Today we present five stocks that are poised to win in the information economy – or as David puts it, the thinking economy. Tomorrow’s leading enterprises must be able to acquire knowledge, apply analytics, and use creativity every day to succeed, and these companies do that in spades!
Rule Breaker Investing
Five Winners in a Thinking World
This episode of Rule Breaker Investing is brought to you by Rocket Mortgage by Quicken Loans. Rocket Mortgage brings the mortgage process into the 21st century with a fast, easy, and completely online process. Check out Rocket Mortgage today at quickenloans.com/fool. [MUSIC PLAYING] It's the Rule Breaker Investing Podcast with Motley Fool co-founder, David Gardner. And welcome back to Rule Breaker Investing. I'm David Gardner. You may have heard something new at the start of this particular podcast. And that was, I read an ad from our friends at Quicken Loans and Rocket Mortgage. And that is a first for this show. In fact, all across our five Motley Fool podcasts, I'm happy to say that we've grown to the point now that we have a substantial enough audience. People actually want to pay us to read something on our podcasts. And it's a pleasure to do so. As an entrepreneur, somebody who's looking to create success for my company and all those tied to it, I'm proud that we've now reached this stage. We will have one or two ad reads each show. I don't think it'll be too intrusive. But I hope that you'll remember this helps us pay the piper. And it was a really fun week. I don't know if anybody happened to watch WealthTrack on PBS. But I really enjoyed my interview with Consuelo Mack. And if you would enjoy seeing me speak for about 30 minutes in a wonderful interview that I thought she did a great job on, it's now on YouTube. So you can go to YouTube, just Google Consuelo Mack or WealthTrack or Motley Fool Rule Breakers. And you can see me in action. Maybe you saw me on your local PBS channel. But enough about that. So this is our 45th podcast. We're getting near a big round number. One of those big round numbers that I'm getting precariously close to in my own life, numbered in years. But we're at 45 podcasts with this week's show. And I was looking back, I mentioned this last time. I was looking back in about every 10 episodes or so. I do a stock picking podcast. And that's what we're doing today. Because the last one was number 34 before that was number 21. And before that was number 11, 11, 21, 34. And now 45, hike. So it's time for us to talk about some stock picks. This is, of course, what I do most of the rest of the month at the Motley Fool, both in Motley Fool's Stock Advisor, where I've done it since March of 2002 in Motley Fool Rule Breakers, which we opened up in October of 2004. Every month, I pick three new stocks, one for stock advisor, competing against my brother, Tom, and two for Rule Breakers with the help of my talented team of analysts. Really, I get tremendous support for both services. But I'm on the hook. I step in the batter's box. It's baseball time of year. I can say that OK. And it's time to take three more swings. And whether they're good markets are bad, and I've picked through every kind of a market, usually looking back the ones where it felt most painful. When the stock market was most down, and I had the least spirit and energy to actually pick a new stock, I look back and say, boy, am I ever glad I was picking a stock that month? Because, of course, human nature being what it is, it's natural for us to be less excited, probably when we should be most excited, at least when I should be picking stocks. So it is that mechanical process every month. Now, for 10-plus years, picking three stocks that I really look back on say that's part of my own personal success story. Because it's just like dollar cost averaging. I hope that you're doing it in your life. If you're a salary, if you're a wage earner, I hope you're putting money away every two weeks. Pay yourself first, as they say. Contribute to your 401(k) plan or your retirement IRA. And if possible, make it 10% or more of your salary check for some of us. That's more than possible. For others, it's hard enough to just save $1. So I understand everybody has a different context, but our goal for you would be to get you in the double digit percentages in terms of how much money you're taking at every two weeks to invest in the market. And here's a neat trick. As you become an investor and a better and better investor and a more ingrained and passionate investor, usually you'll start to get pretty decent results, especially if you just let some time pass and not sweat the small stuff in the short term. And here's what happens. Once you start getting decent results, guess what? I think you become inspired to save even more because you recognize the benefits of it. You've seen that money grow. When money makes money without you having to do anything, that's what I think of. When I think of the stock market, it makes me very happy. And many of us, fellow fools, are inspired by past results that we've had or that we've seen others have to save more and more and be