“Motley Fool Triples Down on ‘Millionaire-Maker’ Stock” — which one?

By Travis Johnson, Stock Gumshoe, November 27, 2018

“When a Nevada man nicknamed, ‘Forty-dollar Frank’ first purchased his dream vacation home in Tahoe, he gathered his family on the porch for a group hug… and to give thanks to 1 stock.”

That’s what we all want, right? The stock pick that changes our lives and makes life better or more fun?

And that’s what the Motley Fool is hinting at with their “millionaire maker” stock pick that they’re teasing to potential subscribers of Motley Fool Stock Advisor.

They give some other tantalizing hints about past riches made possible, too…

“A New Jersey man spent his time buying and selling model trains while making millions from this same stock.

“A man from Kansas saved his struggling small business thanks to this same stock.

“The Journal estimates over 300 families in Portland Oregon alone became millionaires due to this same stock.”

So that’s actually enough to ID the stock, if you happen to follow the story… but we’ll leave you in suspense for a moment. What else does the Motley Fool say about this one, and why do they think you should buy it now?

More from the pitch:

“Motley Fool CEO, Tom Gardner, is convinced that this stock is not done minting millionaires….

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“… he’s issued a rare “triple-down buy alert” on this remarkable company.

“A ‘triple-down’ buy alert is occurs when Tom finds a company that he is so confident in that he pounds the table and recommends it for a third time.”

Apparently those “triple downs” have included a few of the Motley Fool’s biggest winning positions — like Netflix and Amazon starting in 2002, NVIDIA in 2005, Priceline in 2004, etc. Presumably there have been some that didn’t do well, too, but we don’t get any details on those.

And what specific hints does he drop about this stock?

“The balance sheet of Tom’s triple down is an absolute fortress (so you can sleep easily when you invest in this company)… it generated an astounding $22.3 billion in free cash flow over the last 12 months.”

OK, so no surprise that this is going to be a very big company — not many companies are big enough to generate that much cash flow. And one more clue:

“It’s only trading at just 1.4 times book value!

“So there is still time for you to cash in.”

Who is it, then? Well, sadly we have to downgrade that trailing cash flow to $21.5 billion now that we have the numbers from the September quarter (it was indeed $22.3 billion back in June), but this is, as you might have guessed, good ol’ Berkshire Hathaway (BRK-A if you bathe in a solid gold tub, BRK-B if, like me, you’re a bit more modest — each A share equals 1,500 B shares). If it’s any consolation, the quarterly cash flow doesn’t mean much for this company.

And, well, I don’t know what I can add to an understanding of Berkshire Hathaway — it’s by far my largest position, and I’ve owned the shares since 2005… though it hasn’t changed my life dramatically or enabled me to build a huge model train collection, sadly, those stories are about the folks who bought Berkshire shares when Buffett was much less well-known in the 1970s and early 80s. Those stories are pulled from a Wall Street Journal article that ran a few years ago, detailing the many millionaires created by an early “buy and hold” decision on Berkshire shares.

Of course, if you go back earlier it’s not millionaires you’re looking at, but billionaires — some truly massive fortunes are bouncing around Omaha thanks to the folks who joined up with Warren’s partnership in the 1960s. But still, buying in the 70s or 80s was extremely lucrative for the patient (and yes, you would have had to be patient — and sit through a few rough periods, Berkshire badly lagged the market for years in the 90s and the stock lost a third of its value in the tech wreck, then dropped in half from its highs in 2007 when the mortgage mania and financial crisis took down the market).

So what’s the story now? Well, apparently Tom Gardner is “tripling down” on the stock… and, as coincidence would have it, I’ve also added to my Berkshire holdings a couple times in the past few months and it is one of the stocks that I’m most comfortable with in the current market climate, and at current valuations.

That doesn’t mean it’s going to beat the market. In fact, it could easily do worse than the S&P 500 for long chunks of time — the conglomerate is well-insulated by its huge cash position and low-cost leverage from GEICO and their other massive insurance businesses, but they’ll have divisions that do poorly sometimes (they’re quite exposed to housing, banking, railroads, and some major industrial sectors of the economy that could have bad periods, for example), and there could easily be times when investors panic out of all stocks and, for some of them, selling Berkshire Hathaway at a profit will feel better than selling their more volatile stocks that are down 60%.

