Motley Fool’s “Like Buying Apple Before the iPhone” Pitch

What does David Gardner call "the one breakthrough you can't afford to miss in 2017?"

“Here’s what world famous tech investor Marc Andreesen had to say:

‘For fun, our firm has an internal game of what public companies we’d invest in if we were a hedge fund. We’d put all our money into [this same company].’

So... what's the stock? Answers below...

By Travis Johnson, Stock Gumshoe, March 15, 2017

This article was first published January 23, 2017, it has not been updated or revised.

This ad caught my eye over the weekend, and it had enough clues that the Thinkolator started chugging along almost before I turned the switch this morning — so let’s dig in, and maybe we can even make it a little quicker than usual.

The spiel is for the Motley Fool’s flagship Stock Advisor newsletter, and it’s hinting at a pick by David Gardner, who is the “Growth” half of the founding Fool brothers. His brother, Tom, tends to focus more on valuation — David is the one who likes buying “Rule Breaker” companies that are changing the world… and that Wall Street thinks are “too expensive.” I’m often a bit of a fuddy duddy on valuation, so I tend to find more that is comfortable to me among Tom’s recommendations that I’ve seen, but David’s have done far better over time (largely because of the outsize impact of the multi-thousand-percent returns from picks like Priceline and Amazon and Netflix early on).

So what is it that Dave Gardner is pitching to try to lure in new Stock Advisor subscribers? Let’s take a look at the details of the ad.

It starts out with some broader hints:

“David Gardner’s newest stock is the leader in what our analysts believe is the one breakthrough you can’t afford to miss in 2017.

“Wall Street Insiders are calling it ‘bigger than the Internet.’

“One Legendary Google Engineer is saying this technology will be as transformative as the discovery of electricity.”

OK, so plenty to get you daydreaming about riches there — what might get the Thinkolator pointed at the right answer? Some more specific clues:

“Here’s what world famous tech investor Marc Andreesen had to say:

‘For fun, our firm has an internal game of what public companies we’d invest in if we were a hedge fund. We’d put all our money into [this same company].’

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“This incredible company’s platform is so dominant… that they are being compared to Microsoft in the early days or Apple before the iPhone.

“Here’s Andreesen again:

‘We’ve been investing in a lot of startups applying this technology to many areas, and every single one effectively comes in building on the [same company’s] platform. It’s like when people were all building on Windows in the ’90s or all building on the iPhone in the late 2000s.'”

And apparently this is a threepeat recommendation from David Gardner:

“It first caught his attention back in 2005 when it traded for a paltry split-adjusted $6.62 per share. He issued a buy recommendation that’s gone on to incredible 1,496% gains!

“David went back to the table to recommend the stock in December, 2009. Investors who bought then are already up 575%!

“And now David is issuing a brand-new recommendation on the company for a simple reason…

“The field this company dominates recently experienced breakthroughs that led researcher Tractica to estimate jaw-dropping 5,395% growth across the next decade!”

So who is it?

This is, once again, our old friend NVIDIA (NVDA), which has been the hottest large cap stock in the market over the past year or so on the back of strong revenue growth, accelerating earnings growth, and a great “story” thanks to the company’s important role in several large investing and tech trends, including virtual reality, artificial intelligence and deep learning, data center acceleration, and, in what is being pitched mostly here, autonomous driving.

I’ve written about NVIDIA a bunch of times — it has indeed been teased and recommended by David Gardner before, he pitched it as “Warren Buffett’s nightmare” stock starting almost three years ago because of the role that autonomous driving might have in cutting auto insurance rates (or, someone hold their hands over the poor GEICO Gecko’s ears, doing away with auto insurance altogether)… and it has been a phenomenal performer since then, up more than 400%. It was also pitched heavily a few times by Michael Robinson starting a little over a year ago as a play on “neural imprinting” … which was a dumb pitch about the healing powers of virtual reality, which will remain a pretty small part of NVDA’s business, but was well-timed (it’s up 250% since then).

I personally speculated on some NVDA calls a year or so ago, thanks in part to what was a bit of virtual reality mania in the marketplace, and took profits several months back — so I’m hobbled with something of a bias on this one, it seemed expensive when I took profits when the stock was in the high $40s but it has since doubled since then. It is really hard to reset your personal “value” assessment for a company, so I’m likely to be too pessimistic about this one since I sold at a much lower price — you, thankfully, do not have to live with my particular biases.

