In this episode of Rule Breaker Investing, Motley Fool co-founder David Gardner is joined by Motley Fool analyst Karl Thiel to check in on 5 Stocks That Got Trouble, to see if they are out of trouble and how they have performed against the wider market in the last two years. Next, David shares a new 5-Stock Sampler with companies that have persisted and grown for decades. Learn their origin stories, strengths, financials, how they are preparing for the future, and why you should put them on your watch list.
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 November 11 , 2020.
David Gardner: Well, what a start to November, these markets are volatile. Volatile to the upside for some companies, volatile to the downside for others. Many of the companies that had won the first 10 months of 2020 are losing this week, and vice versa. But why spend much time talking about a given week or even a given year? Nope. When we invest, we invest for a minimum of three years, and that comes to mind in particular this week, because we’re going to be reviewing a 5-Stock Sampler, one that was picked for a three-year minimum period, and it was two years ago this week that I selected 5 Stocks That Got Trouble. We’ll be reviewing those.
And it’s time for the latest 5-Stock Sampler, the 27th in our historical series, 5 Stocks That Will Press On.
A review of a past sampler, the creation of a new one, only on this week’s Rule Breaker Investing.
And welcome back to Rule Breaker Investing. I hope you enjoyed Stock Stories, Vol. 5 last week. I had a lot of fun learning through each of my teammates. And in fact, for each one, I said, hey, would you help me review a 5-Stock Sampler sometime this month? And so, that’s exactly what Karl Thiel raised his hand to do earlier this month. Karl will be joining me shortly as we go over 5 Stocks That Got Trouble.
Well, last week, we reviewed 5 Stocks for Conscious Capitalism, and I’ll mention, next week, we’re going to review 5 Stocks That Let You Eat Cake. So yes, November has been a stock-picking time of year for this podcast. When you do it every year, when you review them every year, you’re going to come back years later with multiple ones to do. And rather than have a Review-a-palooza! episode, where I could have done all three at once, I thought it was fun this month to break it up and have some new content each month as well. The focus this time is, as I mentioned last week, a new 5-Stock Sampler, this will be the 27th. I’ve done that every 10 weeks or so. And yup, we’re up to about 270 or so fresh podcasts; I’m not even including the extras that we’ve thrown in on weekends over the years. So, it is that time once again for our newest 5-Stock Sampler. We’ll do that in the second half, the back-half of the show, and I’ll explain what I mean by 5 Stocks That Will Press On, when we get there.
But without further ado, let’s start, and I’m going to ask Rick Engdahl if he could give us a little bit of way back music here.
Now, it’s not that far back, admittedly, it’s just two years ago, although, a lot of us feel like just a year ago, how different did a year ago feel from this November of 2020? Well, this is two years ago, and as November arrived, I didn’t really have a great theme in mind for this particular 5-Stock Sampler, so I decided to be silly, I had already done it once in 2018. Earlier that year, I picked 5 Stocks That Are Mm-mmm Good. And well, the “Mm-mmm” was a pun, because it was five stocks that all started with the letter M. And that felt pretty good some months earlier in 2018, so as we arrived around Thanksgiving of 2018, I thought why not go with five stocks that start with a different letter, how about T? T might be Thanksgiving, but I also, for some reason, had in mind one of my better moments from high school, back in my musical theater days senior year, I got to be the music man in the classic American musical by the same name The Music Man. Harold Hill and for those familiar, you’ll recognize Trouble with a capital T, and that rhymes of P, and that stands for Pool.
Now, I know all you folks are the right kind of parents, and I’m going to be perfectly frank, would you like to know what kind of conversation goes on when they’re wandering around that hall and the lyrics go on? I still have them in my head, the signature song Trouble. And Trouble was particularly apt for that quarter, does everybody, especially investors among us, remember what was happening in the fourth quarter of 2018, how about a major nosedive for a lot of really great companies. 4Q 2018 was not kind at all to investors of any kind. And so, I specifically was looking at companies that were well down from their recent highs in 2018, those are 5 Stocks That Got Trouble, so we’ve got some Harold Hill mixed in, we’ve got some market conditions of 2018 mixed in.
And now, we have my friend Karl Thiel, mix him in. Karl, welcome.
Karl Thiel: Glad to be here. And I do have to say, I was excited to find out that apparently you can sing.
Gardner: [laughs] I mean, I kind of can, yeah, that’s the only instrument I can play. I was always in the choir in college, I was in the glee club, and I was the musicals guy in high school. But I decided to dedicate my life instead, Karl, to The Motley Fool. There’s an alternate universe where David Gardner is a very mediocre stage performer somewhere, but I’m just glad I’m not that version of me.
Thiel: [laughs] It’s too much to hope for today, but I just really hope that Rick, our Producer, somehow figures out how to get you to sing on a podcast at some point.
Gardner: [laughs] Well, we’ll leave that for another day, but it was fun to think about The Music Man as we thought about 5 Stocks That Got Trouble. And, Karl, you’re here to help us think through what’s happened in the two years since, so thank you for volunteering. My long time Rule Breaker analyst and friend, helping write up a lot of my picks in Stock Advisor and Rule Breakers over the years, and picking a bunch of them too. I know we’ve made much of your selection of Shopify for our team in Rule Breakers, the first one to bring it to The Motley Fool.
You’re too humble to mention that, but I do like to brag on my friends, and, Karl, you’ve picked many great stocks in Rule Breakers. I think at least one of these might be yours, not one of your best picks, I think, 5 Stocks That Got Trouble, you can talk about that or not if you want to, but actually now, looking over, I see one of your best picks also in 5 Stocks That Got Trouble, so this will be, I’m glad I’m reviewing this with you. Karl, are you ready?
