you can take selfies, but you have to be 6 or 10 feet away in some cases.
So the characters are there, you do get the shots, they had the whole Scooby-Doo gang in front of Mel's Diner over at Universal Studios, Florida, but you basically just -- you know, it's at a distance, it's not the same, but it's close enough to the real thing.
Gardner: Well, thank you very much, Rick, really appreciate your viewpoints. Often, I'm encountering your viewpoints, you're getting quoted in articles written on other people's news sites, because you are somewhat of an authority here, you've certainly earned it over the years, and I really appreciate your viewpoint. Thank you.
Now, let's get back to the stocks, and let's start with our worst pick here, Impinj. Can you tell us briefly about this business and why it's been cut in half from $54.5 to about $27, down 51%, that would be 83% to the market, over the past three years?
Munarriz: Yeah, obviously if it's been a bad investment. And, I think, the moral of the story is that you never invest in a company that ends with the letter "J," I think it's the only one, so let's hold that as the lesson we've learned here over the last three years. But Impinj, they basically make the RFID tags. But the tags, it's a big part of inventory. And Impinj is great. Basically 30 billion items have been tagged with their RFID tags. They also sell the scanners and the hardware to tracking. So it's a lot easier to track inventory, see what's moving, see what's pilfered, see what needs to move out.
So it's a very important product, but it's also a commoditized product, there's a lot of people in this market. With Impinj, it was basically -- back when you recommended it, you know, revenue was up 43% in 2016, so it was a very exciting stock, it slowed to 11% in 2017, it declined 2% in 2018. But the catch here is that it rose 25% in the last year. So there's been a big bounce. And the company, it hasn't posted an operating profit in five years, but its loss did improve last year.
And basically, it's one of these companies that stuck with the whole COVID-19 thing. Obviously, you're not going out to retail stores, so your local Costco -- well, Costco seems to be doing OK, but let's say your local Sears -- is still open, is not really selling as many items. So April bookings were down 21%. So it is a factor, I mean. But Impinj itself is gaining market share, so it's still an attractive company for the product that it's working on, but clearly a bad investment for all of us.
Gardner: Yeah, it's been a really disappointing stock. This is one we've held for some years now in Rule Breakers. I'll just point out, it was up to about $35 as recently as February of this year. It nosedived well more than the rest of the market from $35 to $11.5 in just weeks leading into mid-March. It has now more than doubled in its bounce-back somewhere back around $27, Rick. So it's a company that we continue to recommend and like.
That said, this is a really small-market-cap company at this point. The market cap is below $700 million, which is well below the median for Motley Fool Rule Breakers and so many of our investments. So a fairly devastated Russell 2000, like an increasingly micro-cap company that we hope comes back.
Munarriz: Yeah, definitely. And, obviously, it was twice as large, [laughs] you know, three years ago, so that does play into things, but yeah, definitely a disappointing performer.
Gardner: Excellent. So from worst to best. Now, the best performer, and wow! What an incredibly [laughs] volatile stock Wayfair has been. The ticker symbol is W. Rick, just three years ago, it was at $75.50, right now it's right about $173, so we'll give that a 129% return, that's way ahead of the stock market. What's been happening with Wayfair [laughs] stock that is something like up 8 times in just the last several weeks?
Munarriz: Yeah, that's exactly a point that it's very important to say that. I mean, this was, like, one of the stocks that basically one of the biggest bounces off the coronavirus sell-off back in March. It bottomed out at $21.70 in March '19. It's basically an eight-bagger, better than an eight-bagger roughly since then. So starting --
Munarriz: Unbelievable, yeah. And again, it's almost like, wow! of course, I mean, why are people not going to be buying furniture when they're stuck at home? It makes perfect sense. And since most showrooms are closed, most furniture stores are closed, it makes perfect sense that they're ordering it online. So this is almost like a no-brainer, in retrospect, over the last few weeks. But over the last few years, you had it right basically, because people are more comfortable ordering furniture online.