Right now, NVDA is subject to the kind of debate in Wall Street circles that I’m always having in my head — can it keep going up like this? What kind of earnings growth would justify making the company $40 billion more valuable in just the last twelve months? Will autonomous cars and virtual reality and their other rapid-growth businesses grow fast enough to stave off what might be some relative softness in the high-end GeForce gaming chips that are (still) the core of their business?

NVIDIA has really been the company that can do no wrong over the past six months, and investor NVDA-lust took hold even more aggressively when they reported a huge beat on their last earnings report (their last quarter ended 10/30, they reported 83 cents in profit versus 57 cents forecast by analysts, which is a huge beat for a large company with $8 billion in sales — the numbers were quite fantastic, 54% revenue growth and 104% non-GAAP earnings growth, for more proof that what really gets investors going is real earnings growth, no matter what else is going on).

There is certainly concern in the market about a resurgent AMD, which has been riding NVDA’s coattails higher and is really the only competitor in the high end graphics processing chip market, but forecasts are still climbing for NVDA. The estimates have not been bumped up in the last month, which might help to explain why the shares have hit a bit of a ceiling since they hit a peak of almost $120 at the end of December following all the post-earnings upgrades and estimate increases, and leading in to the Consumer Electronics Show and its big focus on self-driving cars (CEO Jen-Hsun Huang gave the opening keynote address at CES as well, generating still more attention).

So right now, NVDA is just shy of being a $50 billion company, and it is trading at about 35 times expected 2017 earnings (or 62X trailing non-GAAP earnings, if you want real numbers). Analysts see the earnings growing to $3.96 per share by 2019, so at the current price you’re paying about 26X 2019 earnings for the shares.

The company has plenty of cash ($6 billion or so), strong leadership and insider ownership (the CEO and founder owns about 5% of the company), and is positioned well for high-end processing chips that can do the rapid “thinking” required for self-driving cars and “learning” in artificial intelligence. The only concern, for me at least, is the valuation. And it’s not a completely outlandish valuation, to be sure, but it is very steep — if analysts are correct, you’re paying almost 40 times earnings for a company whose earnings, analysts persist in estimating, will only rise by 15% or so per year over the next year or two. It might be that those analysts are too pessimistic, or that future growth is stronger than immediate growth prospects (those analysts do expect 29% earnings growth on average for the next five years, and analysts have been very light on near-term expectations for NVDA and have had to raise forecasts many times over the past year or so), but you work with what you have, and the estimates make the stock look very expensive but not necessarily prohibitively expensive if you have an optimistic slant.

For me, personally, the hardest thing to do psychologically is to buy a stock at a price much higher than I had sold it for in the past — so that has probably kept me from giving NVDA a fair shot as it has surged higher in the past six months, but I do like the company and its prospects quite a bit. It might be that the cure for this psychological hurdle is what I’d call a growth-stock vaccination — just buy a couple shares, a very tiny position, which is enough to let me re-set my thinking about the stock and consider it afresh, then I’ll be able to consider it more rationally when I see the stock dip or surge in the months ahead, and if the valuation gets more compelling or my expectations of NVDA’s future get reset positively, I’d then be able to buy more. That’s what I did recently with Amazon (AMZN) shares, and it’s how I initially opened my position in Facebook (FB) despite some valuation misgivings on both of those stocks at the time, so perhaps that’s what I’ll end up doing with NVDA too. I haven’t bought shares, to be clear, and I won’t trade in any stock I write about for at least three days — but that’s the vaccination procedure that sometimes works for me with high-growth stocks where I like the prospects but feel a little queasy about the valuation.

It’s your money at stake, though, so what do you think? Have the same biases as me? Are you already sitting pretty in NVDA shares and enjoying that 500% gain? Feeling optimistic or pessimistic about NVDA or its autonomous driving and artificial intelligence and gaming businesses? Let us know with a comment below.

P.S. that quote from Marc Andreesen got a fair amount of attention — as has NVDA stock in general, thanks to the huge surge… it made the December issue of Forbes in this article and was ranked the top chip company in their new “Just” rankings of good corporate citizenship.