Thiel: I am.
Gardner: All right. Well, Karl, as is our tradition, we’re going to go worst to first on 5 Stocks That Got Trouble. So, let’s start with ticker symbol TWOU. The company is 2U (NASDAQ:TWOU). The stock is down 42% over the last two years. Now, I’ll mention right now that the stock market, over the last two years since November 14th, 2018, right as you and I are talking at 3:19 PM Eastern on Tuesday, November 10th, which happens to be my wife’s birthday, Happy Birthday, Margaret! Stock market is up 30.8% since that day two years ago. So, that’s what we’re shooting for, we’ll round it to 31%. So, with 2U, Karl, down 42%, we start -73% in the hole, -42% versus a market of +31%. Ouch! what has been happening with 2U?
Thiel: Well, one thing I have to say is that this got way worse just yesterday. 2U was down 20% yesterday, so it would look a little bit better if we had done this podcast a week earlier. But, yeah, this is one for which I bear some personal responsibility. [laughs] And it’s a shame, because I really like their mission, which is basically online education, but not just online education the way everybody’s kids are doing it at school, but really, kind of, scripted, prepared, very well-organized online education. They talk about how every class involves more filmed content than a season of Game of Thrones.
The company did very well, it had kind of a SaaS model to bring to this. They take a share of tuition revenue for the programs they set up. They enter very long contracts, and they have a great deal of visibility, because these contracts are +10 years. So, nobody is going to, like, suddenly skip out on them. What is less predictable, however, is how much enrollment they get. And as a lot of competition mounted and they were having some enrollment problems, they suddenly changed tack in July of 2019 and said, we’re not going to set up so many of these programs, we’re going to grow out in different directions with more fee-for-service short courses and things like that, and the market just flipped out, it was down 60%-some the day that they announced that.
Gardner: It’s funny to think, just two years ago, Karl, this was one of the 5 Stocks That Got Trouble, and what was the trouble? Well, the stock had crested high $90s in the Summer of 2018, and all of a sudden it had dropped to $51, which is roughly our cost basis from two years ago this week, and then it nosedived to about $10 based on the events that you just described. And depending on when you bought the stock, you either love it, hate it, or maybe you’re somewhere in-between. Because if you did buy at $10 right around August of last year, August 2019, my golly! Even after the 20% drop, you have a 3-bagger.
Thiel: That’s right.
Gardner: But at the same time, Karl, looking at the stock in 2020, you would think 2U would be just a total hero. With so many kids distance learning, the company seems so well set up. It has had a pretty good year, I mean, it started this year right around $22, so now it’s at $30, but I mean, there are a lot of stocks up a lot more than that that are less favored by these circumstances.
Thiel: If you take it right off of its March low, it is up about 200% since then, but yeah, it’s not done as well for a company that seems to be in a great position. It is moving — its business model means that it moves forward somewhat slowly as it sets these things up. I think what’s ironic about it is that their plan was to temper revenue growth and focus more on operational efficiency, and if you look at what’s happened since then, revenue growth has actually almost never missed a beat, they were growing in the 30s percentage-wise before, they’ve continued to grow in the 30s percentage-wise ever since, whereas [laughs] losses have widened. And they’ve, kind of, hinted around more recently that they might get a little more aggressive about adding on some of these programs.
Gardner: And thinking, again, about that 20% drop earlier this week, Karl, it was one of those stocks that, I mean, I saw Zoom go down 15% or so on Monday. Zoom didn’t have any bad earnings announcement, it’s just there was a real shift away from stocks that benefit from the stay-at-home life that most of us have enjoyed, or not, in 2020. There was no bad earnings announcement from 2U. CEO Chip Paucek didn’t step down or anything like that, this stock just dropped 20% in sympathy with those kinds of moves. So, interesting to see just how volatile in a single day a stock like this could be.
But we continue to actively recommend 2U, to hold out good hope for it, and remember, this three-year game we’re playing for 5 Stocks That Got Trouble, will end next year, not right now, so we’ll see where 2U is one year hence.
Well, thank you for that, Karl.
All right. So, from worst to first, that was the worst. And here’s some good news my fellow Fools and listeners, and anybody who was listening to the podcasts two years ago, may have bought one or more, except for 2U, of these stocks all the rest are winners. And boy! Does this get spectacular. But let’s stick quickly with performer No. 2, the second-worst here, Take-Two Interactive (NASDAQ:TTWO), ticker symbol TTWO. Take-Two Interactive, the video game company, up 45%, again, versus the market’s 31%, so that’s a +14%, helping us retrace some of our losses from 2U.
Karl, any words on Take-Two?
Thiel: Yeah, I feel a little aggrieved on behalf of Take-Two. I mean, obviously, they handily beat the market, but I was surprised that they didn’t do even better, because to some extent this is a “obvious COVID winner” with everybody gaming at home and everything. And they have done well. There was a moment in March where they’re actually underwater from your pick two years ago, but that’s, obviously, reversed itself. And I would say that a big part of it is that, kind of, the big catalysts for the stock were already in place at the time you mentioned it, Red Dead Redemption 2 was already out; obviously, that’s been a big driver. Grand Theft Auto V online, just continues to bring in players, that was also already in place, although —
Gardner: Isn’t that amazing? I mean, when that came out, I’m always a day-one buyer for AAA titles for consoles, so I bought it the first day. I didn’t understand or know at the time that I was buying not just a DVD that I could stick in my console and play once. And by the way, I never finished any of the Grand Theft Auto games. I always buy them, [laughs] play them about half way through, and then get distracted by a squirrel. But little did I, or many of us, know at the time that, wow! Take-Two had plans to turn that into Game-as-a-Service GaaS, not just SaaS. I mean, pretty much 10 years later, games like World of Warcraft, Grand Theft Auto V, etc. The gifts that keep on giving, and it’s just been an incredible story. They are trying to do the same thing with Red Dead Redemption too, by the way.
