Another Chance to Look Back and Score Stock Picks

Some stocks that have been crushed recently look a lot better if you just step back and take a longer-term view.

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 January 18, 2023. 

David Gardner: Thirty separate times, about every 10 weeks on this podcast over six years, I picked five stocks. I chose a theme that made sense to me at the time sometimes sublime, sometimes this week included silly, and then I thought to myself, what are the five best recommendations that I can come up with for stocks that fit that theme? Aiming of course, always to beat the market, the S&P 500 because otherwise, why are we bothering? Then one year later we review the picks, and then another year passes the two-year review two years later. We never forget, we hope you wouldn't also, we score everything transparently, and accountably because we're Fools, and you should expect that of us and I would say, expect that of yourself too.

Well, then comes the three-year review, which is going to be the most telling and why is that? First, because three years have passed since I picked those five stocks, we really can be smarter about what has happened and why and what we can learn with the greater passage of time. That's the smarter part. But if I've done my job well, then we'll also be happier, and we hope richer too. Now, that three-year review and we have one of those this week is also important because most of the time we end the game right there. We're going to keep holding those stocks in real life mind you, you should too, if you own them. But if I kept reviewing all 30 of my samplers in years 4, 5, and 6, well, we wouldn't have time to do much else on this podcast. Thirty separate times I picked five stocks what I've also called my five-stock samplers, and we're going to review two of those samplers this week. Five stocks rolled up at random, and five stocks that spark joy. Review them we will with my two guest star analysts, Sanmeet Deo and Asit Sharma. Does rolling up random stocks work? Does picking stocks that spark joy? Does that work? Only on this week's, Rule Breaker Investing.

Welcome back to Rule Breaker Investing. I'm excited this week to be reviewing how our five-stock samplers have done. It's a funny discipline. Being a stock picker you would know this too I hope dear listener, many of us do at The Motley Fool. I'm a big sports fan. When something amazing happens in sports, the feedback is instant. The crowd stands up and cheers, the athlete usually gets to do a dance these days depending on what sport we're talking about, everybody celebrates its all over the news that night. Highlights, final score, we all know it. What you and I do, fellow listener as investors, is the exact opposite. We take actions that we hope will win, that we think are exciting, but we don't know five seconds later if it worked.

We don't know a day later. We don't usually know a year or two or three later if we did it right. Did it work? But when it does work, I do like to celebrate it because this is our moment. This is our time as non-athletes to do a little dance, to put some numbers up on the scoreboard years later and maybe to cheer. As I mentioned at the top we have two five-stock samplers to review, five stocks rolled up at random that was picked two years ago in January of 2021 and five stocks that spark joy, the 23rd ever five-stock sampler of 30, and we will be sending five stocks that spark joy to Foolhalla at the end of this week's episode. Foolhalla, the Valhalla where each of our sampler heroes, whether hero or goat, proceeds Foolhalla, the honored hall, festive with me.

Five stocks that spark joy will arrive in Foolhalla at the end of this podcast to join its brethren and sistren , the 22 that have already gone before. Speaking of before, a couple of quick notes before we get started. The first is a reminder about why we do this. I feel like I say this most of our reviewapaloozas, so long time listeners will have heard me say this before, but I think it's really important to score ourselves, not just in investing but in lots of other things in life. Well, I already confess my love of the hydrates smart water bottle in recent months. These days, I'm regularly scoring how much I'm hydrating from one day to the next, and I'm also regularly scoring, I wear my Apple watch to sleep every night I score my sleep, I get a three digit number the next morning from my sleep watch app.

I think it's helpful to score because if you don't score, you're not really sure if you're doing it right. You're not sure when you're winning and when you're losing now. Do we need to be scoring everything? Certainly not. There are many things, many aspects I think of our day-to-day life that probably should never be scored. But I think investing is one of those things that should be scored. After all, as a fellow Fool, you and I are buying stock directly in companies. I realize a lot of us may have funds, various forms of diversification, but at least for me, anytime I pick an individual stock, I feel like I'm giving the cold shoulder, talk to the hand, I'm saying to the market at large because I'm choosing not simply to buy an index fund, I'm choosing a company because I think it's going to outperform the index funds.

I think I'm going to do better and I believe that my public record and my own private record shows that over 30 plus years I've done way, way better than if I just bought index funds or diversified basket. Now, I realize many people will just do that. In fact, many fellow Fools hearing me now probably are doing some version of that, and I'm fine with that. When Tom and I wrote The Motley Fool Investment Guide, the first edition which came out in 1996, we started by saying everybody could just go with Jack Bogle and by the Vanguard diversified index fund, whether the total market index fund, which certainly is still exists today or the S&P 500 index fund, those are massive, massive pools of money today, decades later. We are huge fans of those for a lot of us mailing it in and just doing that, saving money which is the important thing, invested in every two weeks, that will lead to financial freedom, and we are huge fans of that approach.

The patience, the resilience, the persistence through good markets and bad to keep saving and keep investing. Yet, he's certainly a past guests on this podcast where Jack Bogle and I anyway, I think Tom would agree with him as well, where we part ways is we really do believe that you can and should buy stock directly in great companies. Skip the bad ones, skip the mediocre ones, focus on greatness, and we believe, and again, I think my public records shows that you will outperform the indices especially if you invest Foolishly, which means to use time and patience on your side. Scoring is the only way we can really know whether it's working or not, and so scoring is exactly what we're doing this week on this podcast as we look back at these two five-stock samplers.