Three years ago, maybe 5, 10 years ago, you probably didn't trust anyone, maybe even Amazon, you probably didn't even trust to fulfill this big item, like, your sofa or a BarcaLounger or any kind of table or anything like that, now you do. And right now, there's 21.1 million active customers and Wayfair, that's 29% more than it had a year ago.
And revenue rose 20% in its latest quarter; again, this is through March, but it started to feel the impact of the coronavirus and was able to hold up a 20% growth, 19% in the U.S. and 24% internationally. Which I think is important here, because Wayfair wasn't really an international play three years ago, and now it's 15% of the revenue mix, but it's still a fact that you want to watch, because as that grows, it's going to become more important.
So yeah, this is just a very dynamic company, definitely, obviously, a stellar performer, and the kind of company that maybe rattled your confidence back in mid-March when the stock was rattled to the $20s, but this is clearly a stock that has told everybody, "Hey, we matter, we're posting double-digit growth in this environment. We're ready to fill your home. And you know your home looks like very tired furniture right now after you've been in it for so long this last three months."
Gardner: Wow! This is a company that our talented former teammate, Aaron Bush -- who is no longer on the Rule Breakers team, is doing a lot of other things around The Motley Fool, including dominating the Market Cap Game Show. And we have the Market Cap Game Show coming up next week. I need to think about how we're going to do guests for next week, but Aaron is the one who brought Wayfair to Motley Fool Rule Breakers.
We've held it for more than four years now. Our cost basis, for members, $43/share in August of 2015, so it's more than a four-bagger if you've had patience and invested with us in Rule Breakers from the beginning. But, Rick, I still scratch my head at the idea that this stock has gone up 8 times in value, and it's not to say it shouldn't have, it's that it got so badly crushed in the first place, down in the low $20s, as you point out, just a couple of months ago.
Well, the good news for this Five-Stock Sampler is, we had this one in it. And while this group of five stocks is slightly behind the market -- and we'll talk about that in a minute -- Wayfair has obviously seriously propped it up.
Now, another significant loser, Rick, has been iRobot. iRobot was at about $101 three years ago, it's down about $81, down 20%, not nearly as bad as Impinj. But when the market's been up 32%, that puts a -52% in the loss column. Any thoughts on iRobot?
Munarriz: Yeah. With iRobot, you have a company that is -- you know, years ago, in 2016, they basically said, all right, we're not going to do military robots anymore. They did, like, PackBot, you know bomb-sniffing robots and a lot of cool things. They said, hey, look, that market is not for us, we're going to go back to our core, which people associate, obviously, iRobot with the Roomba, which is the vacuum cleaner, their Braava, which is basically a floor-mopping thing. And that's their core. That you basically are going to square way on that, and we, of course, knew that in 2017. But having all its eggs in this consumer basket obviously leads to hiccups along the way.
And in its latest quarter, it basically shocked the market with a 19% decline in revenue, down 28% in the U.S. So internationally, it held up better, but 28% is terrible in the U.S. The financials are going to be lumpy here, but in this case, the company blames it -- they said that they had design-driven engineering and supply chain challenges on some of their premium robots. Which basically meant that these very smart guys weren't as smart as they thought they were, and so that happened.
And the silver lining in this is that the last three times, I looked back at the last 10 years, the only other three times that they posted a decline in revenue, they bounced back the very next quarter. So not that this streak is going to happen, because this is going to be a very challenging quarter, of course, you know the quarter that ends June. But it is something that at least the company is showing that when we slip up, we usually bounce back the next quarter.
To me, the most interesting thing, the most interesting development with iRobot and one that I think a lot of us that have lawns to mow is saddened about, is that in April, iRobot suspended development of the Terra, which is basically the robotic lawn mower. They had a beta test in Germany late last year, they were going to roll out. They've had a few issues. And it's not gone forever, they're basically saying, "Hey, look, it's the COVID-19, we're going to focus on the home-based products on the Roomba and the Braava and developing those lines." But to me, that excuse doesn't really hold up because, you know, your grass is still growing during the pandemic, and this time of year, especially here in Florida where I am, it is really hot outside and nobody wants to be out there with a lawn mower, so it would be great to have a little robot to cut the grass for you. But yeah, the Terra, for now, is gone, and hopefully will come back in some capacity.