My expectation with Berkshire Hathaway is that it will continue to institutionalize the leadership qualities that Buffett has shown in investing and hands-off management and speedy acquisitions, so that the folks who follow in Buffett’s footsteps as leaders of the company will be able to keep the culture intact and keep moving the giant machine forward… even if we should expect them to not be quite as unique as Uncle Warren.

And as long as Buffett is at the helm, I expect Berkshire to get the first call during any financial panic because of its fast decisionmaking and ready supply of cash, and, perhaps more importantly, because a big “lifesaving” investment from Berkshire can also spur a huge sentiment swing for a faltering stock and pull them out of a tailspin. I bet he’ll have one more opportunity to make some great bear-market investments for Berkshire shareholders… though you never know.

Berkshire got a lot of press for Warren Buffett’s steadily increasing position in Apple (AAPL) earlier this year (Berkshire is the largest non-index owner of Apple stock, with about a $50 billion stake — by far Berkshire’s biggest publicly traded investment position), but what has been driving Berkshire shares higher in recent months is probably mostly the updated approval from the Board of Directors for buybacks. For a long time Warren was approved to buy back shares whenever the stock fell below 1.2X book value, so that was the floor for the stock for years and they bought back almost no stock, even when the shares were clearly pretty cheap… but over the summer the board approved a much looser standard to give them more freedom to buy back stock and use up some of the surplus cash that they’ve been sitting on for years. Warren and Charlie Munger can make the call to buy back stock whenever they think the shares are trading below “intrinsic value,” which is a non-specific number but is likely to be usually higher than book value — if only because the insurance float (the money they’ve taken in from policyholders but not yet paid out in claims) is held as a liability on the books, but Warren and Charlie consider it an asset (that’s largely because their insurance businesses tend to be profitable and recurring, Berkshire is big enough to have almost all of their insurance contracts renew regularly and effectively roll over or be replaced by new policies and new customers every year, providing the “free loan” of float almost in perpetuity).

I’m quite biased here, since Berkshire is a stock I write and think about a lot and have held for longer than almost any other stock in my Real Money Portfolio (second only to Alphabet (GOOG)), but I’d agree that this is a solid investment — I don’t think it will be a life-changing millionaire-maker for anyone, they’re not going to be able to grow as fast as they did in the 70s and 80s even if Warren Buffett and Charlie Munger come to work tomorrow with the best investment ideas they’ve ever had, not with a market cap of $500 billion, but I do like Berkshire more than I like owning the S&P 500 Index (I own both, to be clear), and I think Berkshire still has a decent chance of beating the market over time, even if that’s because it will likely be better than average during future bear markets.

This isn’t the first time that Tom Gardner has been promoted as having a “triple buy” alert on a “millionaire maker” stock, incidentally — they used a very similar ad earlier this year to talk up one of the Berkshire wannabe companies, Markel (MKL), you can see our earlier article on that here.

How about you, dear friends? What would your “triple down” buy stock be this week? Wanna get on board with Uncle Warren, or is there something smaller and sexier that draws your eye? Think just “buying the market” will do as well or better than buying this gigantor insurance conglomerate that will likely be led by a nonagenarian 21 months from now? Let us know with a comment below. Don’t worry, we don’t bite.

Disclosure: I own shares of Apple, Berkshire Hathaway, Amazon, Alphabet, NVIDIA and Markel among the companies mentioned above. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.


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coolsoupy
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coolsoupy

I am still waiting for my Whole Foods to make me rich – their one stock to hold forever !!!!

k digger 71
Member
πŸ‘4
k digger 71

What gives with Apple. Their new phone is great. I just got one. their stock has tanked 18% since I bought it. Ouch!!

millerfilm
Member
πŸ‘54

My take on #AAPL: Steve Jobs WAS Apple. And, without him, they will be almost exclusively turning out sequels to their existing products. I think that their innovation will never be what it was under Jobs.

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Aren Van Dyke
Guest
Aren Van Dyke

Apple went on a tear after Job died. There are other factors in play here.

macrobody
Member
πŸ‘75
macrobody

I doubt it, but maybe more people are realizing that spending around $1000 bucks for a phone is insane? Around $200 for the technology and $800 for the brand name is my best guess.