In fact, I tweeted out today a line from Roz Brewer. Roz Brewer, I believe is today the CEO of Boots Alliance Walgreens. I think she's the highest paid female executive in America, but I was quoting her a few years ago on this podcast in a great quotes podcasts, this quote popped up. Roz Brewer's said, "You can and should set your own limits and clearly articulate them. This takes courage", she went on, "but it also is liberating and empowering and often earns you respect." You can and should set your own limits and clearly articulate them. I think that's exactly what we're doing when we're scoring ourselves in this podcast anywhere in public.

Setting your own limits, clearly articulating them will make you a much better investor overtime in the wins and the losses and we have both of those to share with you this week. Indeed, before we get started, I want to mention next week, of course, your Rule Breaker Investing, mailbag, our email address, [email protected]. If you have a question, a thought, a reaction. We started the year with old, new, borrowed, and blue, and last week, a bunch of stock stories for you and of course, some reflections and thoughts about five-stock samplers and the stocks therein. If you have any questions about these companies, any thoughts about anything that happened in Rule Breaker them this month, [email protected], or you can tweet us @RBI podcast.

Well it's time to strap in because whenever we do a review of palooza, we're getting in the way back machine and it's time for a little bit of way-back music Rick Engdahl. Here we go back in time. Where are we going to land? We've alighted on January 20th of the year 2021. Around two years ago, this week, check it, the S&P 500 in these two years is up 3.8 percent. It used to be up a lot more some months ago, but it's now up 3.8 percent where it was two years ago. We're going to be comparing all five of the stocks in five stocks rolled up at random to that 3.8 percent bogey. Now here to join me as he did last year at this time, looking at these stocks, he's back Sanmeet there. How are you, sir?

Sanmeet Deo: Hi David. How are you? I'm doing great.

David Gardner: I'm doing really well. I do see you've got your hook and horns, burnt orange, University of Texas Longhorn's, hat on. I do note that your basketball team has higher rank than mine, North Carolina Tar Heels right now. Congratulations.

Sanmeet Deo: Thank you. Yeah, we're excited too. Excited for the seasons, see how we progress and we'll see what run they make in their tournament.

David Gardner: It does feel as if all of college basketball, it's your builds toward March Madness. I think the greatest event in sports, at least that's my take each year, but it's fun following these teams all the way through the regular season. I think you and I talked sports a little each time you come on, so on me. But I also wanted to ask you about ChatGPT because I'm curious. Have you used this yet? I know a lot of people are already very familiar. A lot of our fellow Rule Breakers, know this thing, but we also have a lot of listeners probably hearing that phrase for the first time. It's a popular example of artificial intelligence, chat bot. It is free to sign up for. Sanmeet, have you signed up yet?

Sanmeet Deo: I have not signed up and I've been meaning to try it, especially as a [Alphabet's] Google shareholder. I definitely want to keep track of what's happening with ChatGPT, because there's the headlines of will ChatGPT kill Google and that's maybe a little outlandish, but I've been itching to try and for actually I did go on the website once briefly with some friends and it said that it was it was too busy, so it couldn't even get on.

David Gardner: Yeah. As somebody who's been trying to use it about each day or so for the last month, I will note that you can almost always get in if you keep refreshing over time. Yet, seems to be about one in three or one in four times that I sign in. It's saying it's too busy. I think Sanmeet, we can all guest that in time. This is not going to be a free experience anymore. It's going to be a premium experience and maybe that will help give the servers a breather.

Sanmeet Deo: Yeah, I just saw a headline and I think there was this morning about Microsoft who has a big investment, is going to make a big investment, OpenAI, the creator, ChatGPT about charging for it. Definitely want to get in on that before they start charging.

David Gardner: Absolutely. Well, I think it's a fascinating time we're seeing, certainly starting with a lot of the image, artificial intelligence, a lot of the typing a phrase, and we'll give you original artwork, which started, I think last summer and then I think ChatGPT really in earnest in the late autumn. Now also hearing about Microsoft's, there's one that you speak into it with some audio clips and then it can take that voice and it could just make it say anything. There are some really interesting things happening, a little bit crazy sounding. Yet that's how so much of bleeding-edge technology strikes us sounding crazy initially, but it's getting more and more due rigor. We will see. Let's move on to five stocks rolled up at random now. Sanmeet, I'm not expecting you went back and listened to the original podcast at all, but do you remember how these stocks were picked?

Sanmeet Deo: No. I tried to focus on the past year, what's actually been happening, but they were just random, aren't they?

David Gardner: Yeah. Basically, I took all of the stock picks that I'd picked in Stock Advisor and Rule Breakers, two of the Motley Fool's biggest services. I just randomized from that roughly 300 or so stock total 10 of them. Then I thought, well, of the 10, which are the five that I would favor, and that is five stocks rolled up at random. Not completely random, although randomizing from a large pool and then exerting a little choice to say, I think I'd pick this one over that one, and that's how we ended up with these five companies. I'll present them alphabetically first and then Sanmeet, let's you and I talked through them, the five companies rolled up at random two years ago this week, Apple, Atlassian Corp, SolarEdge Technologies, Starbucks, and last is indeed least. A lot of times you hear the phrase last but not least last is very much the least Teladoc, coming in at the letter T. Apple, Atlassian, SolarEdge, Starbucks, and Teladoc.

