The Prosocial Portfolio, one of the portfolios that was part of The Motley Fool's Real-Money Stock Picks program, is drawing to a close. This article is one of a series providing updated thinking on stocks I purchased for the Prosocial Portfolio that The Motley Fool will now hold for the super long haul. All stock returns cited in this article are as of July 6, 2015.
For simplicity's sake, I'm splitting up stocks for the Prosocial Portfolio closing update series. For me, the four Prosocial Portfolio stocks I'm covering in this article bring to mind people. Whether we're talking about strong brands that people really identify with or rally behind, or companies that literally connect people with one another to fulfill different kinds of aspirations, these companies have people at the core.
Et tu, Etsy?
I just couldn't resist a good Shakespeare reference starting with "Et," but I don't really feel betrayed. So far, Etsy (NASDAQ:ETSY) could easily be perceived as one of the most monumental flops in the Prosocial Portfolio, ending the project with a sad, sucking sound. Its shares have dropped about 40% since the April purchase. Still, I don't view a stock that's tanked in several months time as a failure. I made it clear at the time that the newly public company was a particularly risky stock, and it's incredibly difficult to value an as-yet-unprofitable company forging a path in the indie "maker space" that's growing for a variety of economic reasons, such as the trend toward freelance work.
Since going public, Etsy has been hammered with fears about risks like intellectual property violations and even counterfeit products. While this does constitute legitimate risk, it is, of course, nothing that would surprise anyone familiar with online marketplaces like eBay, which is just one company that has grappled with such issues over the years. In its first-quarter conference call -- its first since going public -- Etsy CEO Chad Dickerson offered some of the ways Etsy polices such violations, as well how it attempts to educate users about big no-no's concerning infringing materials, so shareholders can take heart that the issue certainly isn't lost on management.
Meanwhile, Amazon.com's apparently testing the waters for a rival service with "Amazon Handmade," which has spooked some Etsy investors as well. Personally, though, I think Etsy has a significant competitive edge; I'd question whether the types of artists, entrepreneurs, and consumers who find Etsy appealing would wholeheartedly trust Amazon. After all, Amazon screams "big" and for some, "brutal" -- and for some people, it's too massive and powerful for comfort.
For those who believe in Etsy's overtly socially responsible mission and the power of small entrepreneurs using the site's services to attract consumers who are burned out by big-box homogeneity, the stock may be a steal right now. In addition, given its status as a B Corp, investing in Etsy in itself constitutes a stand for social responsibility and long-term holding -- and in a way I'd argue it's even a challenge to status quo thinking in the world of business and investing.
Still, I continue to caution that the newly public stock is not for the faint of heart. Investors who may be averse to risk and prone to motion sickness from volatile, more speculative stocks probably won't enjoy the intense, risky roller-coaster ride as Etsy works to adequately grow into the competitive landscape.
Facebook still gets an investing "Like"
Facebook (NASDAQ:FB) is currently one of my favorite stock ideas. If the Prosocial Portfolio hadn't been drawing to a close, I planned to buy more shares of the social media powerhouse, despite the fact that the original position had already increased by 55% and Facebook recently knocked Wal-Mart out of the list of the top 10 highest-valued companies. Here is a link to my latest thinking as to why I believe Facebook is a great force for positive progress in the world, although many people turn a far more critical eye on Facebook's business and motivations.
The social media giant is currently trading at 33 times forward earnings. Granted, that doesn't exactly look cheap compared to analysts' expectations for 32% earnings growth in 2016, but it certainly compares favorably to social media rivals LinkedIn and Twitter, which sport forward price-to-earnings ratios of 64 and 53, respectively.
However, I believe we shouldn't underestimate Facebook's potential, given founder/CEO Mark Zuckerberg's big-picture thinking and the company's portfolio of products beyond its namesake social network, including as-yet-unmonetized products like WhatsApp and Oculus Rift. I suspect Facebook's growth will surprise us all over the long term -- and amply reward today's shareholders.
Nike's winning secret weapon
Investors have plenty of reasons to like Nike (NYSE:NKE). It possesses a solid brand with a reputation for athletic excellence and an array of products to help people pursue their health and fitness aspirations. It's also well-positioned to take advantage of trends in the "athleisure" apparel market, which even attracts those of us who are more interested in comfort than sports.
As far as the Prosocial Portfolio is concerned, though, Nike offered an extra, under-the-radar bonus: building sustainability into its business. According to its corporate sustainability report, it's dedicated to the idea that "... creating and building business models that not only recognize and accommodate, but thrive also on, the constraints of the natural world is the only way we can achieve growth in the present that won't compromise our ability to grow and succeed for decades to come."
Nike's Flyknit is one example of the company's innovations in this area. It has provided athletes with a popular shoe that, behind the scenes, is manufactured with serious sustainability cred. Even investors who aren't interested in sustainability can appreciate the high margins attributed to Flyknit, -- the light, sock-like effect not only saves material but it cuts labor costs, too.
In another example of the sustainability win-win, Nike's been working on water conservation, having introduced water- and chemicals-free carbon-based dyeing processes. Before its work in this area, Nike used 325 million gallons of water per year, and its textile plant contractors guzzled through another 3 billion gallons. In addition, since the process means the garments don't have to dry, energy use is slashed by 60% and the articles even dye 40% faster. For more on this and Nike's other CSR victories, check out this piece published by TriplePundit.
Nike clocked a 47% return in the Prosocial Portfolio within about 12 months. I continue to consider it a high-quality company with a willingness to evolve -- a solid hold (and a dividend payer, to boot). Given the fact that Nike shares trade at 23 times forward earnings, and it faces heated competition from the likes of Under Armor, I don't view it as a screaming buy in the consumer goods space at the moment. On the other hand, even though a cheaper price would be more compelling, investors could do worse than dipping a toe into the stock today -- Nike may surprise, given its solid position and management's willingness to look ahead of the sustainability curve.
Apple: still ripe for the picking
Apple (NASDAQ:AAPL) was a bit of a controversial Prosocial Portfolio pick in April 2013, but the price was most definitely right; the original position more than doubled. Apple's a beautiful company in many ways, including aspects like its emphasis on design and functionality and a history of being ahead of the curve with products from the iPod to the Apple Watch. It never rested on its Mac foundations, but instead created a massive ecosystem of products and services, but supplier issues long left a troubling blemish for socially responsible investors.
Still, CEO Tim Cook seems to be the architect of a very compassionate Apple, and under his leadership, he has made it clear that not every business decision drives the super-short-term bottom line; many drive longer-term value in areas like sustainability or are simply the right things to do, period. There's a lot to be said for a leader who has publicly stated, "[Apple does] a lot of things for reasons besides profit motive. We want to leave the world better than we found it."
Right now, we could view a still-innovative tech name like Apple as a steal trading at 13 times forward earnings, with a PEG ratio of just 1.01. Even after being such a great performer in the Prosocial Portfolio, Apple still looks like a reasonable buy to me -- and if investor psychology lays it low like it did when I first purchased shares in 2013, that would be an even better opportunity for long-term investors.
Obviously, given the fact that I have asked The Motley Fool to hold all Prosocial Portfolio stocks but one, it's no surprise there's a major "hold" theme here. With this particular set of four stocks, my original theses remain intact -- and I still consider them positioned for growth.