Thiel: Yeah, I think that looks like another, sort of, forever title for them. And they were hitting new monthly active user records in 2020 for GTA V, which, I mean, when you think about it, that is a seven-year old game, it’s amazing.
Gardner: Yeah. All right. Well, we could say more about Take-Two, but let’s keep moving, we got a lot to cover still. So, stock No. 3, the third worst performer or at this point, I can say the third best performer, sleepy Trex (NYSE:TREX), ticker symbol TREX. Yup, one of those companies whose name is its ticker symbol, was a stock that got trouble two years ago in the fourth quarter of 2018. I’m glad we recognized it then, the stock was at $29.54, today it’s at $68.69. Yup, that’s up 133%. So, if you deduct the market’s 31%, we’re left with +102 points of alpha; that on its own wipes out 2U and leaves us some profits on the table.
Karl, anything you want to say about this outdoor composite decking manufacturer?
Thiel: Well, this is another one that’s seen some pretty big COVID gains, but it was actually up significantly before that. I do think there’s something of a COVID home improvement angle, and that’s actually been borne out in the numbers. Revenue growth was 8.9% in 2019, it’s accelerated to 13.4% over the last 12 months. So, I think it’s legit that it is actually seeing a boost. This is also one that had a big dip in March. And also, a company that took a fairly big bath yesterday. But at their low ebb in March, they were momentarily underwater from your pick two years ago, but did not last long, and they’ve obviously done incredibly since then.
The only other thing I’d say about it is that I can’t face Rick Munarriz, if I don’t mention the suburbanization trend that he’s been, sort of, hammering on recently, which is just people moving out of cities and into more suburban areas to get a little more space, and that comes along with fixing up a deck.
Gardner: I’m glad you mentioned Rick, Rick will be joining you and me, I think, along with Maria Gallagher, on Thursday on Motley Fool Live. So, for Rule Breaker members and Motley Fool members, you can point your browser at Live.Fool.com at noon Eastern on Thursday, where Rick will probably talk some more about suburbanization, but our longtime friend and an analyst on Rule Breakers, Rick, also having brought so many great stocks. And in fact, it was you and Rick who partnered to bring the best performer; we’ll talk about that in just a little bit, to this 5-Stock Sampler.
But before we go to stock No. 2, I just want to say that I love Trex. I mean, I love that we brought to Rule Breakers, first recommended on July 25th, 2012, so here we are eight years later. This is not a SaaS company; this is not really a high-tech company of any kind. Our cost basis on July 25th, 2012, this reminds us of the benefits of true investing as practiced by Fools everywhere, and especially in Rule Breakers, our cost basis is $3.38 for Trex, it’s rocking over $79 as we speak. This is a 23-bagger for a company that a lot of people have still never heard of, whose market cap is under $10 billion. I really like the future for this company.
All right, that takes us to the second-best performer. Now, the second-best performer is a company that could not have been more favored, probably, in present conditions, and I’m talking about Teladoc (NYSE:TDOC), ticker symbol TDOC. Yup, another stock that starts with a T, that had some trouble two years ago in the fourth quarter of 2018. Boy! Am I glad we snapped it up with this sampler at $57.40, because today it’s right over $173/share. That is a 3-bagger ladies and gentlemen and Fools, the stock is up 202%, again, against the market’s 31%, that gives us a +171% in the win column. Anything more than the very obvious statement that Teladoc is extremely favored in 2020, that you’d like to share with us.
Thiel: Yeah, I was going to say, there’s no false drama that there’s an obvious COVID angle here. This is one of the few stocks that I looked at that had no appreciable dip in March, right, almost everything dipped in March, Teladoc really pretty much didn’t. But I will say that the company had had a good run before we recommended it and was actually kind of sleepy in the first year after you recommended it but it was ramping up in the months prior to COVID, which actually pretty well coincided with our second recommendation of it. They’ve just had consistently strong earnings. It’s just been excellent performance, and obviously, that did get really goosed by the pandemic.
I think the other big, sort of, factor with the stock right now, is their merger with Livongo.
Gardner: Right. A company I didn’t even know about two years ago, we couldn’t have known that at the time or at least predicted it, and yet, this is now emerging as an integrated future-facing healthcare monster kind of company, I think.
Thiel: Yeah, I really like it, but I will say it’s not something that’s driven returns really; the stock kind of dropped after it was announced and hasn’t really come back since. I think, hopefully, people will come to appreciate it eventually.
Gardner: All right. Well, that brings us to stock No. 1 from 5 Stocks That Got Trouble. Now, a reminder, while we’re celebrating extreme outperformance, this game was set for three years. So, we’re past halftime, we’re in the second half, but a lot more could still happen in the year ahead, the market might sell-off in the year ahead, I wouldn’t be surprised if at some point it does, and these stocks would go down with it. We saw 2U losing 20% of its value in a single day earlier this week, with no material information from the company. Anyway, with all that said, we should celebrate great performance, and let’s go ahead and do that.
