The Market Cap Game, Round 5: Play Along and Guess What These Companies Are Worth
Once a quarter, Motley Fool co-founder David Gardner indulges himself with one of his favorite repeating Rule Breaker Investing podcast features: The Market Cap Game, in which he attempts to stump fellow Fool Matt Argersinger by presenting him with 10 well-known companies, and giving him the task of guessing their current values to within 20%.
In his last outing, Argersinger didn't perform up to his usual 6-out-of-10 standard -- he got only four. So this time, he's out to regain some of his Wall Street street cred. Can he do it? We'll find out. Can you do better than him? Could be. And of course, along the way, they'll share some investing insights that could be valuable to you.
A full transcript follows the video.
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This video was recorded on Sept. 11, 2018.
David Gardner: And welcome back to Rule Breaker Investing!
You know, once a quarter I bring my friend Matt Argersinger into the studio and we do, what for me anyway, Matt [I'm not going to ask you to step up here] might be the most fun that I have with this podcast every 90 days or so. And I'm delighted that you're back with us once again!
Matt Argersinger: Thank you, David! Thanks for bringing me back because, you know, my score last time wasn't that great, so I was worried if you were going to give me another chance or not.
Gardner: Well, don't worry about that, Matt. And I know we have some new listeners in the last 90 days, so you, new listener, probably don't know what we're talking about. We're talking about a game show that we play on this podcast once a quarter. It's called the Market Cap Game Show and Matt is my returning guest star. Now this is our fifth episode, so if you enjoy the show, you can always go back three months and listen to Market Cap Game Show, Episode 4 or three months before that Episode 3.
But this is Episode 5. And what we do, Matt, is that we play a game together, and ostensibly it's me quizzing you [me playing Alex Trebek and you playing the talented contestant]. But you and I both know this is really about everybody else playing along with us. We have thousands of players, even though it just sounds like two guys talking stocks to each other, because you, dear listener, are playing along with us. You're playing this game at home. And Matt, before we go over the ground rules of this game, just to reset, how about let's go over the purpose of this game, briefly.
So it's the Market Cap Game Show. If I'm just a new listener to Rule Breaker Investing, I'm not sure what market cap means. What does market cap mean?
Argersinger: I think as an investor, or really anyone when you start looking at stocks, market cap is kind of that first number or metric that you learn. It's essentially a way of sizing up a company. You take the stock price of the company and multiply it by the number of shares outstanding. So if you're looking at, say, a $100 billion company and it's a $100 stock, then it has a billion shares outstanding. One billion times $100. A $100 billion company.
Gardner: And that's the price tag of the company.
Argersinger: That's right. Apple (NASDAQ: AAPL) made news recently [and I hope this isn't one of your stocks, David] becoming the first U.S. public company to breach the $1 trillion market cap number. And I looked it up. Apple trades right now for about $220 a share. It has about 5 billion shares outstanding. So you multiply 5 billion times $220 and you get roughly $1.1 trillion, which is Apple's market cap.
Gardner: An outstanding example, and wasn't it? Because you and I are market cap junkies. Wasn't it satisfying in recent weeks to see market cap be a big focus of the daily headlines?
Argersinger: I loved it. You know, you never see that in mainstream media headlines. We see it sometimes in financial media, but to see it really out there everywhere was gratifying.
Gardner: Absolutely. So the reason that we've made this into a game is that we think it's a great thing to know your market caps. It gives you a good sense of what the size of a company is. A lot of people -- especially people brand new to investing or who don't know investing at all -- think that the price per share of the stock is a big thing. So if a stock is priced at $4 a share, sometimes that might sound better to them than $400 a share because they think I can get a lot of shares. It's a little bit more of that penny stock mentality. But they're focused on the wrong thing. They're focused, Matt, on the price per share of the stock.
Argersinger: That's right. Oftentimes, you'll find a stock that's $10, but that could be a multi-multi-billion-dollar company and you might find a stock that's $80 a share that might be less than $1 billion in market cap. Really, the share price doesn't tell you much about the size of the company.
Gardner: That's right. You need to know the shares, exactly. And then you do the math, and you multiply it, and you get the market cap. Now you've been gracious enough to play this game from the outset. By the way, the very first one was August 9th, 2017 so we're now in our second year of playing the Market Cap Game Show. But the reason that we play this is because I think it's a great idea to know the market caps of your companies.
If you're hoping to have a stock rise 10X in value, it's awfully helpful to know what the base is that it's starting from in the first place. So Matt, let's say that a stock is at a $1 billion market cap. In your mind, does that have a better chance or a worse chance of going up 10X in value over the next five years compared with a stock that has a $1 trillion market cap?
Argersinger: Oh, no doubt. The company that's $1 billion has a much greater chance. I mean, if you think about Apple [we'll use Apple again, which is over $1 trillion]. If Apple went up 10X, which I'm not saying is not possible...
Gardner: I mean, let's hope so!
Argersinger: Let's hope so!
Gardner: I'm invested. I would love a 10X from here for Apple.
Argersinger: For example, the GDP of the United States is roughly $20 trillion. If Apple somehow went up 10X, based on today's economy, it would be worth about half the U.S. economy. Now, it's not impossible, but that's asking a lot from Apple. So yes, you tend to gravitate to smaller companies to look for bigger gains.
Gardner: Excellent. This is why we play the game. We're the only podcast -- maybe the only show of any kind on any channel, and that includes all of YouTube -- to actually make market cap into a game show, and it's a small point of pride for both you and me.
Argersinger: Yes, it is.
Gardner: Indeed. So how does this game actually work? Well, it's simple. I will be asking Matt about 10 companies -- 10 different companies this podcast. Not a single one of them does Matt know that I'm going to ask him. We are drawing from the 220 or so stocks that make up what I call the Supernova Universe. Longtime listeners will know that's the full body of work of all the stock picks I've made in Rule Breakers and in Motley Fool Stock Advisor -- two services that I've worked on at The Motley Fool for about 15 years.
Picking stocks for 15 years, now, I've filled up a bucket with a huge number of great companies -- about 220 of them. I pick 10 of them not completely at random. I've selected some of these and randomized a few others. Matt never knows what's coming. His goal is to guess the market cap. That's your goal, as well, at home and you win [give yourself a check mark, dear player], if you are within 20% either side of that company's market cap.