Tony
Guest
Tony

You’ve got to remember though, easily 3/4 of everyone getting phones are not paying the entire price all at once. They pretty much make monthly phone payments that include phone and service cost combined. There is not many slapping down hundreds at once.

money tree
Guest
money tree

I think that the transition from a mostly “product sales” company to a “service sales” company, (-selling subscriptions, cloud, iMusic, etc.) is a little bumpy…Apple seems confident that it will succeed (and i agree). However, the decrease in iPhone sales is a “fear” that the market can not resist. Trade wars, and a really strong dollar also are not helping because Apple needs to sell their products to China to have those people buy their services. I think they should have kept their product prices slightly lower, and have an awesome entry level iPhone, because Apple needs to attract more… Read more Β»

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Bryan
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Bryan

Apple’s sales might be down because some people could be waiting for G5 in future phones, or possibly due to Chinese phone sales increasing their market share in Asia?

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michaelengel
Member
πŸ‘0
michaelengel

Many people decided to forgo new Iphones, for an inexpensive face lift. Apple lost a law suit and got ordered to replace all phone batteries inexpensively until the end of 2018.

“Battery service at $29 may be limited to one repair per iPhone. After December 31, 2018, the fee will change to $49 for all these products except iPhone X, which will change to $69.”

For $29 your phone holds a charge for 24+ hours.
A battery upgrade makes your phone FEEL new.
Like new car smell…

The feel of a new phone, but on your old phone.

For sure, $29 beats $1,000 for that.

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Richard
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Richard

Apple sales have declined dramatically. People are starting to realize they do not need a new phone every year or two, and most people who want an I phone already have one. Most of their new sales will now come from those whose phones begin to fail, presumably after four or five years of usage.

Edward K. Motley
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Edward K. Motley

Thanks Travis, another nice, quick read! How much key-man risk do you attribute to Berkshire overall? Specifically, after the world loses arguably its greatest investor of all-time, would you project the same continued success for Berkshire above the S&P 500 index for your above-listed reasons?

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4lllls
Guest
4lllls

This week I went from 1,000 shares of ETAH stock to 3,000 stock split shares. I was checking out ETAH and it says it is a buy. Hope this helps. I am looking forward to a nice return.

JayBee
Guest
JayBee

What does ETAH have to do with a discussion about Berkshire Hathaway?

4lllls
Guest
4lllls

This week I went from 1,000 shares of ETAH stock to 3,000 shares after a stock split. Today I was researching ETAH and it is a buy. Hope this helps.

Jeff
Guest

I wouldn’t Buy A or B with that chart let alone Triple Down.

captbalut
Member
πŸ‘10
captbalut

Its not Birkshire Hathaway. Try Arista Networks

Harry Kenworthy
Guest
Harry Kenworthy

I have had a major position in Vericel (VCEL) since late 2015 seeing a 600%+ gain. Their sales and earnings path is accelerating nicely and still expect to see a nice steady rise in PPS.

Christopher
Guest
Christopher

I want to know does anyone know who the public IPO’s are going to be coming up that they are talking I believe marijuana daily or some thing daily there are supposed IPO’s coming which I’m sure there are with the way things are heading . See I knew of one recently and got in late which I still got in but could have made thousands instead of hundreds. This time I will set my alarm clock hey;) there post reads
“Moon shot Tilray- type win” next big IPO.

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MARY
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MARY

uber

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Ed C
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Ed C

rather buy some RUSSIAN STOCKS like the mobile company and
the oil gas company
NOT these BS from MF

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Tom
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Tom

If you want a Russian stock, how about Trump, Inc.? The Russians invested in a boatload of that stock and they say its really paying off!! Seriously, MF has a foreign stock list (separate subscription) and one is “the Uber of Russia” called Yandex that they have touted since August. So far “nyet” but I’m willing to be patient.

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Malo
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Malo

Your response makes no sense whatever.

Britt
Guest
Britt

They’re pushing their Partnership Portfolio again today, giving folks another chance to get in for $1999. The first time they came out with this, they gave Shopify as an example of their founder/CEO stock picks. This time they gave Appian (APPN).

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joenw
Member
πŸ‘28
joenw

Does anyone besides me think Motley Fool has way too many programs? Stock Advisor; Rulebreakers; Options; Moneymakers; Explorer; Fool One; Global Partners; Marijuana Masters; Market Pass; Motley Fool Pro; Partnership Portfolio; Premier Pass; Rule Your Retirement; Supernova;Total Income. Some make sense as an addition, like Options, but the overlap for most is getting ridiculous. I’ve fallen for the discount to add another program and now feel like it was a mistake and annoyed over the ads for more and more.