Before I mention the top performing stock, let’s just look at the math of the first four. So, we had a -73% for 2U, we had a +14% for Take-Two, we had a +102% for Trex, and a +171% for Teladoc. Now, if you’re keeping score at home, we have 214 points of alpha, that’s just outperformance of the S&P 500 among those four companies, if you added it up, and now on top of that, +214, get ready Fools, here comes ticker symbol TTD, the company is The Trade Desk (NASDAQ:TTD). It was a stock that was in some trouble two years ago, in the fourth quarter 2018 we scooped it for this 5-Stock Sampler at $116.51. As we speak this afternoon, Karl, it’s just over $708, so not bad performance in two years, from $116 to $708. That equates to 508% of gain, that’s a six-bagger, again, versus 31% [laughs] for all the S&P 500. Winning by 477%, just for this stock alone. If you add that to the 214%, we get +691 points of outperformance from just five little stocks shared in the sampler at a dark time two years ago.
Karl, you and Rick Munarriz brought The Trade Desk idea to me as the advisor of Rule Breakers, I looked over the various stocks we had that month, boy! Am I glad I listened to you guys, and together we made The Trade Desk a Rule Breaker. What’s been going on with The Trade Desk?
Thiel: Just incredible execution. You know, obviously, that kind of gain isn’t made overnight, it’s come steadily, but I mean, I should have mentioned, they just had blowout earnings announced a few days ago, and the company multi spiffy-popped; is there actually a word for that, David?
Gardner: Yes, there is, in fact, when you have a spiffy-pop, and I think most of our listeners know, but we have a lot of new listeners this year. So, a spiffy-pop is when a stock makes more money in a single day then you paid for it whenever you first bought that stock. So, yes, for example, if you bought a stock at $100/share and some far-flung future day, it goes up in a single day, let’s say, from $200 to $317, it goes up $117 in one day. Well, that’s more than the $100 you paid for, that’s a spiffy-pop.
Now, if your stock goes up a multiple of your cost basis, Karl, and Fools everywhere, the way we account for that is we say it’s a spiffy-two-pop or a spiffy-three-pop. We’ve had spiffy +10 pops sometimes through great companies held for long periods of time, like Amazon or Netflix. But wow! Really spectacular to think that we could have a multi spiffy-pop, a spiffy-two-pop or spiffy-three-pop for a stock that we’ve held for less than four years; in this sampler, of course, just two years old. So, yeah, it happened, didn’t it?
Thiel: It did. I think it might have been a spiffy-five-pop, I’m not sure, it was big anyway. [laughs] They did it in the best possible way too. I mean, I always love when earnings come in way ahead of estimates, but they just blew away revenue expectations as well by over 20%, which is really just a sign of a very healthy business. What’s interesting about this one is that, unlike a lot of companies, this was initially, I think, regarded as facing a big COVID headwind, right? So, as we first went into lockdown, advertising was, you know, sort of one of the obvious “losers” in the marketplace. And you did see that, the stock did actually drop to a low of $136 on March 19. So, as of yesterday, this is probably wrong by a little bit, but it’s up 460% since March off that level.
Gardner: Wow! Yeah, just unbelievable. Well, there it is, 5 Stocks That Got Trouble after two years, as presented to us by Karl Thiel. Karl, thank you very much for your efforts. And let’s just go with the full accounting here. So, on average, these five stocks are up 169%, the market up 30.8%. That means, on average, each of these five stocks is outperforming the S&P 500 in a two-year period by 138.2%. We won’t have many better 5-Stock Samplers Fools, but I’ll tell you this, we’ve had some amazing 5-Stock Samplers, [laughs] and this is yet another. So, 5 Stocks That Got Trouble.
It’s just a pleasure to see, as I plan ahead, weeks ahead for this podcast, to see, oh, yeah, we’re going to get to review that 5-Stock Sampler coming up. And spoiler alert, next week’s a pretty good one too. So, despite some market volatility, it is awfully fun to just think in multiyear increments and see the benefits of Rule Breaker Investing. And these five stocks, that had a lot of trouble two years ago, remind us that if you press on and hold great companies through thick-and-thin, and if they’re great companies, and if you, this is about you, press on, you can enjoy real rewards.
Karl, thank you again.
Thiel: Thanks for having me. It’s fun to do when the news is this good.
Gardner: Yeah. In fact, let’s both pin something on our calendar so that you are the analyst who joins me for this group one year from now as we close it out. Love to hear you, again, on what’s happened in the meantime, but boy! Karl, you’ve been awfully good luck for this 5-Stock Sampler. Thanks.
Well, I’m glad I found myself saying “press on” toward the end of that segment, because that is directly relevant to what we’ll be spending time with for the rest of this week’s podcast, and that is 5 Stocks That Will Press On.
Well, I’ve mentioned we’ve done this 26 times before, each time I’ve thought, what’s a good theme, what’s a good message? Sometimes I don’t come up with a good theme or message, so I go silly and just pick all stocks and start with the letter M, or the letter T. But now, reviewing the 5-Stock Sampler from this year, and it’s sort of a tale of what’s happened in 2020. This will be the fifth 5-Stock Sampler of this year.
We started the year in January with 5 Stocks That Spark Joy. I was thinking about a new year, new aspirations, Marie Kondo, MarKon-ing up your house, if you will. Anybody can go back and listen to that again, if they want to understand what I mean when I talk about MarKon. But that was the 5-Stock Sampler to kick off the year. I didn’t know much about COVID on January 22nd of this year, I just came up with 5 Stocks That Spark Joy. But then we jumped forward to April 8th, 5 Stocks for the Coronavirus, couldn’t have been more apposite. Of course, a dark time, it didn’t feel great to be picking stocks in April. We’ll see next April how those five stocks are doing.