But you know, yeah, it's a company that is basically now living and dying by these little Roomba robotic vacuum cleaners and all the other imitators out there, usually a lot cheaper ones.
Gardner: Yep. So iRobot and Impinj, both big-time losers. Again, Impinj, 83 percentage points behind the market, iRobot 52 percentage points behind the market. The last two, we'll just cover these quickly, Rick. Pegasystems, which is our artificial intelligence company, is up 31% over the market, that means it's gone from $60 to $98 over the course of these three years, up more than 60%. So that makes me happy.
But I think, in particular, the most interesting, arguably, of all five of these companies is Zillow. And how Zillow has restrategized since we first picked this stock for this Five-Stock Sampler three years ago. Zillow, by the way, up 26%, that's 6 percentage points down to the market, so underperforming a little bit. But, Rick, give us, like, your 60-second take on what Zillow is up to.
Munarriz: Yeah, Zillow, obviously, they're a home-flipping business now, that's 68% of the revenue, what they call Zillow Offers. Obviously, the Premier Agents and Zillow.com, truly all the websites are still important because they're the high-margin aspects of its business. But revenue growth, the explosive revenue growth we're seeing, is driven entirely right now by this home business.
They sold 2,394 homes in the latest quarter, but they're losing money on these homes. Even though they're making more than they're buying, by the time you add the renovation, the holding cost, the selling cost and the interest expense, it's losing almost $2,000 per home. This is part of the learning process; it should get better. But yeah, it is a very interesting company and probably the most important thing that happened to Zillow over the last three years is last year co-founder Rich Barton, came back as CEO. And if you don't know Barton, not only was he the co-founder of Zillow, obviously, he was the Founder of Expedia, the Founder of Glassdoor. This guy has a golden touch when it comes to some of these companies.
And, clearly, the stock has done pretty well since he came back. So it's a very interesting company with an ever-changing model right now, that's riding a lot on these new homes.
Gardner: Hmm. And this is another one that really caved in from March into April. The stock was at $65, it dropped to $20, and now it's back to about $61.5 as we are recording. So it's tripled from its March lows, but a really interesting backstory that you just illuminated behind it. Not every company has so substantially changed its business model. And so, we're watching Zillow continue to transform itself with fingers crossed, as a shareholder myself, for Rich Barton and team.
Munarriz: Yeah, definitely. And it's a great company, obviously, but I mean, it did warn that the sales volume of its homes, it expects a 50% decline in the second quarter, which is a time not a lot of people are buying homes, but it does expect to fully recover by the third and fourth quarter of this year. So there should be better skies ahead. And obviously, the market has been responded by bidding the stock up in recent weeks.
Gardner: All right. Well, we'll hope it gets bid up, at least I will, in the next week or two, because this Five-Stock Sampler, well, the five stocks we just talked about -- Zillow, Wayfair, Pegasystems, iRobot, and Impinj -- they're up 29.6% on average, the market is up 32.1%. They are 2.5 percentage points behind the market. That's with a couple of stocks that have really performed badly. So Wayfair, we might be pinning our hopes on this Five-Stock Sampler on your performance over the next 12 days.
I do have a pretty remarkable record of outperforming the market with all of my Five-Stock Samplers; the vast majority have. This, Rick, would be in the minority. I'm sorry that I asked you to come back and cover this one.
Munarriz: Hey, no, you know what, I don't mind delivering bad news, especially when it's actually improved since the last time I was here and it's closing in to the market. And I'm rooting for these five bulls to keep riding into their June 21 out.
Gardner: There we go. So while this group is slightly behind the market, I hope it is still illustrative to many of our listeners, young and old, to note that all five of these were picked at the height of a bull market, all of them at new all-time highs. And it's nice to know that as a group they are 30% higher than that three years later, even if we're a little bit behind the market. Go! Go! Go! Wayfair.