For example, if I were to ask Matt about a company worth $10 billion -- I'll give you a couple of examples right now. Live Nation, which is the company that sells concert tickets to many of the venues that it itself owns across America and letting you see some rock music acts that it works or partners with directly. Live Nation's worth $10 billion. Or how about Discovery? Discovery Communications. The Discovery Channel. All of those different companies out there. Also a $10 billion company.
So if I ask Matt what the market cap is of Discovery Communications, the actual answer is $10 billion. He would have to be $2 billion on either side of that, so anywhere from $8 billion to $12 billion and you, dear player, can give yourself a check mark. We're going to be doing 10 of these, so you can check your batting average throughout the show.
We're just about to get started, Matt, but first we should review your personal batting average. So I've done the math, here. You've played four shows. That's 40 stocks. You were 6 out of 10, then 6 out of 10, then 6 out of 10. The last time 4 out of 10. Possibly slumping a little bit. We'll see if that slump continues or not this particular month. But Matt, your 22 of 40 historically in the Market Cap Game Show.
Now I know we have some players listening right now who've played with us all the way through, so everybody should do their batting average. Matt is batting 550. Now that is a batting average that would send him not just straight to the Hall of Fame in American baseball, but it would make him the greatest sports figure in American history...
Argersinger: That's right...
Gardner: ... if this were baseball. It's not baseball. It's the Market Cap Game Show, but Matt, I already think you're kind of a Hall of Fame possibility with just that 550 batting average. This is not an easy game.
Argersinger: All right! Well, I'll take that. I'm happy with anything above 500. If I can keep that up I'd feel good about myself.
Gardner: Excellent. Well, one question and then I'll give you our first company, Matt. If everyone were playing the Market Cap Game, because it's just kind of we, here, on Rule Breaker Investing and all our fellow Fools. But imagine if everybody from Queen Elizabeth to Lebron James, to the youngest child just born in the local D.C. hospital birthing ward; everyone, all humans, are playing the Market Cap Game Show. How do you think the world would be better?
Argersinger: Well, I think it would be better because by playing the Market Cap Game Show you're using some math, but you're also connecting to real-world things. Companies. And I think it informs people about the marketplace. What kind of companies are out there. What is Nike's market cap compared to Under Armour's market cap? Why is Nike so much bigger? And it just gets people thinking about business and thinking about valuing things. It's great if that starts as early as possible.
Gardner: That is awesome! In fact, I will conclude by saying I, myself, think that the world would be smarter, happier, and richer and that's kind of what we're trying to do, here, at The Motley Fool. All right, Matt Argersinger, let's wind it up. Players at home, let's wind it up. Let's get ready!
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Gardner: The first company. Matt, are you ready for a third-time appearance on this show?
Argersinger: Oh, no!
Gardner: Yeah, that's right. This is a company that I'm asking about for the third time. Now, I will say the first two times you've not gotten this one right. It's a company that a lot of us have heard of. As soon as I say it I know you're going to have heard of it. You might well be prepared for it this particular show because, Matt, you missed it last time. You missed it a few times ago. In fact, neither time were you even close.
So let's kick it off. The ticker symbol is [ETSY]. The company's name is Etsy (NASDAQ: ETSY). It is, of course, the online commerce platform uniting buyers and sellers, often around handicrafts and it's a global player these days. But Etsy [ETSY]. Matt Argersinger, what is the market cap of Etsy?
Argersinger: I have to admit. After last time and knowing that I missed it for a second time, I tended to pay a little more attention to Etsy over the last couple of months. So I think I've got this. I think Etsy's market cap is $4.5 billion. Did I miss it again?
Gardner: This is truly incredible!
Argersinger: Did I miss it again? -- Bzzz! --
Gardner: So Matt, I want to say first of all, that you were very close.
Argersinger: Oh, no!
Gardner: You were so close.
Argersinger: Oh, my gosh!
Gardner: But unfortunately, I can't give it to you. And part of it might be that Etsy's up 4% today as we talk. And literally if Etsy had not risen 4% today, you would have gotten this one right.
But the market cap of Etsy, and we're taping at about 03:00 PM, September 11th. Tuesday, of course, just the day before the show. The market cap of Etsy is $5.8 billion.
Argersinger: I think I'm doomed. I think Etsy is going to haunt me for the rest of my life. We could play this game 10 more times and I think I'll miss it every single time.
Gardner: So players at home, give yourself a check mark if you were from $4.6 billion to $7.0 billion. That is the 20% space on either side of Etsy's market cap. Matt, it's been an incredible run for this stock. In fact, I was reviewing our numbers, as I'm wont to do, and the very first time we ever played this show, which was, as I mentioned earlier [August 9th of last year], the market cap for Etsy was $1.6 billion. Here we are about a year and a month later and it's gone from $1.6 billion to $5.8 billion. This has been a monster Rule Breaker.
Argersinger: I just can't keep up with it. That's the problem. I think I went way over at the beginning, and then I came way low, and now I'm low again. It's just... Wow!
Gardner: Again, I was thinking that was a softball. I was trying to lob one up for you, there. But this might be a little bit of the slump carrying over from last time, but I'm sure you're going to snap out of it. And players at home, you may also be slumping or you may be on fire, and that's a reminder for me to let you know that if you do well, #IBeatMatt is the one to use on Twitter in the week ahead. Tweet us out at @RBIPodcast, hashtag #IBeatMatt. Maybe #ILostToMatt. That's been tweeted often in the past. The rare #ITiedMatt is out there, as well. So Matt, zero in one. Let's go to Stock No. 2.
With Stock No. 2, Matt, I want to start by asking you. How is Odyssey 1 going, the real money portfolio that you're managing for members of Motley Fool Supernova that you started in 2012? Was it January of 2012?
Argersinger: March 2012.
Gardner: March 2012. How are things going?
Argersinger: Things are going well. We're having another great year so far. There's been some volatility, but I think as of the end of August, we were still up about 25% for the year, which is well ahead of the market. After 2017, I really expected 2018 to be not nearly as good. But actually we're on pace for another great year as 2017 was, too.
Gardner: And not only that, but I've updated our numbers for September and Matt, you and your talented team, year to date, are up 28.5%, as we speak, with the market up 9.9%. So it's been a great year. But, you know, years can be good or bad. I think more important, and to give you some extra props, here, since you launched this portfolio in March 2012 for members with real money [where members can copy right along and follow your trades; in fact, executing trades before you all do as a team], you're up 216%. The stock market is up 81% over that time. That comes out to an annualized average of 19.8% vs. 14.2% for the market. That's over six years and counting. Matt, congratulations!
