On this episode of Rule Breaker Investing, Motley Fool co-founder David Gardner shares some individual stock recommendations that he believes deserve a place on your buy-and-hold list. With a three-year investment horizon in mind, these companies have the scale, recurring revenue, and innovative technology to lead their industries -- tune in to learn more.
A full transcript follows the video.
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*StockAdvisor returns as of April 3, 2017The author(s) may have a position in any stocks mentioned.
This podcast was recorded on April 19, 2017.
David Gardner: Welcome back to Rule Breaker Investing. Delighted to have you with me here in the middle of April. We've had some fun in the last few weeks. A couple of weeks ago it was "Something Old, Something New, Something Borrowed, Something Blue." Just a hodgepodge of points. And last week we went over one of my favorite Fool stories of all time, the Sam Raimi story. I hope you enjoyed that.
This week we're back to stock picking and really next week we're going to be doing the same thing. As you'll recall (I hope as a longtime Rule Breaker Investing listener) you'll know that every 10 or so podcasts it's time to pick some new stocks, and that is this week.
The last time I did this it was mid-February and it was "5 Stocks the World Needs Right Now." This week, this time I'm going to have an as yet unnamed theme, so maybe you can figure out what the theme is. I'm betting you can't, but at the end of my five-stock presentation, I will reveal the theme with a point to the theme, but we're going to leave that a mystery for now.
And by the way, when I said next week ... next week we're going to do one of those where we review past stocks. So a year ago, at the start of May, I picked "Five Stocks for a Thinking World," so we're going to have some fun next week reviewing what those stocks were and how they've done in the meantime. So a lot of stocks, here, in mid-April. Kind of the point of this podcast at the end of the day.
OK. And just before we get started, I do want to mention that I've really appreciated your reviews. It's been fun to read what you think of Rule Breaker Investing on iTunes and Spotify. If you haven't already, please subscribe to this podcast on iTunes, or Spotify, or places like Stitcher or whatever is your favorite podcast aggregator of choice. But you can follow us (I think you know this) on Twitter at @RBIPodcast, as well, and follow me on Twitter if you like. I'm @DavidGFool.
Finally, I do want to just mention. I hope you will give us a review. If you haven't already, throw me some stars. Let us know how we're doing. I read every comment.
1. Axon Enterprise -- OK, stock number one. Stock number one is Axon Enterprise (NASDAQ: AAXN). The ticker symbol is AAXN. The market cap of this company is $1 billion and as I speak the stock is trading at $22.26.
This is a company that a lot of you will know by a different name. It recently changed its corporate name. This is/was TASER. TASER, a public company for the better part of the last decade plus, but recently changed its name because of its emerging new product of Axon police body cameras. A new line, and really a big focus for the company and so what the world used to know as TASER is now Axon with the new ticker symbol AAXN.
So why do I like this company and why have I liked it for quite a while?
Well first of all, it has the dream of ridding the world of bullets, and I like that a lot. I don't like lethal ammunition. And while certainly TASER has been criticized, and some people have sometimes said that it's led to death that would have not happened had somebody not been Tasered, the reality is if you look at the whole sum, a holistic view of what's happening, you have a lot of people being subdued with Tasers that otherwise might well have been shot with ammunition that might have killed them.
So as a consequence, stun gun sales, remain a big product, of course, for TASER. In 2016, stun gun sales up 34% over the year before. This is driven by repeat purchases -- departments that will buy a few and then add some more -- and also by recurring revenue.
So this is one of those while you're not buying more bullets every time, the electricity and other accoutrements of having TASER in your police department is a big part of the recurring revenue story. Of course, some new customers, too, and a company that does have a global opportunity. Already Tasers are used worldwide, but there's a lot of room for growth internationally.
And now let's talk briefly about those Axon body cameras. So in a world, especially here in the United States in the last year or two ... I almost included this stock, by the way, in "5 Stocks the World Needs Right Now," because when I was thinking about that in mid-February, I was reflecting back on how there's a lot of controversy in the U.S. around certain shooting deaths where a police officer has shot to death somebody, sometimes, of a different color of skin than the police officer, and a lot of controversy and sadness around those things.
And with police wearing body cameras, we all have a much better view. Whether you're just a casual person using social media to see what's happening out there, or you're actually assessing the performance of a police officer in the field, body cameras are profoundly transparent. A big game changer out there.