I was checking back Sanmeet. I could never come up with this on my own, but I do use my Apple calendar to follow like what it was I doing on January 20, 2021. I'd forgotten. It was inauguration day that day. These stocks could have been five stocks rolled up at inauguration because that's what was happening on that particular day. But let's start with, as we always do, the worst performers. I've already spoiler alert, spoiled that one. Teladoc was in fifth place when you and I reviewed this a year ago. Sanmeet and Teladoc is very much even more in fifth place. This year the stock was at $246.74 two years ago when I picked it. Today is at $27.82. This stock is down 89 percent. One of the very worst stock pick I've ever made in a five-stock samplers. Sanmeet, what has been happening with Teladoc?

Sanmeet Deo: Well, Dave, Teladoc was a promising platform in the pandemic era when we're all stuck at home, we can go see our doctors or was too scared to maybe go see her doctors in-person. Wanted to say safe. They're telehealth platform gained a ton of prominence and users and almost looked like it was the next great thing in healthcare technology. Ever since that, as we've seen with many technology companies since the pandemic, the big boom came down with a big bust, and now we're normalizing with some of the companies of who can survive and still continue to do well in a new normal and new operating environment. There's just been a ton of uncertainty with this business. I mean, they've had declining operating metrics over the past year with utilization, visits, platform enabled sessions.

They've been having quite a management guidance game where almost every quarters, the beginning of the year they revised their 2022 outlook to reflect dynamics and the direct-to-consumer mental health and chronic condition markets which are experiencing pressure from higher advertising costs and elongated sales cycles, employers were delaying their decision-making to because of macro uncertainty. As we all know, recession and inflation has been the main concerns for any employer consumer in this market. They've just had issues with guidance. Guidance has been weak that causes stock to come down. They've had a heavy reliance on BetterHelp, which is their telehealth mental health app, which was very popular and a great platform for people to speak with therapists over message or video that grew very strongly during the pandemic, as one would imagine with so much so many people sitting at home and having too many thoughts and that started to slow.

It's been an issue because they do rely on it heavily for growth and they just haven't been successful with acquisitions. They made a huge acquisition of Livongo Health, which was not favorably looked upon. They've made multiple write-offs from that acquisition. I think it's almost overcome the amount of the acquisition cost. Then also just the big elephant in the room with Amazon making moves, whether it be starting some service related to telehealth or closing it down and then starting something else. They did partner with Amazon in about February early part of the year to bring their virtual healthcare to Alexa. Then that caused speculation of Amazon buying Teladoc completely. Lots of things going on in terms of their business revenue growth has slowed. Metrics, like I said, have been slowing. A lot of uncertainty, a lot of confusion whether this will be the next great healthcare platform that could really take off or will it just be a dud.

David Gardner: Well, Teladoc really is the poster child for telehealth. I mean, the platform. As this company merged with another fellow Rule Breaker pick Livongo, the market cap is up over $30 billion. Sanmeet, I now see the market gap down closer to just four billion-dollars a couple of years later. Anytime I see a company like this, Sanmeet, that has lost so much value and yet it's still in many ways a leader at what it does, I start wondering about the balance sheet and some of the financial dynamics. Because if a company has a fair amount of cash and maybe not much debt or if it's operational cash-flow positive, then one can see it clawing its way back. Sometimes you'd see a screaming buy for a company of this magnitudes still $4 billion down 90 percent from where it was. What do you see when you take a look at the balance sheet and Sanmeet, would you buy Teladoc stock down here at about 27?

Sanmeet Deo: Well, the balance sheet does concern me. They have about a one-and-a-half billion in debt. You have 900 million or so in cash, so that equates to about 600 plus million in net debt. But they are not operating cash flow positive, especially when you take out the highest stock compensation expense and they're not profitable. It's just too much uncertainty, none of balance sheet strength to really warrant me putting a position on in the stock.

David Gardner: I hear you and I'll say that I've been much more successful as an investor when I'm adding to what's winning, then when I'm trying to be a hero in the face of utter implosion, which is how Teladoc feels now to me two years later. One can imagine this five-stock sampler probably not beating the market when one of the stocks is down 90% and the overall market is only up four percent or so from two years ago, let's move from the big loser to the big winner and it's not really even much of a winner, but SolarEdge Technologies ticker symbol SEDG. Sanmeet, it was at 290.7 2 years ago, It's 319 as we speak, it's up 7.5 percent. That puts it about four percentage points of Alpha above and beyond the market average. One can imagine that's not nearly enough to tilt this one into the positive. But what's been going right for SolarEdge?

Sanmeet Deo: Well, as opposed to Teladoc, SolarEdge seems to have a lot of broader trends that are working. His favorite seems to be at the right place at the right time. Even though the stock hasn't truly reflected the strength of his business. They're seeing secular solar demand. There's a lot more favorable government policy toward clean energy in the United States and across the world. There's been the Russia, Ukraine war going on and that's caused higher electricity rates. But that actually has focused Europe, especially who's very reliant on Russia and Ukraine for energy.

David Gardner: We've seen that.

Sanmeet Deo: In a way it could be good because they're rethinking how they source their energy. That's caused a lot of strong demand for SolarEdge in Europe, for markets and Germany, UK, Netherlands. That's definitely been favorable. US solar growth is expected to slow in 2023, but that should be supplanted, like I said, by the European's demand. They're also seeing Taiwan, Japan, and other Asian nations expected to accelerate their expansion of solar build-outs and use. They've had revenue growing over 55 percent on average over the past four quarters. That's still strong. Wall Street has generally been bullish on the sector as well with multiple upgrades which has helped the stock continue to float up and competitors have done well, which has also caused causes them to do well. They're in a good spot.

