You’ve heard about Netflix – but what about Middleby? David Gardner talks about MIDD and four other lesser-known – but compelling – companies.
Rule Breaker Investing
5 Lesser-Known Rule Breakers
It's the Rule Breaker Investing Podcast with Motleyful Co-Founder, David Gardner. And welcome back to this edition of Rule Breaker Investing. Happy November, happy mid-November. Hope you in America enjoy your upcoming Thanksgiving. I want to mention right up top this week, I'm taping earlier than usual. In fact, I taped this last week, and that's because we had a special family birthday in my family this week, and I couldn't do my regular time. Why am I mentioning tape times? Well, we happen to be an earning season, and you're never quite sure what's going to happen on any market day these days. I have stocks that are rising and falling sometimes 20% or more just from one day to the next. And so the five companies that I'm highlighting, this particular podcast, for all I know something crazy changed between last Thursday when I taped this, and today when you're getting to hear it. And I'm mentioning that in particular. There's always, by the way, some time delay between when I do my podcast, and when you get to hear it, it's usually about a day or so my crack team of Rick and Michelle helped me out and make that happen each week, but this time I taped this last week. With that said, we're all about the future, and whenever I talk about stocks, I'm always thinking one plus years ahead anyway, so I don't want to spend too much time thinking about whether a stock goes up or down in a given day before or after I do a podcast. Let's talk about five overlooked companies in Motley Fool Rule Breakers. Now before I go through my list, and we're going to go through this list fairly quickly this week, this is going to be a shorter podcast, just some stock ideas for you. Let me mention a few ground rules about this. First of all, each of these stocks is an active pick in my Motley Fool Rule Breakers service. I sure hope you're a member of Motley Fool Rule Breakers. We spend a lot of time looking at this, these companies, and certainly the whole approach to Rule Breaker Investing that you hear through this podcast, and it's for many members their favorite service at the Motley Fool, so of course I'm very proud and I would always welcome you to our Rule Breaker service, but I want you to know you're getting a little sample of the service. It's like when you go to Whole Foods and they put that candy or that little bit of salmon out front for free, it's a tasting little sampler, that's what we're doing this week. Second ground rule is I specifically want to mention that these are picked by me not as the best ideas that I have. I don't really think in those terms, by the way, I tend to think in terms of buying a good basket of stocks and expecting that group of stocks to do well, but this group of five stocks, these are companies that are lesser known companies. That's my focus this week. You know, a lot of our Rule Breakers and in our time together on this podcast over the last few months, we're often talking about very well known companies. Of course, we think about Amazon.com. I think I probably mentioned Amazon or Netflix more than any other company on this podcast. I was shocked by the way to see Amazon has more than doubled here in just 2015. That is a remarkable statistic that a company of that size and heft would have more than doubled just this year alone. Those are really well known companies. We talk about them a lot, but the five I'm going to be mentioning today are in my mind, companies, if you try to throw this out at a cocktail party, no one really knows what you're talking about. You're going to have to explain what this company is or does. Another ground rule, I'm going to be touching on them lightly. I'm not going to spend a lot of time. It's more to acquaint you a little bit with the business, but you're encouraged to do your own study. If any of these catches your fancy, again, these are active recommendations of mine. They are stocks, I think, will beat the market going forward. However, some of them might be better than others. Some might work for you better than others, and I always encourage everybody when you're making an investment choice, feel a connection and feel an interest in that thing. So don't just go off and buy any of these because it sounded good. I encourage you to look deeper. That's really where you're going to make your best investment decisions. And you feel that connection. When you want to learn more about that company, maybe you already know more about this company than I do. In fact, I know across our whole listenership, there are many people who know a lot more than I do about all five of these companies. That's part of the nature of my job. I'm a mile wide and an inch deep, but don't tell anybody. Another ground rule, another ground rule is that I'm going to be presenting these alphabetically. Just so you know, there's no particular ranking. And if you look very carefully, you'll notice they kind of start at the letter M and go to Z. And that's because I just started at the bottom half of my scorecard and kind of went up from there. So I started to see and I just went up. So you can even see from this that this is not a comprehensive view. This is just kind of the M disease and the ones, the five that I think not enough of us know about. And then the final ground rule, and then we'll get started, is I'm going to type each of these into caps. So I've talked about this before in an earlier podcast. I did that where I talked about some stocks that I like and I like these stocks and I like to back it up. I like to do what I never see happening in the financial world enough. And that is be accountable. So am I sure that each of these is a winner? No, I never will be. Do I think as a group that these stocks will outperform the market of the next three plus years? Yes, I do. And you can follow along. My caps page at caps.fool.com. I'm