And Axon Enterprise (again, the new name of this company), also has its Evidence.com video management cloud service; so yes, one of those cloud video-based models where they have all the information up there in the cloud that you can subscribe to. And so this company grew that business around 50% last year, so that's a growth part of the business.
However, it has hurt near-term results in an interesting way. That Axon new business has lower margins and in some cases runs losses as an early stage business, and so you're seeing Axon Enterprise, overall as a company, have somewhat disappointing results in the near term with lower profits because of this emerging business.
But I like it a lot because we're focused, as you know, on the long term. And as I think three-plus years forward -- and that's how I'm going to score these five stocks, by the way [as] I'm going to be looking at them over the next three years -- I like this company a lot.
And you know, I want to put in a quick word about a completely unrelated company to make a general point about why I like Axon Enterprise. So another stock that we have under coverage in Motley Fool Rule Breakers (and if you're a Rule Breakers member you know this), is Monster Energy Drinks. Monster Drink. That business.
And you may well recall about five years ago Monster got in trouble (especially from the popular media) as it was alleged that one or another person had drunk Monster Energy Drinks in combination with something else and had died as a result. And it was one of those stories that's always sad. We never like to hear that anybody's died because of their using any product at all.
But it was one of those stories where the media kind of picked it up and then somebody else attributed it to another incident. And all of a sudden you had the Monster Energy Drink killings story of 2012. Five or six people were alleged to have been "killed" by a Monster Energy Drink and the stock dropped from $28 to $14 in less than a year just in 2012.
Now we had picked the stock back in 2009. In fact, it was January of 2009 where we picked the stock at $5.55. Today the stock is at $45. It's been a tremendous overall investment for Rule Breakers members, but if you were right there with us in 2012, you watched the stock of the time (again, it had gone from $5.55 to $28, but it dropped from $28 to $14) in light of what I would call kind of a bandwagon media effect. Stories attributed looking for the next one and the Monster Energy Drink killing story of 2012.
Here we are. Fast forward five years later. No one's really talking about that anymore. I'm not sure anything serious was ever really proven and you end up with a stock that today is at about $45 a share which has been a tremendous bounce back from that low of $14 in 2012.
Why am I mentioning Monster? Well, I think TASER has suffered from some similar press at different points. It will get picked up that somebody was hit with a Taser and died. It caused a heart attack, and the questions will be did the Taser kill the person? It's always very sad, again, whenever that happens. Any death is a tragedy, but it seems rather dubious to me in most cases. And really, we're talking about a handful of cases where that's been the case. Sometimes there's a preexisting heart condition.
These kinds of stories are in the interstitials, but you end up with a big-time media effect where everybody's against the technology for a while, whether it's a Monster Energy Drink or a stun gun. But then things kind of subside, life returns to normal, and these stocks usually bounce back because for the most part they're offering products that people appreciate. That make the world better for a large number of people. I think that's true of stun guns. I definitely think it's true of police body cameras, so we'll see.
OK, that is the first stock and really that's the longest of the stock talks that I have for you, because I wanted to hook in a separate point, there, about Monster, because I think it's important when you think about Axon Enterprises.
2. Grupo Aeroportuario del Pacifico -- The next one, stock number two, is much simpler. Stock number two -- and here comes my Spanish pronunciation. A guy who never took Spanish. I did try Rosetta Stone somewhat unsuccessfully for a while, but it's Grupo Aeroportuario del Pacifico(NYSE: PAC) and I even go with like a little bit of a Spanish Catalan lisp there. But anyway which is inappropriate because this company's really in Mexico, not in Spain, but it is Grupo Aeroportuario del Pacifico. PAC is the ticker symbol. The stock trading right at about $100 a share as I speak, and it's a $6 billion market cap.
So in Motley Fool Stock Advisor why do we like Grupo Aeroportuario del Pacifico? And the answer is that the election of Donald Trump, as we all saw, was bad news, especially in the very short term, for Mexico. Everything Mexican, starting right in early November and running right through ... Well now looking backward at it, I would say right through mid-January, everything was negative sentiment around Mexico.
By the way, on a really side political note (of the sort I don't usually indulge in), I am going to predict I doubt there will ever be a big wall built that will be sustainable between the United States and Mexico. We'll see. This is kind of as much a stock speculation point as a political one for me.