David Gardner: Well, I certainly like the promise of solar energy. It's always felt to me as of looking backward from the future to today, everyone's going to be using the power of the sun for the most part, the most powerful thing in our solar system to power things. Of course, they're the possibilities of things like nuclear fusion and other alternative sources of energy. It's not nearly mature enough yet to start to really meaningfully replace fossil fuels at huge scale and yet playing the trends and looking backward from the future. I really do like solar energy.

I'm glad to know that this company has, well, I'm going to say tread water, I can't celebrate too much being four percentage points ahead of the market, Sanmeet, but given where the market has been and how bad Teladoc is, we'll take a win here. That's our worst stock, Teladoc, and our best stock here, SolarEdge. The other three, let me know if you'd like to talk about any of these Apple, Atlassian, and Starbucks briefly to account for them. Apple up three percent, Starbucks up two percent, Atlassian down 34 percent. Really we have three trickle upward stocks, Apple, SolarEdge, and Starbucks, none of which is up meaningfully one huge loser and then one significant loser. Atlassian, the Australian player ticker symbol T-E-A-M, has lost a third of its value over the last two years.

Sanmeet Deo: One of the things I like investing and enjoy analyzing is consumer-facing companies and the Peter Lynch philosophy, buy what you know. I'd love to talk a little bit about Starbucks. We've actually had quite a bit and noteworthy a year in terms of lots of news going on. In the early part of the 2022, I believe it was their first-quarter, they recorded their first EPS miss in over five years.

David Gardner: Only per share.

Sanmeet Deo: They're facing cost pressures due to commodity inflation, labor costs, those are impacting margins. Their margins are also being impacted by a massive investment in the workforce that they're planning. China, which is actually a big business for them, has been weak due to the COVID resurgence there. The good thing though is they've still had strong demand from customers and their pricing power is still pretty solid. Big noteworthy thing that happened is the CEO Kevin Johnson, announced his retirement April 2022. The longtime founder and former CEO, Howard Schultz is back again.

Some say he may never actually left. He was always hanging around. He came in. He plans on serving as Interim CEO until about the first quarter of this year. He paused buybacks because he wants to invest in employees and stores. Planning investments of almost a billion in 2022. There's that and they've also been battling unionization efforts all across our stores in the country. Lots going on Starbucks. They did confirm that Laxman Narasimhan will be the next CEO on April 2023.

David Gardner: That's right. Howard only came back as just an Interim CEO and we already know who the next CEO is.

Sanmeet Deo: He plans on coming in April 2023.

David Gardner: I thought it was April Fool's Day, in fact, Sanmeet. This is critically important to Fools everywhere. Keep going.

Sanmeet Deo: That's true. He was formerly the Global Chief Commercial Officer Pepsi. One thing too Howard Schultz, is he's always a fun person to listen to when he talks on calls or investor days. In September, they had a big analyst day outlining numerous the reinvention plan, I believe they called it and numerous initiatives, store investments, more automation, new brewing machine, and most importantly, a three-year goal of achieving 10-12 percent annual revenue growth and about 15-20 percent adjusted earnings growth.

David Gardner: Wow.

Sanmeet Deo: This is interesting. Their margins will be impacted with the big investment, all the cost pressures are facing. That's going to turn off maybe some investors because of slower EPS growth or earnings growth this year. But if their investments pay off and they're able to make some turns into in their business, it could be something that could do well in the next two to three plus years.

David Gardner: Well, let's hope so. I always have a heart for Starbucks. I'm certainly a Starbucks fan myself. Would love as one of my stock picks here in the five-stock sampler, I'm sure I'm sharing it on Apple. Is it $132 share two years ago this week, Sanmeet, 136 today another stock treading water right around where the market is. Do you have any thoughts about Apple?

Sanmeet Deo: The thing I'm actually looking forward to with Apple is what they actually come out with their virtual reality headset. It's either virtually or mixed reality headset.

David Gardner: Expected this spring or summer announcement, right?

Sanmeet Deo: Yeah, some time. Apple with the products they come out with, if it's as attractive as their other products and takes that technology to another level that'd be very exciting.

David Gardner: Yeah, I can imagine as wearables seem to be increasingly acceptable, I might even say popular at least one or two of the younger members of my family are often seen walking around with headphones on and strikes their grandparents says slightly anti-social but increasingly it seems like people are having headphones. Well, let's bring ChatGPT back in for a sec. Start bringing AI chatbots, you can imagine what you're hearing through your headphones about what you should do next or what you could say to this person in response to their all possibilities when we think about AI chat and headphones. It's certainly an interesting time. I'm an Apple shareholder, have been for a long time, continue to hold that stock.

Well, take all five of these together and I'm sorry to say that as of this point anyway, they're down 22.1 percent on average. That includes the very lows of Teladoc and the wimpy highest of a few of these stocks, the market again 3.8 percent. This basket, after two years with one year left is down 25.9 percentage points to the markets. Certainly a big red number, the exact opposite of what I was hoping for two years ago. But speaking of hope, I will continue to hope that five stocks rolled up at random and it will prove the power, Sanmeet of percentile dice, geeky D&D players like me, feeling like if you just get a great basket, you can randomize from that and beat the market. Again, a year for now, I'd love to be able to tell that tail. Teladoc may not come back much so we're going to need one of these stocks to catch fire. Maybe it's the year of Starbucks.