Argersinger: Oh, thank you David! And shout-out to, of course, my teammates [Tim Beyers, Aaron Bush, and Sarah Goddard] who have been with me the whole way.
Gardner: And that is a true star team. I mean all four of those Fools... I know a lot of us will know a few of those if not all of those. I think I've probably had every one of those on the podcast in the past. They're great teammates and I'm really glad that you've kept that team together. That's like the dream team. One of the dream teams here at The Fool. So, great job!
And I'm asking you about this because the very next stock we're going to play with, here, is I think a stock that you guys had for a while and then sold. And if I'm right [you can correct me if I'm wrong], it was a great move to sell it. It's remained an active recommendation for me, but kind of a loser. Stock No. 2, the company name is Sierra Wireless (NASDAQ: SWIR), and the ticker symbol is [SWIR].
Argersinger: OK.
Gardner: Now I first took a shine to this stock in 2013. It was a small-cap company at the time, but I decided there was going to be this thing called the Internet of Things one day, and machine-to-machine communications would be really big. And indeed I think that the Internet of Things has gotten only more relevant with every passing year.
And yet, unfortunately, Sierra Wireless -- which is up from our initial recommendation, but well behind the market -- has not really become the leader or player within the industry that I was hoping.
Argersinger: Yes, we owned Sierra Wireless and I think we sold a partial stake at one point and ended up selling the entire position. And I think it was one of those situations where we wanted to free up capital because we saw some opportunities elsewhere, and that's usually the No. 1 reason we decide to sell things in a portfolio.
But with Sierra Wireless, I think we saw the same things you mentioned. We didn't see the value creation that we hoped to see with all the technology that Sierra Wireless provides to numbers of industries. It just seems that the value being created at those end markets in Sierra Wireless as the technology creator, isn't capturing a lot of that value.
Gardner: A mistake I've sometimes made as an investor is I get the trend right, but I think I need to find a small-cap company that's really going to zing. But often the small caps are not the ones that bring new, big trends into our society. It's the bigger players, sometimes. And it's not always true. Amazon certainly started fairly small. But it is often true, and I think I made that mistake in the case of Sierra Wireless. I first recommended it at $15 in September of 2013, so that's five years ago. And it touched $50 by January 1st of 2015. So it was a monster winner, but today...
Well, I shouldn't actually say the share price, today, because that might help Matt with the market cap, but I'll just say this. It's well down from that $50 position. Matt, what is the market cap of Sierra Wireless within 20% either way?
Argersinger: I'm pretty sure Sierra Wireless is still a small cap. Even still maybe below $1 billion. I'm going say $800 million market cap? -- Ding! --
Gardner: Nailed it. Yup. The market cap, as we speak, is $784 million, so you are possibly the closest guess you've ever made, because you were within $16 million of the actual figure, which is off the charts great.
Argersinger: I'm surprised. I thought it was somewhere between $750,000 and a $1 billion, so I thought I might be on the low side, but wow! Great! On the board!
Gardner: And it's interesting, because Sierra Wireless is up, as we're speaking, about 9.5% today, so it's been an outstanding day for the stock, but still only pushed its market cap up to $784 million. So Fools playing at home, if you answered anywhere from $627 million to $941 million, give yourself a check mark in the plus column. And Matt, that brings you to one for two batting 500. Kind of what you're shooting for, right there, as a Major League slugger.
Argersinger: Picked up some heat. Picked up some steam, here.
Gardner: All right. So Stock No. 3. Well, Matt, you and I have talked about this almost every podcast that we've been on together on this show doing the Market Cap Game Show, because we both love video games. And, in fact, last time, having relistened to your appearance in Market Cap Game Show in June, just three months ago, you were talking about Spider-Man, which is one of the video games you were looking forward to at that time. I don't know if you've kept up. Did you purchase it?
Argersinger: I'm going to purchase it. I've got one game I'm still working on. As soon as I finish that game, I'm going to get to Spider-Man.
Gardner: Excellent. Do you want to say the game that you're working on?
Argersinger: God of War 4. I love the God of War games. The problem is [and maybe David knows this], I'm a little bit of a completionist. So when I got God of War 4, I had to go back and to play God of War 1-3, just because it had been a couple of years since I played those games, so that's why I've was a little slow. I've been a little slow on my video game playing.
Gardner: No problem. That's not slow at all. In our household, playing with my son, handing the controller back and forth as one of us dies each time [which means he's playing most of the time]...
Argersinger: That's great!
Gardner: That is how we play at my household. We just finished God of War a few days ago, and then we purchased Spider-Man and we've been enjoying just the start of Spider-Man which got outstanding reviews, like God of War. And both of them are not investable, because unfortunately, as I think you probably know Matt, both of them are made by Sony, itself. Sony Interactive Studios, I think. So you can't actually get a play on God of War or at least the Spider-Man most recently released video game that way.
But Stock No. 3 is a video game company and one that I know we both admire. The ticker simple is [TTWO]. It is Take-Two Interactive (NASDAQ: TTWO). Now, when a lot of people think of video game stocks, and they think about the leaders. They're thinking about Electronic Arts or Activision Blizzard, big players in the industry, and really players that operate across all genres. They've got a triple-A release for sports. They've got fantasy role-playing games. They've got strategy games. They've got the whole gamut covered. Activision Blizzard. Electronic Arts. They are behemoths within the industry.
Take-Two Interactive, though, a much smaller player. Take-Two has two big labels that it's worked with and built up over the years. The first is Rockstar Games, the Grand Theft Auto series which is lucrative and usually pretty brilliant. And then 2K Games, which is its sports line and I'm thinking in particular of NBA 2K19. I just put in an order for that today because it just got a 91 on Metacritic. An outstanding rating for the 20th anniversary of the NBA 2K series. Matt Argersinger, what is the market cap of Take-Two Interactive?
Argersinger: I should get this. I'm also a big BioShock fan. I know you are, which is one of their premier games, as well.
Gardner: No question.
Argersinger: I think Take-Two is right around $16 billion. -- Ding! -- All right.