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Charles Zigmund
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Charles Zigmund

I agree. Feel like a small fish that was tossed into the ocean. BUT I complained to Customer Svc and now have a hand-holder to soothe me and offer semi-personalized advice. However would be able to judge the situation much better without a Trade War killing my new portfolio.

JBW
Member
πŸ‘11
JBW

Travis, great read. I read someplace that BK has under performed the general market on some metric. Does this make any sence to you?

millerfilm
Member
πŸ‘54

Waiting for the Fool to go quadruple down, quintuple down, or the highly anticipated sextuple down. πŸ™‚

Mac
Guest
Mac

Hello, Millerfilm
Extremely clever and witty. Gave me the best laugh of my week. Thanks

millerfilm
Member
πŸ‘54

You are most welcome! πŸ˜‰

jtcornpone
Member
πŸ‘9
jtcornpone

Kindly Uncle Warren oversees GEICO which I understand is one of their key cash cows. As someone who was rear ended by a GEICO driver, their tough guy approach to any claims is legendary, as we found out. Offering $1500 for a probable lifetime of low level neck pain. Several lawyers told us they do not take cases where GEICO is the counter party. Sweet little gecko.

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eleanor
Irregular
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eleanor

I have GEICO myself. By far it was the cheapest car insurance I could find. I wonder how much GEICO will increase police holder’s premium if they caused the accident. Regardless perhaps fighting to pay the minimum amount is what makes GEICO a cash cow for BRK-B.

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JDZ
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JDZ

I am sitting on a few DVAX shares and am expecting good things from them

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dusty55
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dusty55

Ref: Berkshire comments and mention of GEICO. Wonder how GEICO would do facing USAA ?? Had a minor fender-bender recently. Other driver [obviously 100% at fault] had one of the ‘desperation insurance companies’ coverage. [Don’t even think about driving in Texas without insurance.] I notified USAA immediately with photos of damage and accident location. Other company mailed tons of confusing paperwork to me to fill out. I called USAA. Was asked to “Hold” for a few minutes. About 3 minutes my agent was back and told me the other company was mailing a check [to cover my deductible]. Which they… Read more Β»

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Will
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Will

USAA is a case study of what stakeholder partnerships should look like. They return a portion of their profit back to the consumer. I pay almost nothing for auto insurance now. Customer service is nothing less than stellar every time I need anything.

Our local grocery chain (Hy-Vee) is run on a similar employee-ownership “socialist model” and prices are slightly higher than Wally World, but customer service, cleanliness, and quality make grocery shopping a fun thing.

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amir kazemi
Guest
amir kazemi

my triple down buy stocks are Baba, NIO, & JD

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chinadeep
Guest
chinadeep

Ahh i don’t know about one. but In regards to tech stocks, Tencent was oversold, any company in China with a database of 1 Billion and a monopoly in social and gaming in the worlds biggest market is a winner long term https://chinadeep.info/top-10-technology-stocks-by-market-cap/

bird19
Member
πŸ‘0
bird19

Trying add BRK-B to tdameritrade account will not accept sysmbol !! ? ?

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fjenne
Guest
fjenne

What happens when the autonomous cars arrive and accident rates drop dramatically? What happens when autonomous car sharing becomes the norm and fewer accident policies are required? What happens when mega car companies have large fleets of autonomous cars and buy bulk insurance policies? What effect is this going to have on GEICO’s insurance rates?

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Lulu
Member
πŸ‘1289

Think about it, we haven’t yet gotten electric cars in motion to consider them viable for 99% of the world. Autonomous will take a while yet and you can be guaranteed to need insurance in case your AI messes up, hahaha.

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Charles Zigmund
Guest
Charles Zigmund

What happens when 3 million truck drivers are suddenly unemployed?

Geo Teo Teo
Guest
Geo Teo Teo

Berkshire Hathaway – what happens when Warren and Charlie pass on into Wall St. Heaven….? As for Apple – do they really think that the self-driving car is the next big thing ? Well maybe but it may kill auto insurance.

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Lulu
Member
πŸ‘1289

There are so many parts to car insurance: theft, fire, collision, glass, towing, liability, under insured………I doubt it will get cheaper unless this USAA becomes the norm. Not in Canada for sure.

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crazypalms
Member
πŸ‘7
crazypalms

BRK-B made some huge mistakes of late with IBM, Wells Fargo and recently Kraft Heinz – I only have a very small position and not sure if its worth holding. Any thoughts Travis?

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