just TMF Spiffy Pop and you can find my caps page and take a look there. But I would encourage you to use caps. If you like one or more of these, or if you think Dave's wrong about that one and you want to thumb it down, you can pick stocks to underperform or outperform on Motley Fool caps. That's a big part of my learning. Something I've been doing for years now. So I'll be doing that again with this group of stocks I'm mentioning. Okay, let's forget all the ground rules and let's start with the first one today. And the first one today is middle B, middle B Corp. M-I-D-D is the ticker symbol and middle B is trading as of this taping anyway around $119 a share that puts middle B at about a $7 billion valuation, $6.8 billion. Why do I like this company? First of all, have you heard of middle B? Now, if you're a long time Motley Fool fan or an active rule breakers member, I bet you may well have heard of middle B. But I submit that the average person out there has no idea what middle B Corporation is or does. But this is the company that is a leader today in commercial ovens. So a lot of fast casual restaurants, many pizza places, some more upscale places. Middle B is making or serving those customers at those restaurants. Now part of what middle B has been doing over the course of time is acquiring lots of companies. So this is an interesting one for me. This is a growth by acquisition play. And the CEO of the company, Celine Basoul, who we've got to know some of the Fool and deeply admire is one of our favorite living CEOs today. He is an excellent manager of other enterprises. So middle B keeps growing by acquiring the most recent big acquisition middle B made was Viking. Maybe you've heard of Viking ovens. We actually have one in my home kitchen. So middle B now owns Viking, which was not the case as of a few years ago. So that's the most recent acquisition. But when middle B sits down with you, they say two things to you. They say, hey, whoever you are that we're thinking of buying, you guys are probably a small regional player. We can make you global. So middle B has a global business network, and they can take you and your application, your oven, your oven, whatever it is your company does. And they can give you that global market. The second thing they're going to do is they're going to tell you we have better technology than you do. We might be acquiring you for your technology. But if you look underneath the hood at middle B, they are constantly developing and innovating. And so they're going to be able to add a little bit more intelligence and a little bit more tech into you and what you're doing. Okay. I could talk too long about middle B. This will be one of my longer ones in this short podcast. But we know this company really well, you know, by 2020, estimates are actually from Salim Basul. He estimates that 50% of all commercial kitchens will be automated. And that's a really interesting fact. So the kitchen of the future, that's with a capital K and a capital F is something that middle B is working on as we speak. And they will benefit a lot as they increasingly automate kitchens. So a really interesting company, one that I would recommend to you, one that you should take a look at. Next one up. Going down the alphabetical list this week is micro strategy. Micro strategy, the ticker symbol is MSTR, the stock when I did this podcast is trading around $177 a share that valued micro strategy at about $2 billion. And this is a company that is a business intelligence pioneer. It's been around since those dot com days, micro strategy almost failed, actually, 2001, too, as everything came crashing down. Lots of internet companies and many didn't rise back up from the ashes. But micro strategy has a visionary CEO and founder, Michael Saylor, sometimes a controversial guy, very opinionated man. He's come and spoken to us here at Fool HQ. So I've seen Michael before and he's got, you know, people who are fans of his and people who aren't. Overall, I think he is a visionary when it comes to his business. He really understand and understood the mobile revolution and how that would be transforming the amounts of data that businesses would be seeing and working with. So micro strategy with Michael Saylor, the company didn't have great earnings. They reported in October, stock traded down some, but that is number two. Number three is NetSuite. NetSuite, the ticker symbol is the letter N, one of those companies that has the one letter ticker symbol, trading around $86 a share when I tape this podcast. And $6.9 billion right about the same value and size as middle be, interestingly enough. NetSuite basically has an integrated suite of cloud business software. So their promise is that they're going to enable you to kind of run your business on their platform and they've made good on that promise with lots of big players. The Oakland A's are a customer go pro is a customer. By the way, I should mention the Oakland A's, Billy being the celebrated manager, general manager of the Oakland A's, the mind and story behind Moneyball, if you read the book or saw the movie is on the board of NetSuite and I'm a big Billy Bean fan. So that makes me happy. Companies had sales growth of 30% annualized since 2012. I should mention by way of full disclosure that I just heard from our business intelligence group here and we just signed on to use some portion of the NetSuite platform anyway. And one of our senior people said, you know, what he likes about and the reason we signed on with it is because it does a good job aggregating your global financials easily just within a single platform. So this is definitely a leader in business intelligence. This and micro strategy, the company I just mentioned, both playing in that big data space. So certainly one of the trends we we follow and are invested in at Motley Fool Rule Breakers. So I like NetSuite as well to beat the market. Okay. Three down, two to go. Number four, this week is new vasev. The ticker symbol is N U V A. The