Gardner: He's back. Matt Argersinger! After falling off the train, almost off the planet with his third straight miss at Etsy, is now two for three and really not even close to missing either of the last two because you nailed the last one and this one, Matt. Take-Two is $15.2 billion, so your answer of $16 billion is spot-on. And players at home, if you were anywhere from $11.8 billion to $18.2 billion, you're on first base, as well, with Matt. You got on base, Matt. Good job! Two out of three.
Argersinger: Good trend. I like the trend.
Gardner: Good trend. I like it, as well. Do you want to say anything more about video games before we move on?
Argersinger: Just that it is one of my favorite industries. I know it's one of your favorite industries. I think the idea of interactive entertainment is just something that's getting bigger in all different kinds of forms and platforms.
Gardner: Absolutely. E-sports is something that you've covered a lot and followed over the years.
Argersinger: Big time. Really taking off. Even exceeding viewership of traditional sports. It's really an exciting industry to follow, and I love that we have a bunch of great companies in the industry.
Gardner: And a bunch of great games. Just the releases in the last few weeks, let alone Red Dead Redemption 2 coming out a little bit later this year.
Argersinger: That's why I need to get Spider-Man, so I can actually finish Spider-Man before I get that game.
[...]
Gardner: All right, and we used that horn [that's like a hockey horn] because it's intermission [and] we're still celebrating the Washington Capitals winning the NHL championship which caused us to change how we structure this game. Because in the past it had been like that was a halftime ad read, but we decided we would make it three periods, kind of like hockey.
So that was first intermission. Matt, let's continue. Let's kick of the second period, here with three more stocks, Stock No. 4.
Now Matt, I've gotten to know you better through playing this game. Asking you some biographical questions, and I'm always wanting to know more about you, and in particular we're going to focus just on your youth, here. Where were you on planet Earth at roughly the age of eight or nine years old?
Argersinger: I believe I was still in Germany at the time. My father was in the Army and we were stationed in Würzburg, Germany.
Gardner: That's outstanding. Now do you have fond memories of Würzburg, Germany? I mean, it's like a world away.
Argersinger: I do. In fact, my mom is German. So when I was living there I got to spend a lot of time with my German family. My German cousins who are all still there and I'd visit frequently. It was an interesting time growing up. I went to German kindergarten.
I ended up on the military base for elementary school, but at least in the early part went to German kindergarten.
Gardner: Really cool. And then where did you move from there?
Argersinger: From there we went to Fort Huachuca, Arizona. That was my dad's next assignment.
Gardner: Wow! And how long were you there, roughly?
Argersinger: I think three years was the initial time in Arizona.
Gardner: Really neat. So looking back on those two very different places, did you have a friendly neighborhood drugstore in either one? Was there like a place with a pharmacist that you know by their first name? Maybe on the American military base they probably have this nailed. I'm not sure. But, you know, a friendly neighborhood drugstore?
Argersinger: Sure. I think in the military base there was always the commissary, but then attached to the commissary was the little pharmacy.
Gardner: And it probably wasn't a CVS (NYSE: CVS) -branded pharmacy at that time.
Argersinger: Not at that time.
Gardner: But the company has gone on for many decades now, to become quite large, today, CVS.
Argersinger: That's right. Huge!
Gardner: And CVS had some big recent news in the last year when it announced an intended merger with Aetna, which just shows the changing nature of these companies. Because what starts as a friendly neighborhood drugstore becomes a drug seller through its pharmacies. Regular people subscribing and trying to get better deals through volume. Joining in. And then an insurance company, Aetna. It's a really interesting world today that CVS is trying to become a leader in.
Argersinger: That's right. And I wonder how much of this potential industry consolidation is prompted by what Amazon is doing in terms of getting into the pharmacy business. Maybe getting into the larger healthcare business, as well. I have a feeling that is probably kicking the proverbial can down the road a little bit for these companies. They're trying to get ahead of that.
Gardner: Well, in Stock Advisor I recommended CVS in 2014. I love to talk about my winners on this podcast but, unfortunately, I don't always pick winners, so sometimes I have to talk about my losers. And CVS has not been a great stock. At the time, I loved the announcement by the CEO that they were taking tobacco out of all of their stores. I thought that was a really gutsy, courageous, and interesting move by the CEO. Definitely foregoing some profits, some sales. Changing the course and saying, "We're about health, so it makes sense for us to have healthy products."
The stock reacted really well and was an early big winner for us and for Stock Advisor members, but I have to say now looking back four years from that initial pick the stock's up about 16%, so it's fallen back. The market's up about 72% over the last four years, so CVS has, in fact, been a pretty bad laggard.
Argersinger: It has. Again, speaking to the size of these companies. They're very large and I think there are some outstanding questions about where the pharmacy business is going. Is it going more toward an online, mobile delivery type of business? A lot of what really benefits CVS is the fact that people go there to pick up drugs, but they end up also buying household items. I certainly do when I go there. And that business could be a little bit under threat, though I think CVS, just with the nature of that business, is still going to have a huge customer brand.
Gardner: You bet. Matt Argersinger and all players at home [and all players worldwide], what is the market cap of CVS, ticker symbol [CVS]?
Argersinger: I'm going to say CVS is a $75 billion company? -- Ding! --
Gardner: Wow! Matt, you're not just nailing it. You're starting to kill it in this game. It's $77 billion. You said $75 billion so you were within just a couple of percentage points. But for the rest of us, if you were on either side of 20% of that [if you were from $61 billion to $92 billion], give yourself a plus one. You got it along with Matt.
Now, it's going to be hard to use that hashtag #IBeatMatt if Matt keeps this up and maybe I've made this game too easy. I'm not sure. But that's three in a row.
Argersinger: Well, they could use a hashtag that says, #IGuessedEtsyAndMattDidn't or something like that.
Gardner: I would like to see at least one of our fellow Fools use #IGuessedEtsyAndMattDidn't hashtag. We'll see if that happens in the week ahead. Yes, muses are beginning to sing of this Etsy/ Argersinger relationship that is becoming a thing.
Argersinger: One quick thing on CVS, too. I think I was able to guess that because I remember when Walgreens a month or two ago got added to the Dow. And I wondered at the time why CVS wasn't added and Walgreens was, and I think I was comparing the size of the companies.
Gardner: Right, because CVS is larger than Walgreens.