From April, we then went forward to June, 5 Stocks for America. America was hurting quite a lot in June. I was also thinking about America’s birthday some weeks hence 5 Stocks for America. And then, well, just a couple of months ago now, early September, 5 Stocks Indistinguishable from Magic. So, we went through Marie Kondo, the coronavirus, America, and hi-tech, but here we are in November of 2020. We just come through a pretty brutal election cycle. I say pretty brutal, but they all have kind of felt that [laughs] way for me for some years now. I don’t really enjoy the distraction of the elections. I’m pretty apolitical. I think anybody who’s got to know me or is stuck with this podcast for months or years knows that already.
I spend most of my time thinking about the private sector, that’s where most of us work every day providing products or services that solve other people’s problems or present some wonderful new possibilities, the innovators out there. The private sector is the largest employer in this country. Most of us every day are enriched and have our lives enriched by the work of our fellow Americans. And here not, I shouldn’t just say Americans, because we import a lot of great foreign products. We are global, we are traders, we’re improving each other’s lives through conscious capitalism.
I’m always excited about the future of conscious capitalism, but as we think now about where we are in November of 2020, two things come to mind. There’s still a lot of talk and some confusion, I think, about the election, but I’m also thinking about the excitement of a potential vaccine and what that’s done to the markets, but at the same time I’m thinking about what’s probably going to be a hard Winter, because that vaccine, even as its rushed to markets in December and reaches some of the most needy people right away, and I think that’s so wonderful, I think we all also have to recognize, very high numbers of COVID spreading, both in the United States and many countries around the world, and it’s about to get more indoors, colder, and a little bit more locked down.
So, I’m thinking about all of those things, and I go back to one of my favorite quotes from former President Calvin Coolidge. Now, I don’t know a lot about Coolidge. If you started quizzing me on Coolidge as a President, I wouldn’t do so well, but I practically have what I consider to be his greatest quote memorized, and in fact, I once shared it on a previous podcast, as many of you know, I do great quotes podcasts from time-to-time, one or two a year. And Great Quotes, Vol. 5, I’m now seeing it, Great Quotes, Vol. 5 was entitled A Fool to Make You Merry. One of those quotes was from Shakespeare, that was the title of that show.
But on that show January 4th, 2017, I presented Coolidge’s great press on quote, and that is the quote that gives us our theme for this 5-Stock Sampler. And let’s go to the quote right now. Here it is. “Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men … ” we can also say women, of course, these days ” … with talent. Genius will not; unrewarded genius … ” said Coolidge, ” … is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan “press on” has solved and always will solve the problems of the human race.” Press on. Yup, press on through this election season, press on through this coming Winter. Press on from two years ago when the markets were in a really bad place and a lot of stocks had trouble, press on with this group of stocks, press on tomorrow, press on next year, press on fellow travelers. If you’re human and listening to me, I hope you are pressing on. I agree that resilience and persistence are some of the most powerful forces I’ve seen, and it starts with the human heart, the human mind and your own resolve or not.
Well, the five stocks that I have in mind have pressed on, in many cases, for decades. But that was then, this is now. While they’ve been spectacular performers in some cases in the past, every 5-Stock Sampler is picked for the future. I have no knowledge, [laughs] in many cases, of what the future holds, both next year or three years from now or three decades from now, but I’ve found that when you find great horses and you look at the jockeys too, you bet on the right ones and you let them race, you let them press on, boy! Can they create some special things for your portfolio; as so many of our 5-Stock Samplers and the services behind them, of course, have proven. So, press on.
Now, if you’re disappointed by the results of the U.S. election, I say to you press on, continue to work toward what are your own highest aims. If you are happy about the results of the U.S. election, press on, you now have a tailwind, the winds have shifted, make the best of it. But whoever you are, when you hear “press on,” you think, I’m going to win it for me and my peeps now, and those other people, that other half, they’re going to lose, then I don’t want you to press on. I don’t think that’s the right way to think or act in life, that certainly does not lead to a better America for me and for you and for all of us.
So, I say, to those who are the “for” people, do you remember what Roy Spence said some years ago on this podcast, he said, I’m a “for” person. I’m for this, for the good things, for all people. He meant, I’m not an “against” person. And along with Roy, I’m a “for” person too; I hope you are. And I want the “for” people to press on. This message, and this 5-Stock Sampler is for you.
So, if you’re a “for” person, join me and let’s press on.
All right. Without further ado, 5 Stocks That Will Press On, we’ll do then alphabetically by company name, which means we’re going to start with Canadian National (NYSE:CNI), the ticker symbol is CNI. This is, of course, a Canadian company, and if you don’t already know it, you should have seen “CN” on the sides of railroad cars probably throughout your life, I’ll be presenting for each of these companies a little bit of its history to remind us of where this company came from, how it started, and how it’s pressing on. And Canadian National, the first alphabetically, also happens to be the business that’s been in business for the longest period; I’ll talk about that in a sec.
But first, let me just mention, the market cap for Canadian National is at $76.3 billion, so a $76 billion market cap, that’s also the largest market cap of these five companies. The stock recently traded today at about $109/share. We first picked this for Motley Fool Stock Advisor, I picked it at $19.17 in March of 2008. So, here we are 12.5 years later, it’s gone from $19.17 to about $109 today. That’s a gain of 468%, but who’s counting against the S&P 500’s gain of 250%, which is a nice 12 years for the S&P. The stock roughly doubled it off of a pretty boring business. Not exactly the most Rule Breaker-y company I can think of, but that’s kind of the point about pressing on.