But the Trump effect definitely pushed this stock down. We watched the stock go. What's funny is I had picked it just a couple of weeks before the election at $103 a share. I wasn't expecting what happened in the election, and so when the stock touched down at $75 just a couple of months later, I wasn't feeling so good. Neither was the peso, by the way. The Mexican peso was down. Everything was down in Mexico.
But what has happened since? Well, when the currency of a country becomes depressed (and it's still an attractive country, which I do believe is true of Mexico), people start to see it's a great tourist destination. That is a really great place to spend money, whatever your currency is, and get a much better deal than you were a few months before. And so somewhat ironically, perhaps, tourism was boosted.
In fact, in the month of January this company, which owns 13 key airports in Mexico ... It runs them. It has the rights to all the airport shops. It makes a lot of money. It's one of the more monopoly style businesses that we've ever found before. But this company benefited from a 16% boost in January traffic, and that's pretty good for a company about whom there was so much negative sentiment.
So this is a stable business. It's going to be around for a long time. These guys pay a 2% dividend. In fact Motley Fool Hidden Gems picked it -- I was looking back in my notes -- in April of 2006. They still hold that position. It's a four-bagger for them. For me, I'm happy to say that for a stock that went from $103 down to $75 in just a few weeks after an election, it's now back up to about $100.64 as I speak, and I like it a lot going forward.
Again, we don't care about what's already happened. All you and I care about is what's happening next. I like PAC -- PAC is the ticker symbol -- for the next three-plus years forward.
3. ResMed -- Stock number three. Stock number three is ResMed(NYSE: RMD). The ticker symbol is RMD. ResMed has a $10 billion market cap. The stock, as I speak, is trading at $68.86 or thereabouts. This is a company that, in its own words, is changing lives with every breath. This is a Rule Breakers stock pick that I picked in the fall of last year.
The company's all about healthy sleep, and well-being, and respiratory care. It's a leader in what it does, and if you know of or perhaps suffer from sleep apnea, then you're going to appreciate what ResMed does. So for some of you, you know exactly what I mean when I see CPAP (C-P-A-P). This is a ventilator that people who have problems sleeping at night might be using. CPAP stands for "continuous positive airway pressure."
And basically it's just applying mild air pressure on a continuous basis to keep those airways open for people. Keep them able to breathe normally on their own as they sleep. So you're wearing the ventilator. It's got a tube. It's got a little unit next to your bedside.
That's the company's product. This company invented that product. In a sense invented an industry.
Now sleep apnea, which is a sad thing to think about (I don't have it, I hope you don't have it), is treatable. However (and this is bullish for this stock), it is underdiagnosed. It's undertreated and underdiagnosed in the United States of America, and you can bet if it is in the U.S. that it's even more so worldwide.
So this company has definitely a global opportunity as a leader. It does have some significant competition in the form of Philips Respironics, one of those Philips companies. Philips, of course, a conglomerate, so they're competing against a division of a larger company.
I like the focus of this company, which is just trying to do what we've described. It's also a stock that is a lower-risk pick for us for those who know our risk ratings. And I did a series on risk ratings that you can listen to from last year. You can see our risk rating. It's a three-part series teaching you about those. This company has a risk rating of just seven. That means it's a lower-risk company.
It also -- kind of like Axon Enterprise in another context -- has a cloud-based business, as well. It has cloud-based monitoring of its patients. So I like these data companies, as well. And yes, talk about a razor-and-blades business model, and this isn't the only company that has that that I'm featuring this week. In fact, TASER is one such and there will be another one coming shortly. But this company has its patients, yes, occasionally replacing their masks, or the tubing, or the filters, so it sells profitably lots of blades along with that razor.
So ResMed. A $10 billion company. I like it going forward. This is, pun intended (not trying to be cute, here) a sleepy stock. It's one of those that I think you can buy and just continue holding very patiently over the course of time and be rewarded with outsized market returns. We shall see.
4. Intuitive Surgical -- OK, stock number four. This is one of my very favorite stocks of all time. If you're a Rule Breakers member, you might know what's coming. It's been picked six separate times in Motley Fool Rule Breakers and I like it just as much over the next three-plus years. The company name is Intuitive Surgical (NASDAQ: ISRG). The ticker symbol is ISRG.