Argersinger: CVS is larger, and I was a little bit befuddled by the decision. I still am, a bit, but Walgreens made it into the Dow. CVS did not.
Gardner: I still am, too. I don't really know what to say a few months later.
Argersinger: No.
Gardner: What was funny -- do you remember what got booted in order to make room for Walgreens?
Argersinger: I should know.
Gardner: It was GE.
Argersinger: That's right!
Gardner: And GE that day went up like 5% and the week after Walgreens got added it dropped like 5-6% or something. It was funny to watch the passing of two ships in the night.
Argersinger: That's right.
Gardner: All right, Matt, it's time for Stock No. 5. Where do you buy your clothes? Do you buy your clothes? Like I don't buy my clothes. My wife Margaret buys all my clothes and I'm grateful for that.
Argersinger: I enjoy buying all my running and sports gear; so shoes, shorts, shirts, and stuff like that, but when it comes to wear it for work or formal engagements my wife is all over that.
Gardner: So where would you typically go to buy clothes for yourself?
Argersinger: I have become accustomed, a little bit, to buying online. I'm a big Under Armour fan, so I do buy clothes directly from Under Armour. I will go to Amazon, on occasion, to buy things. So I've become a little bit of an online shopper when it comes to apparel, which is surprising.
Gardner: Yeah, and I think that's great. Presumably you're not doing that against your will. In other words, it's become convenient. It's become attractive enough that you want to take the time, or you will take the time, just to click a button and get your new shirt.
Argersinger: That's right, and I figure sometimes if you know the brands you like, it makes it a lot easier and you know what sizes fit you well. It makes it a lot easier to shop online.
Gardner: Now what about when the clothing that you're buying doesn't have, necessarily, a brand in itself but it's the box around the clothing that's being sent to you that becomes the brand? Have you had any experiences there?
Argersinger: I have not, and I think I know where you're going.
Gardner: So one of the hottest stocks on the market these days is Stitch Fix (NASDAQ: SFIX). A number of Motley Fool analysts -- Abi Malin of podcasting fame, certainly my brother, Tom Gardner, and some others -- have taken a real shine. And indeed I decided we should add Stitch Fix to Rule Breakers, which I did just weeks ago. The ticker symbol is [SFIX]. And for those not familiar with Stitch Fix, I'll be happy to lay out briefly my experience with one or another of this kind of company or its competitors, because there's a number out there.
So the idea is that you go on and you say, "I like this shirt. I'm looking for this style. These pants," and then you have somebody on the other end of that internet connection whose full-time job is to think, "What would Matt Argersinger like based on what he's just told me?" And they bring an outfit together. Let's say trousers, and a couple of shirts, and put it in a box, and you subscribe on an annual basis. You get like a box a month. They just send you the clothes. They should have your sizes, so you try them on. You're supposed to like them and it turns out it's a good-enough business that people do. And they should get to know you better over time just like Netflix gets to know your tastes better, so presumably you'd want to renew that from one year to the next.
But an increasing number of people are starting to circumvent just the decision-making altogether. They're not even choosing something to buy on Amazon or on LLBean.com or in the stores over at Dick's Sporting Goods. They're just going, "Hey, man, send me a box, and I'll try it on."
Argersinger: I love that! I think you mentioned it. The reason I don't like going out to buy clothes is because I will spend hours just trying to make decisions and trying things on. I need to use Stitch Fix.
Gardner: So you can buy the shares, as well, and they've been awfully strong. We'll talk about that in a sec, but before we get there, Matt Argersinger and my fellow players at home, within 20% either way what is the market cap [SFIX] for Stitch Fix?
Argersinger: Oh, boy! It's really a shot in the dark because I haven't looked at this company, but it's been on fire.
Gardner: That always makes it a little bit more fun. The shots in the dark; in part, why we play the game.
Argersinger: I will say -- it's still fairly small -- $5 billion for Stitch Fix. -- Ding! -- I got it!
Gardner: You were really close once again, Matt. The market cap of Stitch Fix is $4.5 billion. Players at home, if you were anywhere from $3.6 billion to $5.4 billion, you got it right along with Matt and if you're four out of five right along with Matt, that's really impressive. Matt, nice call!
Argersinger: I have to say, I don't know if you got a chance to watch any of the football games last night.
Gardner: It's funny you mentioned that. I didn't watch the two Monday Night Football games, which is what you're referencing. I did try to watch my local home team, the Washington Redskins, play on Sunday, but Verizon Fios somehow messed up and I lost all of my services. My internet, my TV, my phone over the whole weekend, and I couldn't get anyone back to the house. This is the first opening day of football that I've missed, and if I really cared, I would have gone to like a local bar. It turns out I didn't care that much. But what were you seeing last night on Monday Night Football?
Argersinger: Well, I'm a big Patriots fan...
Gardner: I did know that.
Argersinger: ... so I never like seeing the New York Jets do well, but the New York Jets have a new quarterback. A rookie quarterback. And on his first pass of the game, he threw an interception for a touchdown.
Gardner: Oh, my! A pick sticks the other way.
Argersinger: A pick sticks the other way. He came back and had a brilliant game, though, and the Jets ended up crushing the Detroit Lions.
Gardner: I saw that. 48, 17 or something like that.
Argersinger: Something like that. So I was thinking to myself I think I threw a pick sticks with Etsy and maybe I'm just having a little bit of Sam Darnold on this. I'm getting it done a little bit.
Gardner: That is it. That is impressive. So before I move to Stock No. 6, I just want to mention that one of the things that we do with the Supernova Universe [all of the stocks we follow, that Matt and I pick from], is that we line them up by recent performance and I look at the last three months. It's, of course, a short-term view. It's not a real reason to invest, but I also do like to know what's moving, and I find a lot of the world doesn't necessarily know how things have done in the last three months.
So I made that a thing by calling it radiance. Imagine if every stock is a star in the night sky. There's a little Supernova theming going on here, but what shines most brightly? What has been the most radiant? And out of the 220+ companies that we're following, Stitch Fix is No. 1 over the last three months. It's up 85%.
So that market cap that you did a great job guessing has really revised itself in just the last 90 days. And just for those keeping score at home, Nos. 2 and 3, over the last three months, in radiance are much lesser-known companies. AeroVironment, which among other things makes drones, up 74%, and RigNet, which basically does like Wi-Fi and communication systems for oil rigs, up 74%. So a completely motley mix and not the same old that you'd expect -- the usual suspects at the top of that list. But Stitch Fix reigning supreme.