stock was trading around $52 a share when I taped this last week. It's valued at about two and a half billion dollars. So I like market caps. We've talked about this on this podcast in the past, but you know, both new vasev and micro strategy are around two and a half billion, whereas both middle B and NetSuite are right around seven billion. So it's sort of interesting to see the relative sizes of these. By the way, the fifth one that I'll be closing with is the smallest of all. But new vasev is basically a leader in innovative devices for spinal surgery, minimally invasive spinal surgery, non-invasive in some cases. The company is a significant player here. You know, most recent sales, third quarter just closed about $200 million in product sales. The company has really been focused on increasing its profitability. So for those of you who know what operating margin is, that's basically your operating profit as a percentage of your overall sales. So you've already taken out the cost of goods sold and you're down to and a few other things. SG&A, you're down to the operating margin. And those operating margins went up by five percentage points in the most recent quarter, which is really impressive for a company at that scale. By the way, Johnson and Johnson, a big medical devices company itself, reported declining sales around 7% in its most recent quarters. So it hasn't been a great, easy growth arena and new vasev has done really well. Finally, I should mention the company did raise its guidance, which is always a nice sign coming out of an earnings call. So that's helped new vasev. I went up front with my ground rules earlier. I forgot to include one, which is that all five of these have been significant long-term winners. And that's an important point. And I know if you're a regular Rule Breaker investing podcast listener, you know that I love to find winners. I do believe in general, the winners will keep on winning. So each of these, whether they're a $2 billion company or a $7 billion company, if you look back over the last five or 10 years, you're going to see a really nice looking stock chart. And that's what we like to see as Rule Breakers. So that's new vasev. And we're going to close this week with the smallest of the five. And that is Trex. T-R-E-X is the ticker symbol. The stock is trading around $39 a share as I do this taping last Thursday. And it's worth about $1.2 billion. So only about half the size of new vasev, which I just mentioned, Trex, you may well know the brand name. Perhaps you've installed Trex on your own deck at home or at work, composite decking. So rather than those traditional wooden decks that we all know of, this is an alternative form of decking, a composite that includes wood and some other materials. It's very attractive. It looks a lot like wood. It plays like wood, but it's stronger than wood. It isn't done so badly by water as wood is. And this is a very quiet, rather sleepy company. That's part of the reason they're fitting into this week's podcast. Only about 10% sales growth over the first nine months versus the first nine months of 2014. So you know, not a big grower. Sometimes people get a little too focused on the next hot stock. They assume that the rule breaker methodology or my services are all about finding the next big winner. And we definitely go for those. But part of what I appreciate about Trex and really all five of the companies we talked about this week are that they are strong, steady businesses that aren't going to surprise anybody or be on the cover of Fortune is the next big thing, but are just going to keep on keeping on. And these are so often the winning stocks as all five of these have been. And Trex most recently repurchased a million shares, retiring those shares, increasing the earnings per share since there are fewer shares right at the price where it's trading. So recently the company has bought a substantial amount of its own stock at today's prices. So there's Trex. Now if any one of these caught your fancy, great, because that's kind of what I'm all about is making sure I'm connecting you with interesting ideas and possibilities at their new technologies, better solutions, great companies, sometimes great brands. This time we talked about five companies that don't really have very well known brands particularly, but I think they're all good investments. All right. And there you have it. You know, this was my 21st podcast. So I hope you've been listening all the way through. I was flattered by one comment made on Twitter in the past week by a guy who said, does it always have to be a whole week from one to the next? And the answer that I have for you back is you can always go back and listen to the first 20 all over again. In fact, I think part of the fun of this podcast is that whether you're picking up this podcast right as I do it, the week that I did it, or three years later, at any point you're going to see something new. The world will have changed. There are stocks that I was mentioning back in podcast number three or seven that have gone up or down. And so you can actually learn a lot from looking backward in the perspective of that. In fact, I think too often not enough of us do that. We don't reflect and look back and see what works. We're too much and I'm guilty of this too, and the here and now and television doesn't help at all by having no memory about what's happened in the past. But what I love about the internet and podcasts live on the internet is that opportunity to find the past, to listen and learn. So to anybody who wishes that I did this more than once a week, we have an increasing library of content for you to go back and share with friends and family. I'm David Gardner. Thank you so much for joining me this week. Next week, well, we'll see what we do next week. Fool on! As always, people on this program may have interest in the stocks they talk about, and the Molly Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at RBI.Fool.com. [MUSIC] [BLANK_AUDIO]