more successful investors. So it's a wonderfully contagious cycle there, a very positive cycle. And I hope you're participating in it. And I'm going to try to help you a little bit this week because we're going to talk about five companies, five stocks that I like over my minimum increment, which is always three years. So these are five stocks that I'm mentioning to you that I like from today over the next three plus years. And they all follow a certain theme. And I try to do that each time we do this. This theme comes from Michael Bloomberg, by way of my friend and co-fool, Morgan Hausle, our very popular writer and thinker all around Foldham. He's out there on Twitter, a wonderful follow. If you're not already following Morgan Hausle, I would highly recommend it. And this came through Morgan's feed the other day because he was reading an article that was basically a summary of Michael Bloomberg's speech to the University of Michigan graduating class this spring. So it's one of those graduation speeches, excerpted, and Morgan pulled out a few really key lines and elements that I want to mention to you today because I think it's important and it's going to influence my five stock picks this week. So let me just start with a short read of what Bloomberg said. And I quote, "Think about the global economy. For the first time in human history, the majority of people in the developed world are being asked to make a living with their minds rather than their muscles. For 3,000 years, humankind had an economy based on farming, till the soil, plant the seed, harvest the crop. It was hard to do, but fairly easy to learn. Then for 300 years, we had an economy based on industry, mold the parts, turn the crank, assemble the product. This was hard to do, but also fairly easy to learn." Bloomberg went on and you can picture all those happy University of Michigan, particularly parents, 'cause now they don't have to pay tuition anymore, but anyway, all the new, soon to be grads, listening to this next line. Now, we have an economy based on information. Acquire the knowledge, apply the analytics, and use your creativity. This is hard to do and hard to learn, and even once you've mastered it, he concluded, you have to start learning all over again pretty much every day. Profound insight, I love those sweeping turns that bold people will occasionally take at history and say it was all this at that point and then this other thing at that point, it's probably over simple, but that's part of the beauty of this, and now it's all about this. And that really does, I think, do a pretty good job summing up not just all of human history, but most of all where we are today. And I would probably argue, this is a nitpick, I will pick one nit with Bloomberg. He said, now we have an economy based on, and he said information, but I actually think it's more about based on thinking. He does use the word creativity a little bit later in the line, he does say, acquire the knowledge, apply the analytics, use your creativity. I really think, while information, and we call this the information age, well, that's important, and while certainly his business, Bloomberg is all about information at your terminal. Truly, I think, and what we practice every week here on Rule Breaker Investing is thinking and thinking about thinking, and it's really the creative use of information. It's knowing what information to use and what to discard, how you filter, how you manage it. Ultimately, how you process it, think about it, and what you do with those thoughts, both individually or corporately as part of an organization that you work with or for, these are the ways, I think, that define success in this time and for the foreseeable future. And so, as I looked over my supernova universe, these are over 200 companies that simply combine, Motley Fool's supernova simply combines stock advisor and Rule Breaker's, and then adds in real money portfolios for the many people who want that form of additional hand-holding and management. Tell me what to buy, how many shares, that sort of thing. That's what Motley Fool's supernova is all about. It just assembles all of my stock picks. I know some of you know this, but some of you have never heard of supernovas, so these are all my picks. And as I look over the 205 or so stocks, the ones that come to mind as we think together about Bloomberg's quote, the ones that come first to mind are the ones I'm not gonna pick this week, just because they're already pretty obvious. In fact, we've talked about them in recent weeks, stocks like Google, or these days we call it Alphabet. Alphabet, or Amazon, or Facebook, these companies have reached breathtakingly large scales in breathtakingly short time, largely through the exercise of human thought and creativity, good decision-making, just reorganizing how the world would work by what's going up there in the gray matter of somebody like Jeff Bezos. So these are the obvious companies, we've talked about the acronym FANG, we even defined FANG score. If you don't know what your FANG score is, you just need to listen to one or two episodes, you'll learn more