I was looking back over all of the podcasts I've done so far in which I've picked stocks, and I realized I've never once picked this stock, so I want to make sure that I do, so that you hear from me how much I love this company. The stock, as we're talking, is trading at $759 a share, or so, and the market cap is $28 billion as we talk today.
Now this stock I first found in March of 2005. This is one of those times where I get to brag very briefly. The stock was at $44.16 on that day for Rule Breakers members. I know some of you (I hope some of you) still hold the stock today because from $44.16 to $759 has been a beautiful 12-year ride. It is up 1,621% for us. It is the number three performer of all time at Motley Fool Rule Breakers. So yes, we have two that have done better. By the way, they're both Chinese companies.
And well, why not? I guess this is the time where I should queue up mentioning the Rule Breakers service really briefly because we're highlighting disruptive growth stocks like Intuitive Surgical and those two unnamed Chinese companies where if you're already a member you know what they are. But if you're not, a new issue of our Rule Breakers service comes out with two new stock recommendations from me the last Wednesday of every month. Do head to RuleBreakers.com to learn more if you're interested.
Anyway, Intuitive Surgical is a company that is the leader in robotic surgery. The da Vinci surgical robot has become one of the great medical products of its time. If you're picturing a robot that moves around and does surgery on you, that's not what we're talking about here.
We're talking about what is generally a large machine sitting next to the patient lying down on a table with four big arms on that machine, and the doctor is either near the machine in the same room. Might not even be in the same room. Could even, technically, be in a different city using this machine.
Experts who know how to use the machine manipulating the arms and creating a much better surgical result for patients who are having traditionally prostatectomies (the removal of your prostate) if you have prostate cancer. Or hysterectomies. More recently hernia repair. Growth areas -- colorectal surgery. These are all minimally invasive, robotic-driven surgeries.
Again, they're being done by humans using much more amplified technology. Imagine how much better a robot can see, at a micro level into a body, than the human eye can, or how much more cleanly and with precision it cuts into you or me if we're having these surgeries.
There was controversy -- and still is, sometimes -- for Intuitive Surgical over the last decade or so where some doctors say you don't get any better result than if you'd just done the traditional form of surgery. And these are expensive machines, and everyone's looking to keep healthcare costs down, so what are we doing buying da Vinci surgical robots?
What is always missing in my experience from that accusation is the patient's point of view. So yes, if you're a hospital or a doctor you might say, "Hey, the prostate comes out either way." But if you're a patient, I certainly ... I haven't had the surgery. I hope never to have it, but if I do, I'll be selecting this because it's minimally invasive. Nobody is cutting you open in a significant way. You're walking away from the hospital usually a day or two later, so you're saving a few days of hospital stay, which is very consequential for the hospitals, so that part saves a lot of money.
And really, from the patient's eyes, which is sometimes where healthcare misses and where these criticisms in my experience miss through the patient's eyes, it's pretty much a no-brainer in my experience. So if you have one nearby, and you need the surgery I like, for you, the da Vinci surgical robot.
Certainly Intuitive Surgical has done wonderfully. A quarter of a billion dollars last year spent by this company. A quarter of a billion dollars just on research and development. So not only is it the leader with strong sales (multibillion-dollar sales [and] a good, stable growth rate over time), but it is putting more money away just in R&D on an annual basis than some upstart competitors would ever have in revenues, let alone earnings.
So I really like this company. I see a world of more and better minimally invasive precise surgery. I don't think Intuitive will be the only winner. Like a lot of big trends there will be multiple winners, but this has been and will continue to be the leader. And you know that I like the leader. After all, if you're not the lead huskie, the view never changes.
5. Live Nation -- Which brings me to our final stock this week and that's stock number five and it's Live Nation(NYSE: LYV). Live Nation, ticker symbol LYV. This is a $6 billion company. Today as I speak the stock is trading just under $31 a share.
So Live Nation -- you might well already be a customer. I bet you are. You might have the Ticketmaster app on your phone. A lot of people do. Live Nation Entertainment was formed by the merger, some years ago, of Live Nation with Ticketmaster.
Now Live Nation is the business that conducts the concerts. The big events. They own some of the venues, or they have relationships with them, but they sign up artists like U2, or Madonna, and then they primarily just promote them for those live events that they do.