Sanmeet Deo: Maybe the first time I try out ChatGPT, the first thing I'll ask is, what is the stock winner for 2023?

David Gardner: I'm quite sure people are typing that in already. Well, thank you again, Sanmeet for helping me review this five stock sampler and you have a pre-invitation to join me a year from now when the Foolhalla music plays, and I hope it will be a happy tune.

Sanmeet Deo: Thank you, David.

David Gardner: Well, I'm about to welcome back, Asit Sharma to talk about five stocks that spark joy. I'm going to go a little bit further back in time. But before we do that, Rick Engdahl as Sanmeet and I discussed using ChatGPT to pick stocks for us, you raised your hand briefly. Why?

Rick Engdahl: I did in fact ask ChatGPT about some stock picks for the coming year.

David Gardner: I bet you're not the only one. I have to imagine that's happening a lot.

Rick Engdahl: Well, it very responsibly told me that I should do my own research and that is not allowed to give me stocks. Your job is safe right now. Brokamp, I'm not so sure because ChatGPT really did give me some good tips on personal finance when I asked them.

David Gardner: Well, I do think personal finance is probably a little bit more by the book and a little bit easier to speak to. But isn't that great to think that the chat AI bots of the future and even the present might well very responsibly be dispensing helpful personal finance advice worldwide. That sounds like a pretty good future.

Asit Sharma: It was fairly generic advice as you can imagine so maybe that gives Bro time to focus on some more discrete issues.

David Gardner: Well, strapping ourselves back in the way back machine, it's time to go even further back in time. In fact, right around this week, three years ago, the day was January 22, 2020. I hadn't yet read Marie Kondo's book about tidying up. But I was very familiar already with the concept of the con Murray method. Asit Sharma, you and I talked about this a little bit when you visited to talk about this basket of stocks a year ago. Is your house or apartment, is your home high-tier than it was maybe a year ago?

Asit Sharma: My home is tidier than it was a year ago, David. I am thinking that's something of that conversation rubbed off on me. I am the less tidy of the pair that now lives in the house, myself and my wife of many years, but I would love to do this every year.

David Gardner: I truly started to read, actually read Marie's book in the fall. I've already talked about this a little bit on the podcast, but I am dramatically tied here right now, and so it's a delight. I'm in a room surrounded by board games, and there were too many board games in this room. There still are hundreds, but there were even more than that and they were piled up on the floor all over. I was tripping around just trying to go over to my game table to play and now it's rather pristine. The only games left on the shelves are the ones that spark joy and that was the theme and is the theme for this five-stock sampler, five stocks that spark joy. The idea is you're supposed to pick something up and if it doesn't spark joy, toss it, give it away to somebody else, whether it's an old sweater or a stock.

What you're left with then is a sweater drawer of only the sweaters you love, or a stock portfolio of only the stocks you really want to be invested in. That was the theme, the five-stocks, alphabetical by company name, asset, Amazon, Apple, Etsy, Tesla, and Walt Disney, all of which are companies three years ago, and I would still say today three-years later, spark joy, for me. The theory is, if you invest your net worth, your lifetime savings in companies that truly do spark joy, probably not just for you, but that's important, but for the world at large, thinking of Disney, for example, I bet you're going to do pretty well as an investor.

Asit, let's talk through these stocks because it's Foolhalla time for this sampler. Let me say right up front that the market over these three years is up 20.1 percent. We'll just round that to 20 percent. That's what we're trying to beat, what I was trying to beat three-years ago with these five stocks. Let's go to the best performer. I'm really happy to say that Tesla, even though it's well down from its highs, was a stellar stock pick when it was selected as a company that sparks joy. Five-years ago, the price back then, just $37.97 today, the stock, well it's up over 200. In fact, today as we speak, it's up seven percent, the stock at $130 a share so Asit, this one is more than a three-bagger. What's been going right for Tesla?

Asit Sharma: Well, David, the major thing that's been going right for Tesla is that it's reaching the production scale that for a long time, management had predicated their success on. They open their Shanghai factory Gigafactory. They have Gigafactories now in Austin, in Berlin. This is a company which has the capacity to sell all those vehicles that they always posted to shareholders was a key for their success. That's one thing that's been going very right for them. The other thing that I'll mention is they continue to be fiercely innovative in their manufacturing. A very automated company so they have extremely high operating margins, much higher than a typical big automaker. Those things, I think, are in their favor as we even look forward beyond this year.

David Gardner: It's funny to be talking about what's going right at Tesla, Asit because you and I understandably are taking the three-year view for this stock because that's when it was picked and that's what this sampler is all about. But wow, Tesla is well down from its recent highs. Just as recently as mid September, it was at $300 a share, it's just at 130 now. Less than a year ago, it was triple where it is today. We're talking about a company in many ways under siege as CEO, regarded by many as a little bit of a loose cannon and that might be saying, at best, I continue to be generally an Elon Musk fan. I'm grateful for his existence and the many companies that he's scaled for good, I think overtime. Yet he's never been my five-star CEO type, a little bit of a wild man from my standpoint, but we've benefited mightily from buying and holding Tesla stock over a long period of time. Do you have any thoughts either about the state of Elon today or do you use Twitter, Asit, or what do you think about Tesla over the next year?