about that. And I don't wanna talk about those kinds of companies 'cause they're all pretty obvious. So my list this week is five lesser known winners in a thinking world, five winners in a thinking world. And as I look over my list of five I'm presenting this week, at least one of them is extremely well known. So it's not like these are hidden gems in my brother's parlance, but at least a few of these, I'm betting you don't know too much about. So for each of them, we have limited time this week, I'm just gonna present them, I'm gonna present them alphabetically, mention a little bit about the stock and where it is and why I think it fits in with the Bloomberg mentality. But first, this episode of Rule Breaker Investing is brought to you by Rocket Mortgage by Quick and Loans. I think a lot of us are familiar with the frustration that can come from having and managing finding a mortgage. If you've ever bought a home, you already know how time consuming, getting a mortgage can be. Rocket Mortgage brings the mortgage approval process into the 21st century by taking all the complicated time consuming parts of applying for a mortgage out of the equation. With Rocket Mortgage, you can easily share your bank statements and pay stubs at the touch of a button, helping you get approved in minutes for a custom mortgage solution that's been tailored to your unique financial situation, even better. With Rocket Mortgage, you can do all of this on your phone or tablet. So if you're looking to refinance your mortgage or to buy a home, check out Rocket Mortgage today. Again, that URL is quickandloans.com/fool. This is an equal housing lender license in all 50 states, NMLS, consumeraccess.org, number 3030. Okay, stock number one up this week is Selgene. The ticker symbol is C-E-L-G. This company is the leader in blood cancer solutions. The stock price today is right about 104 as I do this podcast. By the way, I will be going to Motley Fool caps tomorrow morning. I will be typing each of these in on my caps page. I'm TMFspiffypopscaps.fool.com. You can see my scorecard. I think anybody who's listened to Rule Breaker investing for a while or followed us long before that knows, I like to keep score, whether the news is good or not. It's the best way I learned. So I'll be keeping score for each of these picks and I'll be using my caps page to do it. So C-E-L-G is the ticker symbol. The company is about an $82 billion company. The stock over the last year, down 6%, the stock over the last three years, more meaningful increment is up 70%. We first discovered in Rule Breaker's Selgene, I recommended it in February of 2013. The stock has slightly more than doubled with the S&P 500 up about 45% by comparison since then. So why is this company part of the here and now and part of this week's podcast? Well, there are a few industries that I can think of that are more about thinking than medicine, whether it's genomics or solving cancer or any combination of those two things or many other things besides all of the work being done in labs, all of the business management to even make it possible to take what's out of the lab, go through a stringent approval process with the FDA or internationally and actually make a real solution that people pay real money for. And they pay a lot of money, by the way, the average cost of Revlimid, which is Selgene's number one white cancer cell fighting drug. The average cost of treatment is about $170,000 a year. This is extremely expensive but also very efficacious. I have at least one related family member who has been benefiting from these products for years. So this company, I feel extra connection to, but there it is, Selgene, I like the stock a lot over the next three years. Okay, number two, number two up is Disney. I told you there'd be at least one here that you probably heard of. Disney doesn't get included. It's not the D in Fang, there is no D in Fang. So it doesn't make some of the hot stock acronyms, but there have been few companies that have been better performers for many Motley Fool members, few companies that I've done better with through initially picking Marvel, which is how I entered into Disney. I picked Marvel several times back around when this first Spider-Man came out in the theaters. Eventually, as you probably know, Disney lapped up, ate up Marvel, and all of those superhero movies today are just one example of the many assets from Star Wars right through to all of the theme parks that Disney has. Disney also is saddled. Sometimes people talk about it this way with ESPN and trying to figure out how to navigate this new world where people don't necessarily pay as they used to, $100 cable bills, and that money doesn't hit ESPN if you start cutting your chords. So there are some certainly challenges for Disney, but that's all about living in a thinking world, isn't it? After all, Bloomberg concluded, and I'll read it again, this is hard to do, hard to learn, even once you've mastered it, you have to start learning all over again, pretty much every day. That's right, 'cause the world's gonna keep on changing. I hope that doesn't exhaust you