Rick Munarriz, thank you so much for joining me once again this week and fool on!
All right. Well, that was then and this is now. So those two Five-Stock Samplers are still in process, both of them. This is the brand-new one. And I mentioned at the top that I'm thinking a lot about my home country today. And I know I'm speaking to a lot of Americans right now, as I talk about these new stock picks, and I'm also reaching people who aren't in the United States of America.
I am entitling this Five Stocks for America. Now, I realize "America" is a big word, depending on your viewpoint, it could incorporate Latin America, it also could incorporate Canada, which is part of North America. But for simplicity's sake, I'm thinking of the United States of America when I pick these Five Stocks for America. We are a country that's under siege in many ways right now. And in a lot of ways, we deserve it. We've sort of put ourselves in this position. And, I think, all of America's weaknesses and indeed some of its strengths are all in evidence right now.
We're an open society, people are free to assemble and free to march. And while violence is never condoned, and indeed it is prosecuted, it has been part of some of the goings-on in this country. And I know a lot of you probably spend more time watching the news than I do, so you've seen some of the images of rebellion. Touched off, in large part, by some instances of police brutality.
And while I'm the first to say that my experience of the media is, if it bleeds, it leads, that's the old cliché, I know you've heard that before. So it's typical that when something bad happens, it becomes the big focus of the media. Some of the bad things that have happened, through police and security over the years, have been so persistent and have occurred over and over again that I think a lot of people are fed up.
So I was thinking about our country today as I thought about these stocks. And it is amazing to think that the stock market, as we record this week, is right near all-time highs, depending on how you're counting. So that says something about resilience, but let me go deeper on that word for a sec, because as I thought about what I wanted to do with the Five-Stock Sampler, I was reminded of one of my favorite podcasts we did four years ago, it was in fact, October 26 of 2016. It was America's core values. And the points that I was making four years ago are that a lot of us go through a corporate or, let's say, charitable, if you're sitting on the board of a not-for-profit or work in an NGO, you've gone through a process, for profit or not-for-profit, where you pick your core values. We've certainly done that here at The Motley Fool.
And what I was saying four years ago in advance of a consequential election back then is, what are America's core values? We're used to asking that a lot of our companies or organizations; what about of our country? And so I endeavored with your help, it was one part mailbag, lots of write-in votes, so, I endeavored to try to think through what my own personal list of five core values are that I think are America's core values. But more broadly what I was saying back then, and what I'm saying now is this is a great conversation to have. It's especially great with people who may disagree with you, about any political issue or just in general. It's a uniting thing. We're all part of the same fabric, we're all part of the same country, if you're an American. And I love to ask other people, what do you think the core values are of our country?
That elevates the conversation, it tends to bind us together and help us to see commonalities that we might have. And yet, even when we disagree, as disagree we will, whenever we're talking about values, it opens up a conversation that's often much more reflective, thoughtful, sometimes heartfelt, than often what I see politicians doing, which is pitting American against American, very divisive. And often the media backing that up with lots of lurid headlines.
So frustrated by that, I thought what are America's core values four years ago, and I still like these, I'm going to give them to you right now. Liberty, enterprise, justice, resilience, and kindness. And so I thought, for my Five-Stock Sampler, Five Stocks for America, why wouldn't I pick stocks that embody each of those five core values, for me anyway, this week, this go-around for our 25th silver anniversary Five-Stock Sampler. So here we go.
We're going to go long, as my producer, Rick Engdahl said to me earlier offline, "Dave, we're going to go long on values this week, shorter on valuation." That's right. This is more thinking about these companies. Yes, they're still recommended. These are all active stocks, but we're going to be talking less about their earnings or about their price-to-sales multiple and a lot more about what they stand for and why I like them as companies and why I think that they'll beat the market in the next three-plus years.