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backoffice
Irregular
January 28, 2017 2:26 pm

it did it’s pull back a wee or 2 ago now I’m waiting for it to start moving again. It’s started slowly,but I’m waiting to add more. Also I don’ understand Qualcom. It took an $8 hit on news of a lawsuit by Apple, lawsuits generally take years to make a dent so I don’t get the Immediate downward pressure.

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Bob
Bob
Guest
February 5, 2017 9:22 am

Virtual Reality is still a bigger thing in politics than it is in reality, and driverless cars are still cooler in concept than in unit sales. But much more exciting from an NVIDIA investor’s point of view is the far broader potential for their chipsets and patents in artificial intelligence applications (we own only a couple cars, but we’re on our way to owning hundreds of intelligent devices).

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omi
omi
Guest
Reply to  Bob
March 25, 2017 10:31 am

But potential in what stock for chipsets and patents?

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asiddi
asiddi
Irregular
February 15, 2017 4:44 pm

I am just discovering this site after years of wasting time on the net. I am learning more here than any other place including a lot of reading. Thank you all.

Edward K. Motley
Edward K. Motley
Guest
February 28, 2017 7:01 pm

Ha! I just got sucked in by another Motley Fool teaser quoting Marc Andreessen and focusing on the “We’d put all our money [here]” quote. I was hoping it was Nvidia!

Honestly, I had not noticed that quote was in this write-up when I read it last month. Like other commenters here, I was in the lucky batch who put money in $NVDA at $20 after Motley Fool ran their promos about the self-driving car industry being a threat to GEICO (or, as they loosely described that company, “Warren Buffet”).

I am torn between pulling out my initial investment at this top or just letting it ride for the full five years (three more years) per my initial plan. Because the first option is driven by emotion and the latter is driven by planning, I guess I will err on the side of planning.

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thinairmony
Member
March 15, 2017 2:22 pm

Well INTC just bought MBLN. This certainly makes things interesting. I to had NVDA and sold at a profit early. But I have held on more earlier in my stock adventure and ended up losing more than if I had pulled the trigger sooner. Hind sight is 20/20. Exspecially in such a crowded, highly competitive part in the market. AMD has made me a nice profit. And expect to reinvest after Janet Yellen news at 2:30 today and hopefully get some news on AMD latest quarter. And leave on this note, be fearful when others are greedy.

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thinairmony
Member
March 15, 2017 2:54 pm

Stock Advisor Performance
David’s Portfolio +351.8%
S&P +73.9%
Tom’s Portfolio +99.6%
S&P +63.4%
Average return of all recommendations since inception David is by far the better of the 2 as you can see as today 3/15/17

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dunnydame
dunnydame
Irregular
Reply to  thinairmony
March 20, 2017 5:06 am

Some of my best stock purchases have been from Motley Fool recommendations when I was a member of MDP (Million Dollar Portfolio). (No, I didn’t have a million dollars. They did, and I just bought proportionally with my portfolio.) Example: IPGP & COST.
Penny

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sam
sam
Member
March 15, 2017 6:05 pm

Thanks to Travis. I bought some stocks a year ago and calls a year ago; and after making lots of money, I sold Half and I am hoping to make lot more money. The recent pull back is a good opportunity to buy now, if you don’t hold it.

thinairmony
Member
Reply to  sam
March 15, 2017 8:02 pm

Travis is the man. Several months ago. I miss judged a ecommerce stock thinking it was MELI , but was SHOP as he called it thankfully, I caught my mistake do to his vast knowledge about the SOCKS and researched deeper and found out and invested in SHOP – Shopify and has been a very good choice. Has gone up 16.5% since

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thinairmony
Member
Reply to  thinairmony
March 15, 2017 8:07 pm

meant stocks and while I’m here not several but a couple months ago. In my above post. Should poof read. Please add edit on comments. LOL

dunnydame
dunnydame
Irregular
Reply to  thinairmony
March 20, 2017 5:10 am

Thinairmony – are you an Irregular?
There is an Edit button next to the Reply button which can be used for editing for a short while after posting the original comment, but it might be only for Irregulars.

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thinairmony
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