or me, 'cause it's really gonna be important to our, not just our survival, but really our thriving into the future. Being flexible, being willing to learn, changing our views, realizing that even if we try to keep our views the same, the world's gonna change, sometimes leave us fish out of water. So it's this same kind of mentality that if you're Bob Iger running Disney, you have to be looking across all of these different businesses. They're such a successful company. Anyway, Disney happens to be right about, where a sell gene is, right? At about $104 a share as I do this, and the company has the largest market cap by far of my five companies this week. It is $171 billion. Disney stock over the last year has been down about 7%, and it's been up over the three years, 60%, which for a company that size, that large, a market cap already that big is pretty remarkable when you think about what 60% points of gains mean over the last three years. Now, that may not happen quite the same way in the next three years, but we're not about any three year period. We're about the long term. I am saying at a minimum, I like the stock to beat the market. So whatever the market does, I'm counting on Disney, counting on you here with my other five. Come on now, DIS to beat the market in the next three years. Next one up number three is, let's go to the letter S and go to Splunk. Splunk, the ticker symbol is SPLK on the NASDAQ. Splunk is capitalized at about $7 billion. So this is a company far smaller than sell gene and Disney Splunk over the last year, down about 25%. The market, by the way, over the last year is at this point, down around two or three percentage points. So a significant underperformer over the last year. And if you try to look over the last three years for Splunk, the company is still lagging the market. The stock is up 20%, but the market of the last three years is up about 25%. So this is a company that went on a huge run coming out of its IPO. It's one of those big data companies. It's a company that helps. It runs basically an intelligence platform. It allows you to see all kinds of page views and other information about how your website is being used or websites in general. It has enterprise level views of whole industries. It is a company awash and deep in big data and intelligence. And it makes that data accessible. It's visualization, basically, infographics that it provides, even field employees. The simplicity may be from a tablet to see how orders are coming in right from this particular facility. Just having information at your fingertips in the old line that Microsoft and Bill Gates made popular. This is what Splunk does. So clearly, Splunk is one of those companies that is all about a thinking world. It even has a fair number of business now today and cyber security because of just security that's around websites and web data. And so it's a company that is very relevant while being much smaller than Celgene and Disney. It stands head and shoulders above many of the early emergent players within its industry. And if you're a big data professional, I'm pretty sure you've heard of Splunk. But even if you have never heard of Splunk, I even just like the name Splunk. Come on, that's a good catchy brand name. That kind of fits one of my Rule Breaker traits where you're creating a consumer brand. Even though this isn't exactly a consumer business. So Splunk is number three. My fourth stock, I will hold off on saying the name for a sec. This is a company that many of us are familiar with. It has a very popular and important platform that's a global platform. The stock has lost about 70% of its value in the last three years, not quite three years 'cause this company only came public about two and a half years ago. But this stock is down 70% at the same time the stock market is up 30% points. So this stock that I like right now, going forward over the next three years, has an incredible headwind looking backward. Does that work? I think that's a bad mixed metaphor. Anyway, lots of headwinds looking backward, but we'll go with maybe some good tailwinds going forward. I think Twitter, which is stock number four, the ticker symbol TWTR. I don't think Twitter can be that much more of a bad stock than it's been in the last few years. This is a pick we made a few years ago in Motley Fool Rule Breakers. By the way, all these picks, as I mentioned, are active recommendations in my services at the Motley Fool. Twitter has really underperformed. We've seen leadership changes. We've seen, can the company figure out its eventual business model? One thing is very clear to me, Twitter is only gaining more and more popularity, currency, usage. So it's a lot of all time highs by important measures, except things like its stock price or its profits, or really its public perception. Those are much lower than they were just a year or two ago. So the contrarian in me really likes, and that's why I have it this week, Twitter, and of course, fitting into the Bloomberg paradigm. Yes, this company is all, maybe of all five of these companies. This company is more about just human thought. After