So, quick history for Canadian National. The company was founded in 1919. The Canadian government was assembling some of the bankrupt railways at the time, along with some of the government-owned railways, and that’s what created Canadian National. The company would not IPO until 1995; that’s right 76 years after its founding it finally IPO’d when the Canadian government decided that privatizing its railroad would lead likely to increased productivity, I predict that has happened, it’s been very evident in the superior performance of this company judged against its peers, and obviously, against the S&P 500.
Just a few more notes about this company before we move on to the next one. All of its numbers were pretty much down for the third quarter, right, wouldn’t you expect that as business slows down, probably the rails are slowing down too? Except by the way, for grains, both Canadian grain and U.S. grain, those businesses at or near all-time highs. And in fact, Canadian National has started to add additional grain-focused cars and some better technology to move grain, as that will be a big thing not just this year but going into next. But the company’s free cash flow recently, as it reported its third quarter, down from $700 million to $506 million, but notice, it’s still pretty healthy. We’re still talking about a company pulling in $0.5 billion in free cash flow for that period. It’s been getting a lot more efficient operationally and lowering its cost here throughout 2020. So, I predict as the economy recovers, this company will benefit from the steps it’s been taking in 2020.
I’m going to share one other quick line, this is from our ticker guide, so if you’re a Motley Fool member, and darn it! Why wouldn’t you be, if you’re a Stock Advisor member, where Canadian National is included on my side of the Stock Advisor scorecard, you’re familiar with our discussion boards. And we have a number of farm teamers, what we call contracting analysts, people like you and me living around the country around the world, who help cover our stocks. And Chad Ferguson has done that for many companies, but Canadian National is one of them, and I was reading a recent discussion board post by him reflecting on this most recent quarter. And I’m going to quote him here, he said, “They are also very aware of upcoming potential long-term disruptors, like driverless trucks and the battle for control over freight sales by competing channels. Management continues to push forward with their agenda on the modernization of railroad operations, as well as everything from robotic process automation of everyday tasks to the use of machine learning and artificial intelligence.” Yup, and we’re talking about railroads.
By the way, got to pump up Chad a little bit further here, his Caps rating is 96.40. So, Chad is one of those great community contributors who has been picking stocks out there on our Caps platform and exceeding 96% of all others doing so. Chad, thank you for all your contributions. So, there you have it, Fools, stock No. 1 for the 5 Stocks That Will Press On, Canadian National, ticker symbol CNI.
All right, stock No. 2. Let’s stick with the letter C, and let’s make it Cirrus Logic, ticker symbol CRUS. Cirrus Logic, a market cap of $4.3 billion, much smaller than Canadian National. The stock is trading around $75/share as we record Tuesday afternoon. I first picked this stock in Motley Fool Stock Advisor, March 2018, 2.5 years ago, it was at $43.06, today up at $75. That means it’s up about 74%, the market up about half of that. So, this has been an outperformer. You’ll notice that I tend to pick winners in my 5-Stock Samplers. And then we go on and we win with all of our 5-Stock Samplers. I hope that’s instructive for all of us. It’s something that I had to learn and train myself to do as a younger Fool, and it continues to reward me decades later.
All right. A little bit of history about Cirrus Logic. This company was created in 1981, its name back then was Patil Systems, that’s because Suhas Patil, who is an Indian-American entrepreneur, that’s right, he grew up in India, but he’s one of those amazing people that then came to school here in the U.S., in fact, he got graduate degrees at MIT, and then he just stayed here, and he created Patil Systems in 1981. Three years later, it would move from Salt Lake City, Utah to Silicon Valley, as Silicon Valley began to heat up in the 1980s. Cirrus Logic has been there ever since. The company IPO’d in 1989, so eight years after its founding. It’s worth noting that it’s been a public company for 31 years, pressing on through all kinds of market conditions, pressing on to being a market leader and a market beater.
So, I really like this company, that’s why I picked it 2.5 years ago for Motley Fool Stock Advisor at, of course, a lower cost basis. It’s been a big-time market beater over the long term. Now, Apple makes up 70% of its revenue. This is a fabless semiconductor. That means these guys design semiconductor chips, but they don’t actually manufacture them, they outsource their manufacturing, their fabrication, so it’s a fabless semiconductor company. That enables it to have fewer employees and higher margins than companies that do the manufacturing. So, again, Apple makes up, traditionally, the majority of its revenue, but it’s a key part of the iPhone. The audio integrated circuits for the phone have come from Cirrus Logic, also the company has a presence in the technology of the AirPods. So, if you like your Apple AirPods, that audio, you’re benefiting from Cirrus Logic’s work.
Now, of course, with so much reliance on the iPhone and Apple, that is a vulnerability of Cirrus Logic, which is in part why its multiple, the company’s valuation, is understandably reduced as a consequence. But its possibilities for AirPods, and just you think about iPhone 12 and the relationship it’s built up with Apple over the years, you know, some people are pointing out AirPods could eventually monitor your pulse. Yeah, you thought you were just listening to music in your ear, but they can be pulse monitors, there are other more health-focused aspects, there could be voice, biometrics, all bound up in AirPods of the present and/or future. So, it gives the company some possibilities of optionality.
Also, this company gets great employee reviews, check it out on Glassdoor. A top governance score, from those who study governance. And for us, a risk rating of just 8. Now, if you’re among a Motley Fool member, if you’re a member of Stock Advisor or Rule Breakers, you’ll recognize my risk ratings, I’m not going to cover them here. I’m just going to say, a pretty low-risk company that you’re getting with good growth and great history.
So, there is stock No. 2, Cirrus Logic, ticker symbols CRUS.
