by Travis Johnson, Stock Gumshoe | March 18, 2019 11:21 am
This weekend I started seeing new questions about a Motley Fool[1] pitch, and it turns out to be a new one that I haven’t covered before.
The ad is for Motley Fool Rule Breakers[2], the growth-stock service helmed by David Gardner[3], and it’s apparently for a stock that he has recommended twice recently. Here’s a little taste of the email pitch:
“… let me tell you a little bit about why I was so excited about this stock, even before it returned 51% for members who bought on David’s recommendation in February.
“As a matter of fact, this is the second time David has recommended this company in less than a year! (It’s actually up 99% since that first recommendation.) And that just doesn’t happen very often.
“But it gets better. This is the second time he’s recommended the company… in the last 4 months.
“And when David Gardner gets THAT excited about a company, it pays off to listen.”
This is an investing style that’s not often very comfortable to me — and I suppose that’s part of why it works sometimes. David Gardner teaches growth investors to buy rising stocks, to buy more after they’ve risen, and to only pick stocks that conventional Wall Street analysts think are overvalued (among other “rule breaker” rules). The ad claims great success with similar re-recommendations in the past (including Zillow, Shopify and Intuitive Surgical, all recommended and then re-recommended within a few months after they had risen sharply, with huge gains after that.
I’m sure it doesn’t work every time, but the occasional 500-1,000%+ returns do help to make up for the good number of stocks that do poorly (both Rule Breakers and Stock Advisor[4], the somewhat lower-octane “flagship” letter for the Fool, typically have at least dozens and sometimes hundreds of stocks in their “active recommendations” portfolios even with regular re-recommendations, mostly because they rarely sell).
But anyway, what is this stock that Gardner is touting today? More from the ad:
“… on a recent Thursday, David released his “double up” rec.
“Can I be sure you’ll also see 80x returns on this company? Of course not! But I can tell you what excites me so much about this “double up” company.
“While it’s already up 99% since David first recommended it in Rule Breakers back in November, I think that’s only the beginning for this remarkable company.”
And then we get some clues that I can feed into the Thinkolator…
“This small healthcare[5] company is revolutionizing cancer detection, diagnosis, and treatment technologies.
“And in doing so, they’re pushing a $147 billion cancer industry into the future….
“A small percentage of the 1.7 million new cancer cases in the U.S. last year experienced a faster, smoother, safer diagnosis, thanks to this company. Cancer[6] patients with Blue Cross Blue Shield, Cigna, or Medicare can all take advantage of this company’s innovative new technology.”
So… hoodat? Thinkolator sez this is Guardant Health (GH)[7], which went public just about six months ago and has really been tearing up the market in just the past six weeks or so, rising from the high $30s at the end of last year to top out right around $100 a few days ago before dipping back slightly to around $93 now.
But really, any specific price is hard to justify — it trades at 60X expected 2019 sales, with analysts penciling in roughly 50% annual revenue growth for a few years but no profits until at least 2022 as their operating expenses easily keep up with revenues (though the actual cost of testing doesn’t appear onerous, so they do at least have decent unit-level economics of 50%+ — worth noting, since scaling a business is much easier if the unit economics make sense). Would 40X sales make more sense? 20X? 100X? That’s a philosophical and future-telling question, not really an analytical one — you have to believe in their future and place decent odds on them growing and protecting a massive market share in cancer biopsies and testing to think 40X sales is reasonable, but you really need a similar belief to make 20X sales a rational number too.
This is a story stock that depends on the idea that it will dramatically boost usage of its liquid biopsy tests in various cancers, taking share from traditional biopsies as their genetically sequenced blood testing connects to their proprietary data sets and analytics system to help identify specific cancer types that respond to different treatments.
Will they? I have no idea. I had not looked at the company before this morning — it’s clearly a very attractive stock for the momentum-trading crowd, but that’s about all I know about them so far. You can see a little investors.com[8]/news/technology/guardant-health-stock-diagnostics-company-pops-blood-tests-cancer-treatment/?src=A00220&yptr=yahoo">fan letter to them from Investors Business Daily here, and a free article from the Motley Fool summing up their quarter (reported last week) here[9] (they also posted a transcript of the conference call here[10], if you want to see management’s own interpretation of where they are and where they’re going).