all, even Disney has Disney princesses that it can sell as toys or gee whiz. Selgene is all about ultimately its biotechnology and what you ingest or take into your body. But Twitter is just really all in our heads, isn't it? And it does, though, lead to many additional businesses and business creation, as the internet has done as a platform for many infopreneurs to use a really, really bad term from about 15 years ago. Remember when people used to say things like the information superhighway? Do you remember that phrase? If you're my age 49, you will. And a lot of those funny phrases, they don't really have cache around here anymore, but they still pop up in my head from time to time. Okay. And that takes us then to stock number five. Our closing stock for my little five stock checklist. Again, taken together as a basket. I hope, I think, I might even say I predict that this group beats the stock market averages over the next five years, largely based on the theme that we have in place this week. Number five is Zillow. Zillow is Z, that's the ticker symbol, although it's also now ZG because it's one of those companies that did the heinous thing of splitting its stock. And as it split its stock, it created an additional class of stock, creating all kinds of complication for many mom and pop investors like me who just wanna own Google or Zillow. We don't wanna have to have multiple share classes because of these stocks being split. Anyway, mini rant over, but Zillow has recently participated in that process. Nevertheless, whether you buy one version or another of the Zillow stock or the alphabet stock, I don't think it matters much at all. I like Zillow a lot over the next three plus years as more and more of the business of real estate goes online. And we're always gonna be selling offline real estate. After all, land is always gonna be a hard commodity, but Zillow has lain over top of that land, a pretty compelling experience where it puts prices on all the properties in your neighborhood, in every neighborhood around the country, increasingly perhaps around the world, and enables realtors and people in the business to make use of that information and advertise themselves as a good realtor for you to sign on. And so as more and more people get more and more comfortable, perhaps even in some cases selling their own houses, after all, the internet has intermediated many additional industries beyond just the real estate industry, but I think most people still appreciate having a real human, especially if you have a property of some consequence, a real human there helping you sell it, not just doing yourself. In either case, I think Zillow is positioned and has positioned itself to succeed. The stock, by the way, is recently right around $25 a share. Zillow is capitalized at right about $5 billion. In fact, I forgot to mention Twitter is worth around 10 billion as I do. So Zillow of these five is the smallest of these companies, but in some ways it has the biggest lead over any potential competition compared to all of these, except perhaps Celgene, which through Revlimid, and really a great pipeline, has a lot of potential lockdown holds going forward on its competition. So there you have it. Five companies to summarize, they are Celgene, Disney, Splunk, Twitter, lots of silly words, and Zillow. I think I have some, I'm just realizing it now, some strange fascination, some subconscious fascination with silly words and names, like maybe Motley Fool as well. Anyway, you can perhaps see that play out through these companies, but when you think about it, companies that are all about thought and about how we think and where the world is going and our heads going forward, you would think they'd have a little bit more interest in terms of their names. But I'm interested in the stocks, and that's what I covered this week. I hope you enjoyed this edition of Rule Breaker Investing Next Week, I'm gonna be bringing back a couple of guest stars that we really enjoyed having about four months ago, got great feedback on the podcast about corporate culture. I had two of our Mavens and leaders here at the Motley Fool, Lee Burbage and Cara Chambers share with you last time 10 tips for how to have a better corporate culture, for how to improve your workplace, whether you're a leader or somebody just participating in it, 10 tips, and I asked Lee and Cara, "Hey, are you guys seeing anything new?" 'Cause they're always on the avant-garde, they're on the bleeding edge asking, what are even better practices for how to run our companies and what makes work fun and productive for people? So, Lee and Cara have told me they've got a few new ideas, new things to share, so we'll take a step away from the stock market after a very stock-centric podcast this week and talk about what it's like to be in your workplace and how to make it better. I'm David Gardner, have a great week. Fool on. - As always, people on this program may have interest in the stocks they talk about, and the Miley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Robaker Investing at rbi.fool.com. (upbeat music) [BLANK_AUDIO]