All right, so first up, liberty. Well, when you think about one of the great American icons of all, the Statue of Liberty standing over New York Harbor, it's easy to see why I think so many of us, especially us as Americans, value liberty. And I am so glad that I live in a country that has the liberty, even the liberty to screw up, the liberty to make mistakes. And I do want to say, having traveled to China a year ago, where I don't have that same feeling, many other countries in the world have different degrees of freedom.
I greatly value my liberty, and as I looked up and down the universe of all my stock picks and I thought what are some companies that embody liberty, it's natural for me to think about some good old-fashioned American, let's say, Midwestern brands that feel like heartland, like, let's say, Tractor Supply. Still doing retail in an age of e-commerce, very meaningful to farm communities. I really like Tractor Supply; the company has been a market beater despite how badly beaten down retail has been in recent years. So that's one that comes to mind, but I ended up settling on Boston Beer Company. After all, the ticker symbol is SAM. Based on Samuel Adams, which is its biggest product. Samuel Adams, one of the sons of liberty.
Jim Cook who founded the company in 1984, truly a great American, a billionaire today, he owns about a quarter of the company. But Sam Adams, through its marketing, through its positioning, hey, it's beer. I realize beer is German, beer is British, [laughs] it goes back a lot further in those countries than ours, but in a lot of ways, America is about beer even today. And Sam Adams is a smaller, still more craft-oriented enterprise.
And Boston Beer for us, in Motley Fool Stock Advisor, Matt Argersinger brought it to our scorecard about 10 years ago. In fact, it was May 21, 2010, that we first recommended Boston beer. So it's now been more than 10 years, the stock is up 791%. It's an eight-bagger now, and yet, Boston Beer today still has just a $6 billion market cap. So it's up 8 times in value, but from a smaller valuation. So I really appreciate this company, how it's been managed. And how could I not pick Sam when he was a son of liberty? So that stock No. 1.
All right. Well, No. 2. Now, the value, four years ago, that we selected after liberty, was enterprise. That's a word that I like, maybe in part because I'm a Star Trek fan, but in a lot of ways, it just speaks to business and it speaks to the innovation that is such an important part of America. There's a huge amount of optimism baked into a word like "enterprise" as well. And it wasn't hard for me to see so many American examples of companies that you and I know, you might love some of these companies, I do; you might not love some of them. For example, Tesla. I love Tesla, some people don't love Tesla. Some people like Tesla but don't like Elon Musk. The list goes on [laughs] on various thoughts about this lightning-rod company.
But if you think about the innovation and how a Silicon Valley company came to change the way the world thought about cars, that's a great example to me of enterprise, it's also been a spectacular performer for all of our Motley Fool Rule Breakers members.
Intuitive Surgical, such a great enterprise. Apple, ever heard of that company? No. 1 brand in the world. Apple, I was looking recently, its market cap is now over $1.4 trillion. In other words, it's almost getting near $2 trillion, which is going to stop making people talk so much about which are the $1 trillion market caps and which aren't, or make it sound like a big watershed when Apple slides gracefully over the $2 trillion mark at some point in the coming years. Please think back to today when I mention it, and yet didn't pick it for enterprise.
I could have easily picked Amazon, a stock frequently appearing in my Five-Stock Samplers. A tremendous example of enterprise. All of these American companies, all of them springing up just in my lifetime; not one of the companies that I'm mentioning here existed when I was a little kid. So it's a reminder of how innovative and how refreshing America's enterprise always is. And even though we're seeing a real change in the world, I have a great confidence in our American businesses that they'll recognize where the world's headed and start to deploy their resources that way, adapt, and evolve. And so that's a big part of American enterprise for me.
The stock I'm going to go with, stock No. 2 is Etsy (ETSY -1.37%), ticker symbol ETSY. Another great commerce platform. The company was founded in just 2005, so Etsy is only 15 years old, and yet has become such an important, not just in the U.S., but worldwide, a connector of craftspeople and people around the world that have something to sell, that's a cut above, that you won't just find through an easy click on Amazon. It's a real hero, I think, to craft suppliers worldwide and, of course, lots of ready buyers as well.