Guardant Health went public in early October, so the lockup period expires on April 2… which might provide a big of a dip if you’re interested in trying to build a position (that’s the day when insiders will be allowed to sell shares, something that is prohibited for usually six months after an IPO[11]). It’s hard to know exactly what will happen, though, since the stock is so wildly story-driven.
Their big potential outside of their Guardant360 lung cancer[12] screening blood test, which is performing well and getting increased insurance coverage, is the possibility that their blood tests could be used by much larger populations as a screening tool both for cancer recurrence and for early detection of cancer in people who have no cancer symptoms — that’s a new tool that is just beginning to be tested, they call this research LUNAR 1 and LUNAR 2, but they said last week that they’ll have some pilot data to release at the AACR meeting in a couple weeks, so that could generate some interest as well.
And beyond that, you’re on your own, I’m afraid. Diagnostic companies have posted incredible gains in the past, but they’ve also been touted to the stars and collapsed sometimes due to either failure to broaden their customer base or new competition or failure to satisfy insurance companies about the cost-effectiveness of new testing tools. I’m not able to guess at the odds for this one, but it’s certainly been an exciting growth stock so far in its young life as a public company.
Have a thought on Guardant Health to share? See great times continuing to roll? Worried about the valuation or the competition? Let us know with a comment below… thanks for reading!
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Travid
You mention early in the analysis that the Fool portfolio has “dozens and sometimes hundreds” of stocks in their recommendation portfolios. Can you talk about some of the big losers if there are any.
Thanks,
Don’t know the current portfolios, but in the past they were hugely influenced by a few mega-winners (Marvel/Disney, Netflix, Amazon, Priceline/Booking.com, etc.) that posted 5,000%+ gains. Some of the teased stocks that show up as weaker performers on our tracking spreadsheets are Core Labs, Sierra Wireless, Invensense, Polaris Industries, The Container Store, National Oilwell Varco… though in terms of the teaser stocks we’ve covered, their winners probably outpace the losers considerably at this point.
That’s just going from the ads we’ve deciphered and assuming a “buy and hold” stance on that stock forever — which is close to fair for the Motley Fool, which trades less than most, but probably not representative of their actual portfolio performance. Often when we hear Motley Fool opinions from readers, their opinion is heavily influenced by whether or not they happened to buy one or more of the huge performers (since nobody buys all the stocks the newsletters recommend, I’m sure).
I am a member and their stock of the YEAR is ANET! Wow has it made money since Jan 1. samiamaustin
At Arista’s (ANET) current price, it might be a good time to take some profit. It’s a good company with good products, with good growth, but the price fluctuates quite a bit. I usually get in by selling puts for close to $200 when the share price is under $250. It was recently close to $200 for quite a while, and I was starting to worry about my $230 (short) puts.
My portfolio has five stocks that were recommended by Motley Fool and those stocks as a group are up 232% since I got in to the various trades. That includes GE which is at 48% of what I put into it; it was recommended by their Retirement newsletter to which I subscribed many years ago. They said that back then GE was into so many businesses that it was like a mutual fund in one stock. Of course, that was then.
Go-pro at $50.
Quite a few; but WPRT is a huge loser that stands out.
DPLO ar $35.00
DPLO at $35.00
The list of losers is vast, but if you look at their list/tracking their recommendations, the losers get deleted from the list. Very deceiving.
They also claim if you buy 10-12 stocks from the list you will be ahead of the market.
With the amount of losers they have had, you could potentially have more losers than winners.