And that's where a lot of the money in a "we used to make more money on CDs" world that we live in today -- that's where a lot of the money is made today [and that's] concerts. And not only do you have the Live Nation portion of the business, but you have the very complementary Ticketmaster part of the business just selling the tickets to those events.
So we're talking about the number one global player in this business. A company that invests heavily back into itself, so it doesn't show a lot of profit. It doesn't really look like it's making money. It's making a ton of cash flow. It tends to invest that back heavily into itself to continue expanding. More people attended Live Nation events, shows, last year than all of the people attending the NFL games here in the U.S. (American football, the NFL), the NBA basketball games, and the NHL hockey games, all of those combined.
So you can see we have a company that does a very substantial business. It is clearly the top dog and the first mover in this area, and I don't see anybody unseating them any time soon. And yes, there are more global possibilities for this company, as well. So that's Live Nation.
All right, I mentioned at the start that there would be an as yet, unnamed theme. What are we going to call this episode of Rule Breaker Investing? And you know, ultimately I'm going to leave that to my friend, Rick Engdahl, my producer, who typically names most of these. So as you're downloading one of our podcasts, if there's a cute name or something that jumps out at you, that's Rick's work. So I'm going to ask Rick -- not here on air -- I'm going to ask him to think about how to name this, but I'm going to tell Rick and you, right now, what our theme was this month.
So if you take my five stocks again, the ticker symbols (AAXN, PAC, RMD, ISRG, and LYV) and you take the first letter of each of those ticker symbols, it spells "April". And darn it, we're in April.
So I'm being cute. Having a little bit of fun. But there is a point to this madness to my April stocks. And the point is that each of these stocks comes from what we call here at The Motley Fool our Supernova Universe. Supernova is one of our premium services. It's one of our higher-end services.
I know many of you are members -- I would love for all of you to become members over the course of time -- but all the Supernova Universe comprises is the picks that I've made for 10+ years in both Stock Advisor and Rule Breakers. And when I add all my picks together and bring them into one universe, I call it the Supernova Universe. And my point in selecting five stocks, almost at random from that universe [is] just trying to spell out an acrostic as a cute way to do a theme for this week.
I believe that in this universe of approximately 200 stocks, basically I think ... Let's go back to the night skies, here. As an investor, I think that this is where you want to train your telescope. There are a lot of stars up there at night. There are a lot of different directions you could look.
But over in this one corner of the sky, you've got my 200 or so companies. And I believe (and we've actually done studies that have shown this) that you can almost randomize your selection from these 200, as long as you pick enough of them (15 or 20), and you will beat the market something like (I'm making up the numbers here [as] they change all the time), 95% or more of the time.
Now by no means is that forward-looking. That's definitely not a promise or guarantee to anybody, but it is reflecting on 10-plus years of work and I think just encouraging you to recognize that in a world where so many other people are just picking index funds, and mailing it in, and Vanguard ... And God bless Vanguard. Vanguard is growing at a faster rate than the rest of its industry combined.
I just think that you and I have an even better chance of beating the market when no one else is trying to do so anymore, it seems. And meanwhile, we've just trained our telescope over to this area of the night skies. So that's kind of how we're having fun here with April.
OK. To close, I will be entering each of these onto my CAPS profile at CAPS.Fool.com where I'm TMFSpiffyPop. I probably already have a few of these picked, but I always like to keep score of myself as I encourage you to do the same for yourself. So any of these that aren't already on my CAPS page will appear so tomorrow morning because we will be keeping score and somewhere around a year from now, and/or two or three years from now, we will go back. We'll look at these stocks and see how they've done, and see if they've beaten the markets.
Speaking of beating the market -- not to foreshadow too much -- but next week we'll be looking back one year ago at the stocks I picked then, "Five Stocks for a Thinking World." It will be fun to review them, see what's winning, what's losing, and what we can learn together from that. In the meantime, I'm David Gardner. Thank you so much for joining me this week for Rule Breaker Investing. Fool on!
As always, people on this program may have interest in the stocks they talk about, and The Motley 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.
David Gardner owns shares of Intuitive Surgical. The Motley Fool owns shares of and recommends Axon Enterprise, Intuitive Surgical, Monster Beverage, and Twitter. The Motley Fool recommends Grupo Aeroportuario del Pacifico, Live Nation, and ResMed. The Motley Fool has a disclosure policy.