Argersinger: That's great! I have to say AeroVironment I've kept up with only because we used to own that in Odyssey 1 and we stupidly sold that at a much lower price than it is today.
Gardner: Well, we all make mistakes, but you're not making too many this week, Matt. Four out of five. Let's get to Stock No. 6. Speaking of performance Matt, what would you guess has been the No. 1 performing S&P 500 stock since January of 2016? So 2016, 2017. Now most of calendar 2018. I'm making this up, I have to admit. I haven't checked, but I'm confident with this one. What do you think has been the most powerfully great stock for investors in the S&P 500 in the last two-plus years?
Argersinger: If I had to guess, I'd say Netflix has got to be it, or at least close to it.
Gardner: And I would also say it's got to have been really close. And it might, in fact, be the answer but it's not. Stock No. 6 was what I'm guessing has been No. 1. The ticker system is [NVDA].
The company is Nvidia (NASDAQ: NVDA). Now, this has been a 41-bagger for Motley Fool Stock Advisor members since we first picked it in 2005, so it has been an absolute monster winner, but what's really interesting [we'll talk about that in a sec on the other side of your guess] is when that performance has come. And to give a brief spoiler alert, it's been on the back end, its backside. Its recent performance has absolutely catapulted Nvidia to the top of many lists and it is an industry leader unto itself these days.
Matt, Nvidia. Of course, the company that started with graphics processing units. Intel had its cards. Nvidia had its cards, which were more graphically oriented and computer gamers like you and me would have an Nvidia card, but these days Nvidia has just exploded and become relevant to so many different industries from artificial intelligence to self-driving cars.
A brilliant leader. Jen-Hsun Huang who's been there pretty much all the way through and I think is probably the most underrated CEO in America, today. A lot of people don't know Jen-Hsun and don't realize that this guy has been overseeing this company for a few decades and has led a true American tech giant. That's what he's created with his team and his vision.
Matt Argersinger and everybody else playing at home, this is one of the best companies of our time. What is the market cap of Nvidia?
Argersinger: I've got to go big, here. I'm just giving the performance, and so I'm going to say $120 billion. -- Bzzz! -- Oh! Too high!
Gardner: Well, going big was the right idea, but you didn't go big enough.
Argersinger: No kidding!
Gardner: Yeah, it's even bigger than that. You weren't far off, but the market cap of Nvidia, as we tape today, is $166 billion so players at home, if you were from $133 billion to $199 billion, give yourself a check mark, but unfortunately, Matt, you undershot it a little bit.
Argersinger: I did. And it's amazing how long I've known that company. And I feel like the pricing power that that company's had given the industry that it's in... I remember when I was going to college and I was buying a new computer. I was configuring the Dell computer because Dell was what you bought at the time.
Gardner: I was there with you, probably with the same model, trying to configure mine.
Argersinger: I had to make the decision. Do I want the Nvidia GPU, which added about $250 to the price of the computer, or did I just want to go with the generic Intel? I had to go with the Nvidia GPU just because I knew I had some games that I wanted to play.
Gardner: Awesome! The stock when we first picked it, the cost was $6.59 for us back in 2005. But by 2016 it had been great. It had gone to $30 from about $6.50. That's pretty great. But in 2016 it started the year at $30. It closed the year at $100. So that was a triple. It was the best performer on the S&P 500 for 2016. And emboldened by that, adding to my winners, I then rerecommended it to start 2017, saying I don't care if it's already tripled. I love this company. Let's get more of it.
And for 2017 it went from $100 to $220. And it started this year at $220 and now it's at $272. So from $6.59 in 2005 to $30 in 2016. Now $272. A nine-bagger since the start of 2016. I was suspecting that's the best performance you could have found on the S&P 500, but Netflix has been awfully good, so there may be a few other players, there, too.
[...]
Gardner: So I'm looking over our clock and I realize I've had a little bit too much fun. I could definitely do this for two more hours, but I want to bring our podcast in under 60 as I always try to do. We've got four more companies, so we're going to get on our horse a little bit more with these last four. Matt, you are four of six right now. Let's get to Stock No. 7.
So Matt, you're in a new city with a friend. You're just kind of walking around. You want to find a place to have lunch. It's a new city for you. You're not really sure. How do you decide where you're going to have lunch?
Argersinger: I guess a couple of ways. Yelp (NYSE: YELP) comes to mind. Maybe OpenTable which is owned by Priceline.
Gardner: It's interesting you mentioned Yelp because that is, in fact, Stock No. 7. You're right. OpenTable is a great answer, but these days is owned by Booking Holdings. Priceline bought them out. But Yelp remains independent and a really volatile, interesting stock and company.
Now, I think a lot of us know that brand, Yelp, and you'll see that they have local listings for everything from a restaurant you might select to a plumber that you might select. It's kind of the people's reviews of stuff around us, and that's the business that Yelp has laid its brand overtop of.
I would say that Yelp is one of those companies where it has an outsized brand. I think a lot of people have heard of Yelp, but it's not, maybe, as large or successful a company as you might think. I'm not trying to give too many hints, here. I'm not trying to either help or hurt Matt or my home viewers. Matt, what is the market cap of [YELP], Yelp?
Argersinger: For Yelp I'm going to say it is $4 billion. -- Ding! -- All right!
Gardner: Yes, it's been an Episode 5 where Matt seems to get it within like 5%. Forget about 20% much of the time. Yup, that's right. The market cap for Yelp is $3.8 billion, so that means playing at home if you're from $3.0 billion right up $4.6 billion, you got it right along with Matt. Matt you are now five of seven.
You know, it's interesting. First of all, this is also a stock that I picked in Motley Fool Rule Breakers. I'm disappointed to say this is one of our real underperformers. We first picked it at $61.50 in November 2013 so we're coming up on the five-year anniversary with this one, as well. And it went from $61.50 to $100 within a year which felt really great. By 2016 it had dropped as low as about $15 from $100. Again, our cost was $61.50.
Happy to say it's tripled since that low, so this has been a pretty great performer in the last two years. Just back to $45, though, so we're still underwater. The market's been great over the last few years, so we're way behind on Yelp. Do you have any thoughts about Yelp going forward?