Sorry if I’m stepping on your toes- but I’m so surprised someone would write what you wrote I’ve got to share my truth: As a long time member (12 years) of the Motley Fool, I disagree with this statement about deleting or being deceiving whole heartedly. They are entirely transparent and are very honest about their returns. Because their mission is “to amuse and enrich”- they really focus on education, using their losses to serve as learning experiences. Their losses are never deleted from their claimed returns. (are you a subscriber?- you can go to the “performance” tab on any service they offer- and see everything.) Even right now, I’ll go to their site and see the returns of every single pick, for every date it was recommended, how it performed, and how it performed against the S&P 500. For example- everyone knows they have rec Amazon over the years with amazing returns–however- right now you can see their most recent rec for Amazon was in Oct, and you can see that currently, since that rec, AMZN has lost about 1.6%, and the S&P has returned 3.2% and outperformed the AMZN rec by 4.8%. That is wonderful, – 100% transparent. Every single rec is on there- date, price, return, return vs. S&P… (-and the other companies I have used would never do this.) Every one of Motley Fools services have solidly beaten the S&P except one, which was barely trailing. I think you can see this on their website. I am not employed there, have no connections, and get no perks- I just want to give my honest perspective. Basically, they have helped me crush the market- I’m happy! But because they love growth stocks, when the market goes down… a lot of their picks get hammered, gut wrenching- cause many of them often have high P/E’s based on expected growth- like CMG – and right now …might not be the safest time to do lots of growth investing, (always hard to say, you can always dollar cost average your way in over the next 5 years.) – They offer advice on overall income and safer securities as well. Quite a few of their stocks overlay with investments in Travis portfolio- Stock Gumshoe is a great site too- 100% transparent as well- so grateful.
Valeant comes to mind, to name one. Ticker was VRX, was changed to BHC (Bausch Health Companies) as part of the rescue operation with new top management. Valeant also brought giant losses to hedge fund guy Bill Ackman, who got out at the bottom. Others early on were rightly suspicious of its business model, including the often-sensationalist short specialist Andrew Left, of Citron Research.
Stamps.com just tanked, and had been favored by the Fool for a long time. Amazon was recommended many, many years ago, and had a lot of ups and downs before finally making lots of money for investors.
They recommend Tesla, which I consider pretty speculative, with lots of volatility.
They’ve started making more “sell” recommendations. Sometimes they get you out before things go too wrong, but sometimes they’re way too late to help. I don’t think they ever put a “sell” on Valeant/Bausch.
Hain is another example, and I think they now recommend selling it.
Under Armour is one they loved, and I don’t think they ever recommended selling.
They reccomended WPRT in the mid $30’s. That should tell you something
FEYE @ $30-$80.
yeah, mee tooo! I loved that company- still own it…but don’t love it as much. I think there are safer/ better bets, but- great company
FEYE at 50.00
Guardant Health is a true David Gardner find. It is very fast growing stock that always seems to be overpriced. The difference is that Dave Gardner’s stock continue to be overpriced for years and years – i.e. Netflix is an example. I bought this stock the day Rule Breakers recommended it and have added to it in small increments for the last 3 months. I think it will be a real winner. I have doubled my money already and will probably continue to buy if there is any dips in the price.
Not having a great day so far, FYI, down a few percent even since we published around lunchtime.
FYI, just looked into what the situation is with insiders, and it turns out that Softbank is the overwhelming institutional owner — they own about 30% of the shares, presumably through the Vision Fund, and must have had some warrants or something because the latest SEC filings indicate they just added a little to that position at less than $10/shr. Don’t know what their lockup or trading restrictions might be, or their intentions, but they should be sitting on a mammoth gain (they have also partnered somehow with Guardant to expand to Asia, so they might not be in a hurry to take profits — that’s just a guess).
Sequoia Cap appears to have been the other substantial venture funder for Guardant in their pre-2018 equity funding rounds, they don’t appear on the ownership lists now but might hold preferred shares or something else.
the pullback from the lockup is likely to be muted because they recently filed an amendment to their lockup release. It is going to be limited to only 25% of the total if the stock price has appreciated by at least 100% from the IPO price. Since the IPO price was $19, it is therefore likely that only a fraction of the shares will be available and that will limit its volatility.
Good comment and detail, thanks.
Hi Travis,
I just joined your news letter after reading it since 2010. I just want you to know that the info that you provide is priceless. I so appreciate you. How do I learn when a company is going ipo? Thx
In the U.S., they file an S-1 and then follow it up with back-and-forth with the SEC until it is effective, then they can issue shares when they’re ready — sometimes you don’t find out until a day or two before the actual offering, but usually for larger companies there’s a big roadshow and marketing period and it gets a fair amount of press coverage. They usually price IPOs the day before they begin trading.