So Etsy is a leading e-commerce platform, not top of mind relative to many of the other big players out there, and yet, a stock that has treated us very well for our patience at Motley Fool Rule Breakers. And, of course, I'm picking it here today with the expectation it will keep being a market beater going forward.
So liberty for me, Boston Beer, ticker symbol SAM; and enterprise, Etsy, ticker symbol ETSY.
Next one up, value No. 3, and boy! Is this one in the headlines today, justice. And I think what's so repugnant to so many of us, of course, me included, is the lack of justice that we've seen in public ways from the defenders of justice, our police.
Now, I'm the first to say, having once had a full-summer internship with the police department -- it happened to be Rochester, New York -- I'm the first to say that I think the vast majority of police are doing important work and are good people. The sad truth of it is, though, that there are a lot of bad apples out there, they're driving the headlines, and they're driving real-world results, including a massive lack of trust right now in our law enforcement.
So I'm really torn on this, because I'm thinking about an African-American police officer who just died of COVID. Last week I read an article about him, a Washington, DC, police officer, and how important he was to African-American kids, for whom he was a hero, in the community in which he worked. And a lot of efforts here at the DC Police Department -- I hope it's true of your city too -- are all about community outreach, are all about reaching out to kids, often the disenfranchised and building bonds and strengthening the city.
I will say that Washington, DC, as a city, in the five decades I've lived in it, has gotten continuously better. And I think a lot of that should be partly credited to our government and our police force. With that said, justice is a core American value. And I think a big explanation, for me, behind so many of the riots today, is the hunger for justice and the sadness and anger, a huge disappointment, when it doesn't happen. And I truly believe that we are paving a path toward more and more justice.
And my stock No. 3, when I think about justice, is Axon Enterprise. Now, if you were paying attention earlier to this podcast, you noticed that it was one of my five stocks that passed the snap test a year ago. Well, I really like this as an American company today, and the kind of company that's going to get us out of the muck that a lot of us are in right now and get us to a better place with law enforcement. So I really like Axon Enterprise, ticker symbol AAXN, for justice.
All right. Value No. 4, after liberty, enterprise and justice, is resilience. I mentioned that word earlier. I think it's an incredible story of America. I actually think it's the story of the human race. We are extremely resilient, that's why we're around today in 2020. And think about the stock market and how resilient it's been. I'm amazed to think the market is near all-time highs given all of the hard events that we've all been living through together for the last several months, but it does speak, I think, again, to resilience.
And when I think about companies that impress me, that are on our score cards, I think about a company like Union Pacific, 100-plus years of delivering things via rail. You had to build those railroads in the first place and then take on all kinds of comers, competitors from trucks to planes, and yet Union Pacific just kept cranking away.
Or I think about Lululemon and how mismanaged it was five years ago or so and what an incredible comeback it's made as a brand and a company. I see constant examples of resilience when I'm looking at businesses and picking stocks. I was asked recently, what's a company that I actually did add to as a loser? Since I've often talked about the importance of adding to winners, and as that's become synonymous, in a lot of ways, with Rule Breaker Investing, I want you to know that, yeah, I do occasionally buy a stock when it's down. And Activision Blizzard had been cut in half a few months after I picked it initially in the early 2000s for Stock Advisor, and I'm sure glad I did, because that position is way, way up over the years. And so, whether you're looking at stock, and earlier this episode how many companies did we talk about that had lost half or more of their value in the last few months and then snapped back. I see resilience all the time, and I think it's an American trait.
And for this one, stock No. 4, I'm just going to pick Zynga (ZNGA). The ticker symbol is ZNGA. This is a company that IPO'd to a lot of hype. I think it was 2012. I wasn't a big fan of the management team or its business model at the time, but the world was moving toward the app store and mobile games, and Zynga was the perceived leader. But I do think it was mismanaged, and boy! did the stock get badly treated in the coming years. Zynga would go from about $16 down to $2 within less than a year of its IPO. And from 2012 to 2019, it bounced between $2 and $4 for seven full years.