Argersinger: I like what you said earlier. It is one of those companies where you feel like the brand is a lot bigger than the company. And there's a lot of examples like that that we have in Universe. So usually when that's the case, I tend to get a little more interested because the brand and ultimately the awareness and customer interaction with it is worth a lot and usually down the road that means a much larger company.
Gardner: Thank you, Matt! It's interesting you mentioned that because, yeah, I was surprised when I was doing this research myself in preparation for our game. I do more research for this show, by the way, than any of my other podcasts. I have to look up all the numbers. I have no summer intern. Summer's done. But yes, it's tripled over the last two years. I don't think most people realize what an amazing stock Yelp has been in the last couple of years.
Let's get to Stock No. 8. Matt, there's a stock that you and I have talked about over the years, because you brought this one to Motley Fool Stock Advisor. I think you know the company I'm talking about because I know that you're a New England Patriot's fan and one of those reasons is that you're kind of a Boston area guy and Boston Beer (NYSE: SAM), the public company. You were the one who, when you were on my Stock Advisor team years ago, said, "Hey, what about Sam?" And I looked it over and I was like, "Yes!" So it was really your idea that I brought to Stock Advisor members. The ticker symbol, by the way, [SAM], because why?
Argersinger: Because of Samuel Adams, which is, of course, their core brand. They also have a lot of other brands, but really kind of the leader in the craft beer industry which lately has been a little bit of a challenge, but over the last 10-15 years we've seen a huge demand for craft beer really all over the country and Boston Beer has kind of led that revolution.
Gardner: In fact, I asked you about this one earlier this year. I'm not going to say what the numbers were, because that might help you, but you did nail it. You got this one. You may well be ready to get it again. Sam has been an interesting stock since we last played with this one in March of 2018. Here we are, now, six months later. Matt Argersinger, my fellow players at home, and Fools everywhere, what is the market cap within 20% either way of [SAM], Boston Beer?
Argersinger: It's had a nice comeback this year. It's actually approaching, I think, all-time highs or near all-time highs. I want to say $4.5 billion on Boston Beer. -- Bzzz! -- Oh, my goodness! I missed it!
Gardner: So, so close once again, but I'm sorry, Matt. The answer, in fact, is $3.7 billion, so if you were within $3.0 billion to $4.4 billion, give yourself a check mark. You were basically within $0.1 of this, Matt. It feels wrong, but we have to play by the numbers. This is a numbers game.
It's interesting to think about it. We just talked about Yelp. This company is actually smaller than Yelp.
Argersinger: That's right!
Gardner: A lot of people would think that Boston Beer and Sam Adams [and Yelp hasn't been a great stock] would be bigger, but even after all it success, it's still smaller than Yelp.
Argersinger: Yes. It started out pretty small for us, I know, in Stock Advisor and I guess I thought it had a lot better year than it has. It's definitely been a nice ride, just not quite as big as I thought.
Gardner: But it's been a truly great year. I mean, I'm sorry that you got so close and just barely missed it, but when we were talking in March, it was at $2.1 billion and that was March. The company's now $3.7 billion...
Argersinger: No kidding!
Gardner: ... so the stock has almost doubled in just the last five or six months. I partly had you on the podcast this week, Matt, to ask you this. Do you know why? I haven't kept up that much with Boston Beer. A lot of people are saying craft brews -- there's too many of them out there. Plus Sam Adams is starting to look corporate and they're not cool enough. And in the meantime, it has absolutely dominated the market averages. The stock is absolutely on fire.
Argersinger: It's almost paradoxical in a way, because what we've seen is that there's been a slowdown, in general, in demand for craft beer, but what that also means is that a lot of the bars and retail shops out there aren't accepting any new independent craft beers because they just think, "We've got enough. Our shelves are stacked."
And I think what happened is people tend to then go back to what they know and they tend to stick to the brands that they've been using all the time. I feel like Samuel Adams is getting a little bit of traction back with customers who are just saying, "Hey, I know what I'm getting with Sam Adams. I'm sticking with it. I'm not trying anything new."
Gardner: Not only that, but when your stock goes from below $200 just six months later to over $320, that also gives the company some more financial resources if it wanted to tap the markets or whatever. I mean stock price really matters. It does strengthen the future of enterprises if you have a high and well-performing stock.
Argersinger: That's right. There is a thing to momentum. We think it's just a stock price. What does a stock price do for a company? But it's optimism. Like you said, it's easier. Cheaper capital in the equity markets. There's a lot of reasons why a stock that rises can continue rising.
Gardner: You bet. All right, Matt. Unfortunately with that miss you're five of eight, but since you started by saying 500 would be good enough, you're already locked in on 500, so the last two -- the only question is will you bat 600 or 700. You're already at 500. Let's get to Stock No. 9.
Now Stock No. 9 I first encountered with one of the great headlines that I've seen on a Fool.com story. We have wonderfully gifted contract writers that write for us every day at Fool.com. They come from around the country and around the world. Even though Fool HQ is based in Alexandria, VA; our Fool.com writers, our Motley Fool writers are everywhere and they're looking at all kinds of different companies.
I'm going to share the headline with you in a sec, but Matt, do you have any particular headlines that you remember from our site? Maybe something you penned or a favorite headline?
Argersinger: I don't know if I have the headline exactly right, but I remember several years ago one of our writers on Fool.com the headline was something like, This stock is worse than Enron. I saw it and I said, "I have to click on this because people think of Enron and, of course, it was earlier in the century..."
Gardner: Worse? Worse than Enron?
Argersinger: What could be worse?
Gardner: Right! I don't even know what that means, but I would click it, too. Well, I clicked this headline back in April 2017. I think it was April 24th, 2017. Anybody can still google this and find it. Here was the headline. Textron (NYSE: TXT) Takes the Lead in Robotic Warships. Textron Takes the Lead in Robotic Warships?
I immediately clicked on it. I was like, "I want me some of this." I want to be invested in any company making or contemplating robotic warships, but especially the leader. So Textron [TXT] is a successful American defense company, manufacturer. It does a lot of other things besides robotic warships and Matt, I'm already seeing some what I would decide as quizzical looks from you. One might even say slightly negative body language, not because I don't think you object to robotic warships, do you?
Argersinger: No, not at all. Who doesn't like robotic warships?
Gardner: I agree, but I think the reason you might be quizzical is because you absolutely have no idea what to do with this.