I admit that I am a stumbling investor at best but I find Stock Gumshoe priceless. I learn so much more than just the answer to some newsletter’s current hype. To maybe answer your question, while logged in to a Google account you can search to get to a page to set a “Google Alert”. I have one set to “IPO offering” and I often get several emails a week, each mail listing several companies that have filed an S-1. There may be a better and more official way to get this info but it works for me. You must also understand that there are very many companies saying that want to IPO but it is up to you to monitor them see if and when they ever follow through.
Have you an opinion on TheoTrade?
I bought into the 3-D printing stocks and lost my ass! Problem is you never know if the company’s or industry will succeed or not, and whether the stock will settle down in the future. Still waiting for 3-D or is it 4D to do something.
The fools were certainly recommending DDD back in the day. 3D printing was going to change everything. Everyone would have a 3D printer, not so much…
There was this military auction stock they were hyped about as well. Can’t remember name or ticker now.
I’d like to point out that since they are not developing a treatment or therapy, they are immune to the lengthy and trap-prone FDA approval process. Therefore, the stock price can scale up dramatically in a short time.
Not quite, but it’s usually an easier path than the typical drug approval process. Diagnostic tests have to be FDA approved, similar to medical devices.
There was an interesting show on ABC 20/20 Friday 3/16/2019 about Elizabeth Holmes and her company, Theranos. She supposedly had invented a device that could perform almost 100 blood tests with a sample from just a single fingerprick. She was able to escape FDA scrutiny by keeping the device at corporate headquarters. It was a private company but investors lost millions.
That was (and remains) a huge story of investor hubris and the fascination with start-up “genius” — I think the definitive story of Theranos and its implosion is probably Bad Blood by John Carreyrou, haven’t read it yet but it has been recommended to me many times.
Rule Breakers first recommended Guardant Health in November and re-recommended it in February. Didn’t do much after the first recommendation but more than doubled after the second. Nice to see them recommend something that hadn’t already gone up a lot.
Guardant Health Inc
79.01
03/22/2019
-7.12%
03/ 24/19
rather get in on the ground floor of some the many China Biotech IPO’s about to hit the market https://chinadeep.info/top-10-bio-pharma-stocks-by-market-cap/
Hey Travis, At what price would you start to consider Guardant fir your porftolio. It’s now down to $76 and if I got this right at 26X sales.
Hey Travis, At what price would you consider adding Guardan to your portfolio. It’s down to $76 and if I read it right, that’s 26X sales. Thx.
Estimated revenue for 2019 is about $135 million, so that’s closer to 50X current year projected sales (70X trailing sales).
I’m guessing that I wouldn’t be able to talk myself into buying this one based on the valuation… it would have to be based on some sort of high-probability assessment that Guardant is really going to scale dramatically and become a market leader, which would probably depend on them getting a pre-screen test approved (and embraced by insurance companies). I would be surprised if that happens quickly or without hiccups or delay, so I’m guessing I’ll have time to think about this one and maybe look for one of those hiccups to see if I can convince myself to buy it at that time.
A few times I’ve fallen for the Fools’ “c’mon in pitches” and at one point a few years ago I actually subscribed to one of their newsletters. As folks above have mentioned they overhype the good stuff and ignore their frequent failings. In my opinion MF fails to deliver and I regret being foolish enough to have tried them yet again and been disappointed. Too much reliance on past glories, they pile on the b.s. and provide too little value. The Gardners should be put out to the flower bed–avoid!!
Have followed Fool’s newsletters for years but only bought twice and was disappointed. The stories are always good and look promising, but by the time I see them on MF price is usually often high. The megawinners like AMZN are of course the exception but those are far between.
As far as biotechs go, haven’t had much luck with individuals stocks because the development cycles for new drugs are years long and the chances of success or failure are usually binary due to unpredictability of test outcomes. I usually avoid ETFs because they often include too many dogs but in the case of biotech/health I recently bought LABU (leveraged) and it has done well so far this year whereas my picks are down.
What I have found is that my successful picks are in industries that I understand, having worked in them, so over time I developed an intuition about trends. “The trend is my friend”. I worked in tech jobs in the computer industry for years, both hardware and software, and developed an intuition as to what ideas are most likely to succeed in spite of what’s happening to the rest of the economy. The corollary is that if you spread investments across too many different sectors you can’t possibly understand each sector’s gritty details and the historical trends and so are limited to only crunching available financial numbers, which can be misleading, or you fall in love with a good overoptimistic story and don’t know where the pitfalls are.