Asit Sharma: Like to take a stab at all three of those questions, maybe in one ago.

David Gardner: Awesome.

Asit Sharma: The first is that Elon Musk is someone who's always had an appetite for exploring new things, jumping into new ventures. Part of his new persona is not just taking on this latest venture in Twitter, but it's also getting out a little bit more in the public sphere using this big social platform to express views that before really weren't the concern of people who might buy the Tesla brand. Having said that, I think the outcome for Tesla, the stock is still pretty rosy. Again, if you take that 3-5-7 year view, whether this is going to be merely a good investment from here or great investment, I think will be directly correlated with the amount that Elon Musk chooses to focus on Tesla, how much it sparks joy for him, and he decides, maybe I'm tired of running this company, Twitter that isn't a company, that sparked my need to innovate on the manufacturing side. There is also some investor ANX in Tesla. The more recent term, over price cuts the company has been putting through on its vehicles as competition ramps up.

David Gardner: Saw that.

Asit Sharma: From other EV makers. But I do want to say there's something in this. Again, if you're looking past this year, that potentially it's beneficial to Tesla. That is that manufacturers, automakers look at something called cost volume profit analysis. To them, it's like if I sell enough cars to cover my base of fixed cost, then eventually I'm making incremental profit on every car I sell. That's the world of the big automakers. This is the world that Tesla is now entering cause it's reached that scale. It's actually not so unusual to see them now having to adjust sale prices as competition ramps up. Over time they're going to be poised to take more market share. I don't know if they'll ever be the undeniable category leader.

David Gardner: Probably not, don't you think? I was seeing Asit that electric vehicles in 2022 comprised 10 percent of global sales. That's for the first time, by the way. Obviously, well up from just the year before. But as the whole industry goes Electric, I can't imagine that there's going to be just this one, dominant player, but it does seem as if everybody is trying to catch Tesla. Even its installed network of chargers seems so beyond most, not just of any competitor, but the whole competition. It's going to be really interesting to watch. But neither one of us thinks this is a winner-take-all industry. Am I right?

Asit Sharma: You're correct. I think there you have it. Tesla can be a very good investment from here in an increasingly crowded marketplace. It could still be a great investment though, if Elon Musk gets back to his knitting and says, I want to make this more than about electric vehicles and see what manufacturer I can make out of this company. That will be something different. We shouldn't count on that. But I think both scenarios are fine for people who have the stock and are holding for that long-term period.

David Gardner: Awesome. Thank you Asit. Well, let's go from the best performer Tesla up 246 percent versus the market's 20. We start with a big class 226 in the win column. From that we go to the worst performer here. I'm really sorry to say it's Disney. Disney was $144 a share three years ago, it said 100 today, companies lost just about a third of its value down 30.3 percent. Again, with the market up 20, that means Disney is 50 percentage points behind the market averages. What has not been going so right in Disney?

Asit Sharma: It's interesting, you should ask, David today, Disney came out with an investor presentation to refute the claims made by an activist investor. One of the things they pointed out was almost hey, doesn't everyone remember there was a global pandemic and that hit our business model because part of that business model rests on theme parks. That cut into operating profits, and at the same time as we all know, Disney made the big leap into streaming services, which wasn't as easy to transition as some thought. But over time, as the world goes back to normal, and now we have Bob Iger coming back for a two-year stint to right the ship. I think the various components that have always worked very well for Disney are going to come together. The brand and the intellectual property of this company, second to none. I feel good about this making a bit of a comeback now, maybe not in time for the end of this basket, but feeling pretty positive on its prospects from here.

David Gardner: Well, it's a reminder, having just talked with Sanmeet about Howard Schultz riding back in on his Whitehorse to briefly take charge of Starbucks again before handing off the reins to someone else. I don't know whether it was the pandemic or declines in share prices, especially over the last 18 months. Or the activists who sometimes show up in the face of those. But we're seeing some of the well-known CEOs ride back in and take charge again. Well, these are long-term minded players. I don't think they're just trying to save their stock price in the near-term, but they are trying to, right the ship in some cases. Starbucks is actually up over the last few years. Disney though very much not. I regret to say it's 50 percentage points as I mentioned, behind the averages. Good news, we had a plus 226 with Tesla.

Let's look through the other three briefly take them one at a time based on reverse order of performance. In other words, our second worst performer after Disney was Amazon. Now this is a company that I've used extensively through the pandemic. I've bought and held the stock for a long time and I plan to keep doing that Asit. But Amazon, three-years ago this week at 94, this week at 96. It's up two percent. It's been volatile up and down and down recently like Tesla. But just two percent over three years, the market again up 20, so Amazon 18 percentage points behind the market. There are not that many three-year periods under Jeff Bezos, or in this case not entirely anymore under Jeff Bezos where Amazon underperformed. This has been one of them.

Asit Sharma: It's very interesting that over that same period in which Andrew Jassy took over the helm of Amazon. Amazon doubled its physical footprint for its fulfillment and distribution model. It took them 25 years to build the first iteration, two years to double it.

David Gardner: Just incredible scale.

Asit Sharma: Yeah. I feel this is going to pay off for them. All of the capital expenditure that they've committed to over the past few years has obscured the fact that they've now finished this big footprint and they will reap the rewards. If you look at their free cash flow, that free component I think, is going to come back as now they move into maintenance mode on that network. I've seen some projections as much as 78 billion in free cash flow for Amazon in 2026. This is an underappreciated part of their story. I think investors will look at that free cash flow in a few years and wonder for those who don't, why don't I own this? We will see some periods of outperformance.