All right, stock No. 3, we’ll drop down to the letter E. The company is Ecolab (NYSE:ECL), ticker symbol ECL. Ecolab is a $61 billion market cap, so much closer in size to Canadian National than to Cirrus Logic. By the way, I want to pause it for one quick sec there. For fans of our Market Cap Gameshow, you know that sometimes I’ve talked about how somebody makes a horrifically wrong guess on a company’s market cap, and when they overestimate it, when they guess a market cap of $25 billion and the company only has an actual market cap of $5 billion, I’ve sometimes said, that’s a pretty good indicator that maybe you should be thinking hard about adding that stock to your watchlist or your portfolio, if you thought it had a much bigger presence in the world than its present valuation reflects, that’s a good watchlist stock.
Well, I wanted to say that in closing, going back to Cirrus Logic for a quick sec, Cirrus Logic, only a $4 billion market cap. That surprised me as I prepped this 5-Stock Sampler.
Anyway, let’s return now to Ecolab. $61 billion market cap, as we’re talking, the stock is trading at around $212/share. This is a company that pays a dividend, pays a dividend of about 1%. By the way, there’s another dividend payer, I didn’t mention this early, but Canadian National pays about a 1.6% yield on its dividend. So, the interest rate that you get paid to hold the stock is sometimes how I’ve discussed the dividend yield. So, just highlighting a couple of dividend payers, not surprising, among “press on” stocks.
Well, I first recommended Ecolab in June of 2016 for Motley Fool Stock Advisor, it was at $113.27 that day. So, here’s the good news, it’s up 87.4%, the not great news, the market is up 86.9% over those 4 1/2 years, meaning this is only ahead of the S&P 500 so far for me by 1%, it’s pretty much been a market performer. But I’m not looking backward, right, you and I are looking forward to this 5-Stock Sampler. So, let’s count on Ecolab to continue to beat the market, but let’s hope by maybe more than 1%.
Little bit of history, that’s part of what I’m doing with our press on stocks this podcast. This company was founded in 1923. Yup, just four years after Canadian National, it was called Economics Laboratory back then, hence the name today, Ecolab. Economics Laboratory had this tag line in 1923, “Saving time, lightening labor, and reducing costs to those we serve.” So, that was Economics Laboratory back then, but today, Economics Laboratory is a very full-featured company. You know, its initial product, back in 1923 was called Absorbit. It quickly cleaned carpets in hotel rooms. That’s what they went with. Then they started adding soaps and started buying other companies. Today this company helps clean up the world in more instances and contexts than I could possibly reflect briefly in this 5-Stock Sampler for you. But if you don’t know that much about Ecolab, go to Ecolab.com, its website, and learn a lot more about the important work this company does every day.
This is one of those companies that passes my snap test. If we snapped our fingers and Ecolab disappeared last night, the St. Paul, Minnesota company would be dearly missed by many, from hospitals, to the public sector, all kinds of different instances where Ecolab is making the world cleaner.
I will mention, this is very recent news, it’s going to have a new CEO, Christophe Beck, succeeding CEO Doug Baker. Beck, by the way, has been President and COO of the company. So, this is one of those companies that promotes from within, and probably had succession set up years ago. So, expect the same thing that I hope to see in our society, which is a peaceful transition of power. Two other things to close on Ecolab. First of all, this company IPO’d, I mentioned the IPO years of each of these stocks, this company IPO’d in 1957. So, 34 years after its founding, and yet, it’s now been public for 63 years. Talk about pressing on. Three years from now, Ecolab will celebrate its 100th anniversary as a company.
And the second and last thing I’d like to say, this stock has a very low risk rating. I have had it calculated at different points as low as just 4 on my 25-point risk scale. The stock has beaten the market, though not by a huge amount, as I mentioned, but this feels like a company I want to be invested in, in the next 10 years, and at least for this sampler, for the next three.
All right, Canadian National, Cirrus Logic, Ecolab. Stock No. 4, ticker symbol ODFL. Old Dominion Freight Line (NASDAQ:ODFL). This is a stock that has appeared in at least one other 5-Stock Sampler. It’s one of my go-to stocks when I think about the kinds of businesses that most people ignore as unexciting. Earlier, Karl and I got to share the story of Trex, a rather unexciting business, and yet, wow! What great companies these are for investors.
I first found Old Dominion Freight Line for Motley Fool Stock Advisor members in May of 2017. So, here we are, 3.5 years later, the stock back then at $56.55, $56.5, today it’s up at $197. It’s up about 250% versus the market’s 60%. So yes, Old Dominion Freight Line has been spectacular. I’ve been talking about the market caps for each of these companies, Old Dominion Freight Line has a market cap of $23 billion. It pays a scanty dividend, not really worth talking about.
A little bit of history, Old Dominion Freight Line was founded in 1934 by Earl and Lillian Congdon. Don’t you love this founding story? A couple. And it started as a single truck going between Richmond and Norfolk, Virginia, back-and-forth. Unfortunately, Earl died some time later, Lillian takes over as President, bringing in her sons. Now, here we are decades later. One of those sons remains the Senior Executive Chairman, he’s been on the Board for 68 years. The company, I think it was for the first time, in 2011 appointed a non-family member as CEO, Greg Gantt has been doing a good job since 2011. But the Congdon family owns about one-sixth [16.666%] of this company. So, if you’re a shareholder, you’ve got people deeply invested in it right along with you, creating wins every day. The company IPO’d in 1991. Yup, 57 years after it was founded, so it’s been pressing on as a public company for 29 years now.