Well, I started taking a shine to it. It was April of last year, the stock was just below $6, and I'm happy to say it's closer to $9. In fact, it's over $9 today. It's been a wonderful winner.
But I just think about businesses that go through six or seven years just grinding at lows, not really attracting the attention of many people in the business world or stock market investors. And I love companies that could emerge from a caterpillar stage like that and become butterflies. I think Zynga has done that in the last year. I trust that that will continue. And if it does, it will be a sign of its resilience. Stock No. 4: Zynga.
All right. Well, America's core value No. 5. I still like this one four years later: kindness. And I think, in particular, of the generosity of my countrymen. America regularly rates out at No. 1 in the world generosity index. More people raise their hand in America and say "I gave $1 or an hour to somebody else, maybe a stranger, somebody who is needy, I volunteered that $1 or that hour," more people do that in the U.S., percentage-wise, than any other country in the world.
And then, when you think about the size of our GDP, the U.S. is No. 1, with its GDP in the world. That speaks back again to enterprise. In fact, you can take China and Japan and add their GDPs together, the No. 2 and No. 3, it still doesn't catch up to America and where America is today. Not only does that make me happy about our sense of enterprise in this country, but again, it reminds me of our generosity, because we have a lot of people who raise their hand to do something for someone else. I had somebody recently who said, "I hope during this COVID time, everybody has come away with stories of heartbreaking kindness that they saw in their communities." I bet a lot of you listening to me right now generated one of those stories by doing something yourself.
How many businesses generously stood by their employees or gave away something for free to needy people when maybe the business itself couldn't have afforded it that well. 2020, while a lot of us, I think, are rightly mired in questions about race and law enforcement and survivability of COVID, I hope we will look back on 2020 and remember heartbreaking acts of kindness. And I see that every day in America. And I know it's not just true of my country, I hope it's true of yours too.
When I thought about companies, and I see a lot of them on my scorecard -- I mean, I think in a lot of ways, Chipotle has been very kind to animals and to the environment in terms of how it has changed over the last 10 years. What I would have called fast food, these days they're called fast casual. And how Chipotle has really modeled for a lot of other companies how to do that better.
The stock I'm settling on, though, and some of you, I realize, may not agree with me when you think about kindness, but I think of Starbucks. Starbucks is a company that didn't have to offer to put its baristas through college. It's a company that started an awkward conversation [laughs] that much fun has been made of this.
Five years ago, do you remember this, #racetogether, where the leadership told all of its baristas to start conversations about race in their Starbucks' 12,000 stores. Baristas. Five years ago, "#racetogether" they might write on your Starbucks' cup; it was awkward, wasn't it? And yet, now, in retrospect, did that maybe create some good and was that forward thinking?
And that's what I've gotten to know about Starbucks over the years, which is, that it's a company with heart, it's coming that tries hard, it's also an American company that has generated more commerce in many other countries of the world than most others I can think of, and especially China, and how well Starbucks has adapted to and been adopted by China. So #racetogether feels very [...] for me.
When I think about kindness, I think about a lot of things, but the stock I'm going to pick here is ticker symbol SBUX.
So there you have it, my 25th Five-Stock Sampler, Five Stocks for America based on the values of liberty, enterprise, justice, resilience, and kindness. And by the way, most of the anger and sadness that I see out there -- and I'm not just talking about outside my front door in Washington, DC, this particular week, I'm talking about the last several years -- is often when we observe leaders or things happening in our society that go against one of these values: lack of justice or leaders who don't lead with kindness.
I think about Raj Sisodia, who appeared recently with Michael Gelb, his co-author, talking about their book, The Healing Organization. I think about how much healing still needs to happen and how much I hope will happen going forward. Things that heal need kindness. And kindness is such, in my mind, an American trait, so we tend to rebel against the things that fly directly in the face of the values that you and I espouse and try to live every day.
So in addition to, I hope, a pretty good-performing Five-Stock Sampler over the next few years, we'll see. We'll be back, and we'll be updating it. I hope this has also been an opportunity for you to think about what you stand for and what your country stands for. Fool on!