David Gardner: Yeah. This is a company that surprisingly anyway, to me, given its outstanding performance for the most part, but it dropped below the one trillion dollar market cap markets now back into just 12 digits, not 13 anymore Asit, $972 billion for those playing the market cap game show at home. Amazon, an underperformer. The other two, I'm happy to say both have beaten the market and at least one of them quite substantially. Let's next go to Apple, which is performer number three here, among the mix of five, Apple up 71 percent over the last three years, the market up 20. Apple, well up over the market. Any thoughts about one of the more talked about companies?

Asit Sharma: I love this one big picture thought. In the last fiscal 12 months, Apple had 78 billion sales of its services. David, it only had 22 billion of cost against those services. That 56 billion differential in gross profit paid for all of Apple's overheads for its entire business, it had about $5 billion leftover. You throw in the production side the part of the business that is oriented toward product and you see just how much potential it's still has. I briefly want to say this looking forward today as we're taping, Apple rolled out new MacBooks with its own M2 chips, next

generation of chips. It is designing its own cellular modem chips. It'll be less reliant on Qualcomm about three years, it's moving production out of China into India and Vietnam. All these moves are operational moves. Apple has been gearing up for its next phase of growth in a very thoughtful manner. If you're doing such operational tweaks, who do you want to pushing those forward, but one of the best operational minds on the planet in Tim Cook? I think again, some under appreciated strengths of Apple that we'll see mature over a 2-3, 4-year period.

David Gardner: Having just talked about this company a little while with Sanmeet, where Apple over the last two years was up three percent, and unexciting also ran really just where the market's been. You just dial it back one year. All of a sudden we're talking about this wonderful winter up 70 percent against the market's 20. All of the Alpha didn't occur this year or last year. It really showed up between years three and two ago. It's just a great reminder. I think that we can't really no timing I think. I've always tried with each of the samplers just to find excellent companies that fit my themes. There's never any forensic ability I think on my part or intention to like pick it at the right moment.

But it's funny to think about how differently I regard Apple in this five-stock sampler versus the one we just talked about that's simply one year of duration, less it does remind you of where some of these stocks might go over the next year up or down, and we've seen both. It is fun to note that Apple has a $2.1 trillion market cap. More than twice the overall market cap of Amazon, I tend to think of them as similarly size, but at this point, and I really like what you pin down on there Asit, the software side of this business it's not to say Apple is no longer a hardware company, it is even more so probably that it was certainly 10 years ago. It's just that they added a huge new arrow to their quiver, or maybe a quiver to their quiver when they shifted toward software and services, and we're seeing now the incredible benefits of that thinking played out over not one year or two, but over the long term and the benefits for shareholders.

Asit Sharma: Absolutely.

David Gardner: Well, of Apple's the third best, and it was up 70 percent and Tesla was the best up 246 percent. Somewhere in between is an excellent company and that would be ticker symbol E-T-S-Y, Etsy, which three years ago was at 50. This week, it's at 133.5 stock up more than two times in value, up about 166 percent. Asit, were people buying more from Etsy during the pandemic?

Asit Sharma: They were David, that buying has cooled, but maybe not as much as people would expect. The CFO of Etsy said something at an investors conference recently that really caught my attention, Rachel Glaser, she said there are 100 million items sold on Etsy, so five million sellers, 90 million buyers, 100 million items sold. For the most part, these 100 million items are special, handmade things. It's just amazing this is a unique company. Like Tesla is operating at scale now, it's reached scale in its industry. Last quarter they had three billion dollars in gross merchandise volume. Now, the company posted this big loss because they took huge write-down on goodwill for acquisition of some other platforms they had made. Depop was one of those. So they haven't had a perfect track record. But I think investors are seeing beyond all that and just seeing how sticky this platform is.

Speaking of weird time periods, shares are down 49 percent year over year, but in the last six months after this huge trough in July, the shares are up 63 percent. That's how it comes in at the end with that performance. I think, wow, in an inflationary environment where everyone is hyper-focused on what the consumer is going to do for there to be so much confidence in Etsy on the part of investors shows that many investors are realizing how special this platform is and how buyers tend to stick around. I know you shouldn't ever take anecdotal evidence and extrapolate that is investment guidance. But I believe my family's bought more in Etsy this past year, I've maybe grumbled about how much? In your past, even as I've also been shocked by the price of eggs going up, I still bought more items and maybe a bigger dollar volume from Etsy over the past trailing 12 months.

David Gardner: Well, I love hearing that certainly as a long-term fan of Etsy, this company, the volatility that you're speaking to us. Again, I'm glad you're underlining that these are very unusual time. To think that the stock was around a year ago at 300 and today we're smiling and celebrating it at 133. For some of us, we feel like this stock's been cut in half. But if you'd bought six months ago with the stock somewhere around 70, you've practically doubled your money in the stock. Now we're not about the last six months, we're not about the last year. In this five-stock sampler, we're about three years. Really for most Foolish investors, that's an absolute minimum. That's how I think about three years. But the game we're playing of three-year, five-stock samplers gives you a much longer viewpoint.