An example: Right now a major tech trend is in application of software to extract sales-potential information from humungous databases such as amassed by FB and Google. Along with these data aggregators the winners are software providers like Salesforce (CRM); the companies that make it possible to access these databases (the cloud providers – MSFT, AMZN, etc.) and the companies that provide the hardware that make the clouds possible (AMD, NVIDIA, DELL, MU, ++) as well as datacenter REITs. Businesses of all sizes have to join in or they will be run over. Related hypergrowth trends are the growth of accounting and back-office “software as a service” (SaaS) available through the cloud – SHOP is also a good example along with CRM, and human resource services (Linkdin, Indeed, etc.) . This trend is unstoppable because transaction and labor efficiency becomes orders of magnitude greater than before and there is little capex involved for the user since the costs are clearly predictable subscription prices paid in increments.
The reason I cite the latter example of what could be called “sector focus” is that this is what Motley Fool does NOT do. They recommend a smorgasbord of companies in all sectors based on their judgment of probable success, but don’t group together related stocks. Then it becomes impossible for an individual to to know enough about the companies or sectors to form valid opinions. You have to rely on the judgment of the MF analysts, which of course keeps you subscribing to their service.
Thoughtful and detailed post, thanks. And yes, in a world awash with information it is the people who can turn information into insight that have a chance — the computers have all the same data and will always win the trend trading battle, but humans can hope to understand the future and their fellow humans a little better than the machines can. Building on your real-world expertise or relatively deep knowledge is a great way to think about investing — if you don’t enjoy learning more about the sector or picking winners based on real world understanding of the business, then there’s not really any point to investing in individual stocks.
You’re probably going to do worse than the index most of the time, like most investors are, thanks in part to hard-wired emotional responses and biases that work against our long-term success, so it’s only worth being an individual stock investor if you enjoy spending your time on building your knowledge and researching these sectors and businesses.
Great post mobilecc
I have been a motley fool subscriber from almost day one and I have done very well – mostly due to Netflix – I am up 5,000 % in NFLX. Almost every loser that has been quoted in the comments above were recommended by Motley Fool but not recommended in their two main newsletters – Stock Advisor and Rule Breakers. Their other newsletter such as Motley Fool Canada, Hidden Gems, etc. have dismal records. Just stick with Stock Advisor & Rule Breakers and only buy stocks recommended by the brother with the best track record – David Gardner. By the way, David has recommended GH twice and now it is recommended another one of Motley Fool’s newsletter.
Rodger27, I also subscribed to Stock Advisor. Years ago I bought Apple at their recommendation. Made money but sold way too early.
I rarely see recommendation directly from David. Usually they come from someone work for David or Tom. What’s your opinion on the recommendation made by other people besides David?
GH slammed past 2 days. Thoughts on closing in on an entry point, or still too pricey?
You can’t really make a high-conviction valuation argument at either $20 or $120, it’s all about the future and the uptake of their tests. I suspect investors found the AACR data (which is still early stage stuff, mostly) to be unexciting, though I didn’t see news of anything that was actually bad, other than the fact that Resolution Bio released a study that claimed their ctDX-Lung did better at detecting some mutations in lung cancer tumors than the Guardant360 assay in a small head to head test (FierceBiotech story here).
It’s still very early days, the market cap is still based on their eventual ability to become widely accepted both in tumors and, perhaps, eventually in cancer screening for healthy people. They did also have some good news in broader approval for their test in solid tumor patients by Palmetto this week (that’s one of the Medicare contractors)..
I’m late to the conversation, but didn’t see any others related to GH. I bought some GH last year based on several positive reviews, including Schwab and Motley. Finally got tired of waiting for it to even recover to the mid 90s so I just sold. It seems link they are getting more competition and, despite strong growth, aren’t close to profitability. PSNL looks like an interesting competitor with a supposedly better approach that screens 40x more genes than GuardantOmni; 20,000 genes vs. 500. Any insight on PSNL? I’m still sold on the concept, but would like to find a company better positioned to capitalize on it.
First Marblehead was my biggest loser that they recommended. Got in around $17, I think.