Well, I really like this company, I’ve talked about it before. It’s highly profitable. It’s a less-than-truckload carrier, which is a harder business to do, right. If you’re just filling up an entire truck, going from point A. to point B., that’s one thing, and that is the majority of the industry. By the way, here’s a big picture fun stat, trucking as an industry accounts for about four-fifths [80%] of all U.S. transportation revenue. Trucking is a huge part of our daily life. The easier business to run is when you just send a full truck from one point to another. When you are filling a truck with multiple different things, and therefore it’s less than a full truckload, and it’s going multiple places, all of a sudden, you get into more complex logistics that need technology well-deployed and a very able workforce.
And this is something I’ve always admired about Old Dominion Freight Line, no unionized workers, why? Presumably because nobody ever felt they had to unionize against how they were being treated by the Congdon family. The company has more than 17,000 employees today. It uses flexible scheduling, it trains employees to perform multiple tasks, that allows for greater productivity, higher levels of customer service then you’re going to find among its competitors. You know, ODFL focuses on employee communication, on continued education, development, motivation. It includes an opportunity for qualified employees to complete its Old Dominion Driver Training Program. So, you might have come in as a customer service person, and you end up being a fully fledged trucker, if in fact that is your dream. By the way, every driver can receive a safe driving bonus, traditionally, of up to $3,000 for safe driving. Who doesn’t like that, as well?
One other thing I really like about Old Dominion, they have a partnership with Major League Baseball, if you’re an MLB fan, you’ve probably seen a lot of Old Dominion Freight Line branding, if you think back on the previous few seasons. ODFL is a partner of Major League Baseball.
So, yup, there it is, press on stock No. 4. They’ve been pressing on since 1934. All that matters is, what happens next, let’s call, through 2034. Press on ODFL.
All right. And that brings us to our final stock for this 5-Stock Sampler. Let’s go all the way to the end of the alphabet, shall we? Let’s go to ticker symbol ZBRA, that’s Zebra Technologies. Zebra Technologies has a market cap of $18.5 billion. The stock was recently trading, today anyway, at around $345/share. This is a more recent entrant to Motley Fool services, I first picked it in November of 2018. Yup, two years ago this month. That’s exactly the same month we picked 5 Stocks That Got Trouble, the sampler reviewed earlier. November of 2018, Zebra was at $178.91. So, at $345 today, it’s up 93%, the market up about 35% over that time, a substantial market outperformer.
Zebra Technologies started in 1969 as Data Specialties, Inc. a lot has changed since 1969. This company IPO’d in 1991. Zebra is today the global leader in what it calls automatic identification and data capture. They’ve even acronymized that to AIDC, yup, Automatic Identification and Data Capture. Zebra is the leader; it’s got 40% market share of barcode printing and mobile scanning.
Let’s talk briefly about barcodes. Yup, that’s where the name Zebra comes from, black-and-white stripes. Think about how ubiquitous barcodes are today. I don’t think barcodes are going to get disrupted or taken out any time soon. Why? Well, in part because it costs less than $0.01 to add a barcode to something. In other words, I don’t see anything cheaper coming along any time soon and displacing barcodes. But the number of things that are having codes put on them and need to be scanned to track the world around us is substantial.
And this company made a brilliant acquisition in 2014, it bought a portion of Motorola‘s business, Motorola’s Solutions business. And the CEO who drove that, Anders Gustafsson, remains the CEO today, now in his 13th year. So, today Zebra has a robust healthcare business. Think about patient bracelets, think about bedside scanning, but one of its more recent acquisitions actually does NFL player tracking technology. Three customers account for about half of all revenues, which is always going to be a little bit of a vulnerability. But again, I love the clear leadership position of this company, I love its technology relevance, we talked about low price points on products, [laughs] like, barcodes, less than $0.01. RFID tags, by the way, which is also a big part of this business, radio frequency identification tags, cost about $0.05. We’re talking about incredibly cheap stuff, then Zebra sells people scanners to scan. So, I love the ubiquity of what’s happening. Also, another very low risk rating stock, typically rocking a risk rating around 8. This company pays no dividend.
As we move toward the holiday time of year, when you’re buying gifts, have you ever done what I do, which is I pop open my Amazon app on my mobile phone, my iPhone, pop open the Amazon app. And I want to buy something or rebuy something that’s near me, and so I just aim the Amazon app camera, my camera, at the barcode of whatever I want to order, and right away Amazon magically produces the page that leads me to that product so I can buy it again. That’s another great simple use of a barcode, thinking about the relevance for all of us.
So, to stock No. 5, Zebra Technologies, I say, press on!
Well, I hope you’ve enjoyed this trip, in some cases, down memory lane. I love the origin stories of public companies, thinking about who started them, what was the name, what were they doing and how long ago. And I’ve intentionally selected companies that I believe have not just pressed on so successfully, measured in decades, as public companies and private before that, but I believe will press on from here no matter what happens in the world at large.
I was making a joke last week on the podcast that I might name the sampler 5 Stocks Should the World End, because I was feeling as if people were a little too alarmist about what’s happening in our world. And if you do find yourself in alarm or surrounded by alarmists, remember the phrase “press on,” go look up the Coolidge quote again, memorize it, if you will, and think about these five public companies, all of which have been market beaters, each of which, I certainly hope and expect will continue to beat the market at least as a 5-Stock Sampler. Let’s hope we can maintain our outstanding record of finding winning stocks in these 5-Stock Samplers. Press on!
Well, next week, we’ll be reviewing our last November 5-Stock Sampler. I’ll have my friend Rick Munarriz in for 5 Stocks That Let You Eat Cake, that and other delights ahead.
Thanks for joining with me this week, Fool on!