There you see Etsy hovering at $50 a share three years ago. More than a double today for a company. Yeah. I agree with you said I think one of the great strengths of Etsy is I've always described it as Amazon proof because the things you buy an Amazon, other people can buy on Amazon and sometimes they're offered other places. The things you buy on Etsy, maybe only you got to buy that on Etsy and maybe no other platform has those things. Just checking the Wikipedia page, Josh Silverman, the CEO, I'm seeing he quit his job at AIDAC labs in 1998 to work full-time on building what would become e-vite. How often do we notice, especially among Internet CEOs, this ability to start one thing and then transition it to something else, shopping.com, eBay. He was also the CEO of Skype anyway today, Josh Silverman, the CEO of Etsy. Anyway, it's a great long-term business story. It's been a wonderful Rule Breaker stock for many. Yet, 300 dollars a share somewhere late last year. You're not very happy with your Etsy right now.

Asit Sharma: That's true. But they're showing something that I really liked very Marie Kondo-like, very Prieto principle like. They're focusing in on the sellers that sell the most and helping them to succeed more on the platform. I think they are undergoing that, those that bought at that level will take some patients for you to see your investment come to par probably, but they're doing the right things so that you can feel reasonably assured that over a long time you'll be able to come back at even. We can't predict what it will do from here, but certainly has all the elements to keep growing.

David Gardner: Well, we're here to remind everybody listening that even though this five-stock sampler is coming to an end, these are stocks to hold. Indeed, each of these stocks in Motley Fool services were recommended at prices well lower than the ones I'm picking from three years ago. This is the way to make money as an investor, to find great companies and hold them over long periods of time. I trust and hope anybody who owns any of these companies, whether it was three years ago when you heard this podcast or you've held it less than that. I hope you'll hold it much longer going forward. Asit, you and I are both agreeing. I saw you nodding earlier. These are companies, these are the things you should be filling up your portfolio with to return to the theme, "Companies that spark joy for you and for many others."

Asit Sharma: I look at these companies, I feel joyful. Sometimes it's a latent joy, when market's down and I see their positions have gone into the red. But over time, when I project forward, this is a basket of companies that I just feel so optimistic about because each of them is wow, innovating within its field, creating new products and services, making people happy, making consumers happy. I still think this has some mileage left in it beyond where the scorecard ends.

David Gardner: All right. Well speak in the scorecard ending, technically, this one doesn't end as of this podcast coming out as it does on Wednesdays. In this case, Wednesday, January 18th, because we have to let a full three-years play out and that means through Friday. So by the end of the week, we'll put the final numbers out. I'll put them out here for now. For now, this five-stock sampler, five stocks that spark joy averaging a 90.9 percent return those five stocks versus the market's 20.1.

So we are way up 70 percentage points plus for this five-stock sampler, it's sparks joy Asit for me to think that that's how things played out, especially given how really difficult the market has been. Many of these winners, half where they were a couple of years ago in some cases and yet look how it's done. I will say this, we're not going to play the Foolhalla music because we can't officially send this one off to Foolhalla until we get to the weekends. On next week's mailbag, we will play the Foolhalla music. Asit I hope you'll still be listening on next week's mailbag so you can hear and maybe get a little emotional as we watch five stocks that spark joy, ascend.

Asit Sharma: I can't not listen, David, because I'm an emotional guy and I love closure. 

David Gardner: Well, closure is coming next week. It was a lot of fun to watch these companies perform through some of the strangest and in some cases, most difficult investment years I can remember. Let me thank again Sanmeet Deo and Asit Sharma once again for their intelligence, their efforts to track these companies and keep us informed about what's happening. Asit at any final takeaways as you think about the con Murray method, about sparking joy or about the future?

Asit Sharma: I think the future is going to be one in which we find joy in unexpected places. At the beginning of a new year, I'm seeing a lot of fun things, investment in great places, from digital healthcare to electric taxis. Just a lot of concepts that in the future are going to be joyful experiences. I'm optimistic. I know the market has all feeling a little ill at ease as of late, but a little positive start to the near. Let's see what happens.

David Gardner: Yeah. I think the market's going up this year and that's at least how it's started. Asit Sharma, thank you. You and I talked off air about ChatGPT. Did you commit to me at some point in the next three months to sign up for free, by the way, and start using the service?

Asit Sharma: I did, David. I'm going to stop this vicarious thrill business of watching people talk about their experiences on Twitter and go ahead and sign up and using myself.

David Gardner: You know what I've really benefited from? Sometimes I have these friends, maybe you dear listener and maybe you Asit Sharma have these friends too, who send you really long things. They may have sent you their three-page holiday letter about what happened in their lives or the five page PDF of their recent insights. It turns out you can copy and paste large blocks of texts into ChatGPT and say, summarize this for me. In a paragraph or two, it is a much more efficient way to hit the highlights without going all the way through that five page PDF. There's at least one practical use Asit that you can begin enjoying if you have such friends.

Asit Sharma: I feel like there's a devious usage in there. Dear X, here's what I love most about those 11 pages you sent me.

David Gardner: As long as you read it and agree with what ChatGPT came up with, I would say, yeah, hit the Send button.

Asit Sharma: Game on. 

David Gardner: All right. Well, a reminder, we can't actually officially close five stocks that spark joy until the weekends. On next week's mailbag, I will give you the final numbers. Now, a reminder, next week is your mailbag, [email protected] is our email address @RBI podcast you can tweet us on Twitter, love to have you join me with an interesting question, a valuable thought, or maybe as short poem on next week's mailbag. In the meantime, Fool on.