Argersinger: I have no idea, really.
Gardner: And that's, in part, why we play the game. So without wasting any more time, [TXT]. Matt Argersinger, what is the market cap of Textron?
Argersinger: I'm going to throw out the no-look $10 billion. -- Bzzz! --
Gardner: Not a bad try, but you undershot this one, as well. The market cap for Textron is $17.4 billion, so players at home, if you want to try to beat Matt on this one you needed to be from $13.9 billion to $20.9 billion. Anywhere within that range. Textron takes the lead in robotic warships. It was Rich Smith, the longtime writer, who wrote that article and a couple of months later I made it my Stock Advisor pick in Motley Fool Stock Advisor. So yes, I use Fool.com to find stock ideas and do my research, as well.
I'm really happy to say the stock was at $47 back then. Right now it's at about $70. That's not a bad performance for a defense company over just about a year and a third. So Textron. I would say it's one to keep an eye out for, and I know some of our listeners probably are already invested in Textron. I, myself, haven't bought shares yet. I'm awfully glad I recommended them, because this has been a great stock for Stock Advisor. Matt, any defense thoughts, picks or should we just get on to Stock No. 10?
Argersinger: No, but I have to say I'm going to be checking out Textron robotic warships.
Gardner: Enough said. Let's go to Stock No. 10. In some ways you can say I've saved the best for last, because what could have been a more talked-about, more volatile company recently? What could have dominated headlines in investment news, whether you're looking at newspaper sites or The Wall Street Journal? What company, whose name is just five letters long, and what CEO whose first name is four letters long, and his last name is four letters long... What company is getting constant coverage? Matt, I think I've heard you talk about them on Market Foolery or Motley Fool Money. It seems like everybody has to have been talking about what company?
Argersinger: Tesla (NASDAQ: TSLA).
Gardner: You guessed it. That's right. Ticker symbol [TSLA]. I figured I had to throw this one in because it's so au courant. I mean, they're making too many headlines, I think. Some of this isn't even news that I think matters that much to me as an investor, but without further ado, Matt Argersinger and all of my fellow players at home, within 20%, what is today's [and it is ever-changing] market cap for Tesla?
Argersinger: I absolutely should get this. $40 billion. -- Ding! -- All right.
Gardner: Not a bad way to close. The actual market cap of Tesla, as I speak, was up like 9% yesterday. It's down several percent today, but I have it at $47.5 billion.
Argersinger: Ooh, I just made it!
Gardner: So, players at home. If you're anywhere from $38 billion to $57 billion, give yourself a plus one. You know within 20% the market cap of Tesla which makes you pretty relevant at parties these days. Since everyone is talking about Tesla, you might as well know your market cap. So $48 billion just to round that one off. And Matt, any thoughts about Tesla or Elon Musk before we go?
Argersinger: No, other than I think the media tends to focus on some of the more sensational aspects of Tesla and Elon Musk's life. I think when you dig down, there's a brilliant company here, there's a brilliant CEO here, and I know we certainly believe in the long-run potential of Tesla no matter the short-term headlines.
Gardner: You betcha. It's been a great stock pick for anybody who cares about performance over the long term which to us, at The Motley Fool, is the only term that matters. Well, speaking of performance, Matt, six out of 10 is how we close out this game show. You're back!
Argersinger: I feel good about that! I can see Rick's face behind the glass. He's looking at us and saying, "He still missed Etsy, though. You need to lose two points for that."
Gardner: I mean, you did. You did miss about that and a couple of others you just barely missed. I think this is your greatest performance yet on this game show. That's my thought because you had no horrible misses. I mean it's really fun and funny when you miss one really badly. You didn't have any of that this time.
So the hashtag is #IBeatMatt if in fact -- and I think you're lying -- you beat Matt this week, but maybe you did, and if you do, I want to hear from you on Twitter. We love those people -- the winners out there. If you lost to Matt, well, I think I probably would have to #ILostToMatt. And I know some of you may well be 600 hitters yourself, so maybe it's #ITiedMatt. Please do tweet us out at RBIPodcast.
Argersinger: And I'm going to say #IGotEtsy or #IGuessedEtsy or something like that.
Gardner: Well, that was early in the show and I hope at least one person noted that and we'll go ahead and use that. We'll be watching. Eyes peeled for that, as well.
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Gardner: Well, last week was a lot of fun, because we did my most recent five-stock sampler. Do you remember it? Mm! Mm! Good! and we also reviewed our very first five-stock sampler in show history. This week it was all stocks, all the time with the Market Cap Game Show and let's just keep it going into next week.
Next week I'm going to be bringing out some new principles that I'm intending to be part of how we teach Rule Breaker Investing. So if you're a longtime Rule Breaker you know there are six traits that we've taught for years and years. We wrote about it in a book. Matt, I, and others here at The Fool who use our approach, Rule Breaker Investing, use these principles every day to identify what we think are the Rule Breakers but that's about the companies themselves.
What about your habits or traits as an investor? Like how you actually do the investing when you select these companies? I want to share with you some thoughts, probably ones that you could guess coming from me because a lot of them we talk about on the show, but I want to codify them a little bit more. So I'm excited to bring that to you in next week's show.
And I'm also going to bring another five-stock sampler review to the show next week because one year ago this month, I picked Five Great Stocks You've Never Heard Of. Let's see how those companies have performed. In the meantime I haven't even looked yet. I sure hope they've won.
Well, from my producer Rick Engdahl, from my guest star Matt Argersinger, and I joining with you, as well, thank you for suffering Fools gladly and spending some time with us. Have a great week! 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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. David Gardner owns shares of Activision Blizzard, Amazon, Apple, Booking Holdings, Netflix, RigNet, Sierra Wireless, Tesla, Under Armour (A Shares), and Under Armour (C Shares). Matthew Argersinger owns shares of Activision Blizzard, Amazon, Boston Beer, Netflix, Tesla, and Under Armour (C Shares). The Motley Fool owns shares of and recommends Activision Blizzard, Amazon, Apple, Booking Holdings, Boston Beer, Netflix, Nvidia, Sierra Wireless, Stitch Fix, Take-Two Interactive, Tesla, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends AeroVironment, CVS Health, Electronic Arts, Etsy, Live Nation Entertainment, Nike, RigNet, Textron, Verizon Communications, and Yelp. The Motley Fool has a disclosure policy.