by Travis Johnson, Stock Gumshoe | August 17, 2010 1:05 pm
The folks at the Motley Fool are right up there in the top ranks when it comes to over-the-top email marketing for their subscription newsletters, and the latest ad for their flagship Stock Advisor is no different — here’s how it opens:
“What if an ‘unmistakable signal’ could lead you to PROFITS of 832%, 935%, even 1,086%? (Yes, even in a market like this one!)
“Forget the ‘what ifs.’ This signal has already led investors like you to gains of 243%, 347%, 436%, 539%, 684%, 832%, 935%, and 1,086%.
“And it just started flashing again — meaning they could be on the verge of landing their biggest winner yet.”
I shouldn’t pick on the Fool specifically for this, since all the copywriters do it — but it is amazing that they can induce a Pavlovian drool response in us greedy investors even while using so many punctuation and disclaimer tricks, it’s worth noting that “unmistakable signal” is in quotes, that the first sentence is a question, and that the final question includes that key word “could,” favored by lawyers and compliance departments everywhere.
As I said, though, those same things can be found in every single promise-filled teaser ad for an investment newsletter, and I write about hundreds of these letters and their marketing hype pretty much every day … so why do it?
Because underneath it all, I know we’re all just looking for an interesting investment idea — and I hate to see folks get suckered into expensive subscriptions just to find out that the reality of their teased ideas is a fair sight less exciting than the copywriter’s conjured images of Xanadu. And while there’s always more to the story than you’ll get from the well-spun hype from the Motley Fool (or Stansberry, or Agora, or KCI Publishing, or Investorplace … the list goes on, they all use many of the same basic techniques), there are also some great-performing stock ideas that are justly touted by smart newsletter editors.
And of course, there are lots of good and informative investment newsletters that can expose you to new markets, teach you trading or investing techniques, and provide a good overall perspective — it’s just that none of them are as reliable at spinning straw into gold as their marketers would have you believe. In terms of monitored performance by Hulbert, the Gardner brothers with their Motley Fool Stock Advisor are in the top tier, beating the market in many years (we can’t compare most newsletters this way, since Hulbert only tracks about 200 letters out of thousands, but it’s at least a real and consistent measure), so let’s take a look and see what their latest breathless tease tells us to buy …
This latest pick is a Dave Gardner stock — which usually means it’s a growth stock, priced probably at a pretty high multiple and, as likely as not, in some sort of flash-bang hi-tech business. He has consistently favored rapid growers, to the extent that he even lists that as one of his key criteria for picking a stock: the rest of Wall Street has to have written it off as “too expensive.”
And the “unmistakable signal” that they are so careful to put into quotes? That’s when one of the Gardner brothers re-recommends a stock, the publisher tells us that this indicates an extra level of conviction and that it historically has led to even better performance than their other picks. Here’s how they describe this “indicator:”
“You see, every so often, David and Tom Gardner RE-recommend one of their past Stock Advisor picks. At first, I thought this was rather curious but insignificant.
“But now I know better!
“That’s because, as I told you earlier, I recently sat down and ran the numbers on every single stock David and Tom Gardner have RE-recommended. And as it turns out…
“David and Tom Gardner’s RE-recommendations absolutely CRUSH the market!
“In fact, if I had to invest my entire retirement nest egg in just one company, it would be a stock that David and Tom Gardner RE-recommended in Motley Fool Stock Advisor. Why?
“I’ve given this a lot of thought. And I’ve come to the inescapable conclusion that David and Tom RE-recommend the same company to their Motley Fool Stock Advisor members only when they are 100% CONVINCED it’s a surefire winner… and will become an even BIGGER WINNER going forward.
“Don’t forget, since April 2002, JUST 39 STOCKS have earned this distinction. And all told, these RE-recommendations…
* “Are OUTPERFORMING the S&P 500 by more than 100%
* “Boast a 116% AVERAGE return
* “And include stocks that would have made you NINE, TEN, and even ELEVEN TIMES RICHER”
So we know it’s a stock that has been in the Stock Advisor portfolio for at least a little while, not a brand new pick. What else are we told about this next “surefire winner?”
“…the revolutionary e-commerce company we’ve been talking about today was recently RE-recommended by David Gardner in Motley Fool Stock Advisor…
“Which is why Motley Fool Stock Advisor members are rushing to cash in — and why I want to give you the opportunity to join them.
“Of course, I could go on all day about how this mid-cap $14 billion company has stockpiled well over $1 billion in cash — giving it the option to fuel even greater growth through strategic acquisitions…
“Or how it makes 75% of its income in overseas markets — which are MUCH larger and growing MUCH faster than the United States market is.”
So that sounds pretty good, right? How about some specifics about the company, the industry … or better yet, some numbers? They provide a few clues there as well. The letter tells us that this company follows in the footsteps of winners like Netflix and Amazon (Netflix, which I’ve been perennially wrong about, is also a past teaser pick from the Gardners, and one of the better-performing teaser picks I’ve ever covered here), using the power of the internet and e-commerce to increase value, choice and convenience for their customers ….
“… the company I’m writing you about today has taken this same fortune-making principle, tweaked it in a very unique and profitable way, and unleashed it on one of the biggest consumer markets on Earth.
“How big are we talking?
“Well, back in 2007, consumers in the United States, Europe, and Asia alone spent over $715 billion on goods and services from this one rapidly growing industry. But get this…
“Only 35% of that $75 billion was spent online.
“Meaning, unlike Dell and Amazon and, yes, even more so than Netflix, this company’s biggest growth opportunities are yet to come…
“Already, this growth has been nothing short of stunning. In fact, the business nearly doubled between 2007 and 2009 — with earnings more than tripling over the same period.
“And when the company recently reported its quarterly numbers, it absolutely blew away analysts’ expectations. Despite a lingering worldwide recession and sluggish global economy, this company managed to GROW…
* “U.S.-based revenue by a recession-busting 20%
* “Overseas-based revenue by an impressive 59%
* “Cash flow from operations by a stunning 99%
* “Earnings per share by an incredible 53%
* “And overall earnings by a whopping 72%”
So we take all those clues, and toss ’em into the Thinkolator … step out to the kitchen for a cup of coffee, and when I get back we should have the answer. Which is …
Crazy, huh? Priceline has again become a market darling, years after they were written off as a dot-com has-been (or admired as a “media manipulator”). If you had asked me, I would have told you that in 2003 they were on the path to complete irrelevancy, but that sure didn’t turn out to be true … maybe it’s all thanks to William Shatner, but this is again a real company in a high margin business, albeit one that’s also quite competitive … and they are growing nicely, thanks in large part to expansion in Asia.
And that’s really the potential growth driver that gets everyone excited — though I would never consider booking a trip without checking Expedia, Priceline and a couple competitors, the online travel industry apparently has a very small portion of the market, that 35% number is correct (though a little bit old) … and perhaps more importantly, that number also includes lots of stuff other than the big online agencies, including each of the hotel and airline websites for direct bookings (marriott.com, etc.).
We’ve also seen, over the last five years or so, that online travel booking and aggregator agencies like these “work” on a global scale, consumers and travelers in China, notably, are also proving to be happy online buyers in this area, as are folks in other countries around the world, so this isn’t just an idea that works only in the US and Western Europe.
But we’re not the only ones who know that, of course — Priceline.com is one of dozens of relatively large online travel agencies, and it’s arguable whether the last vestiges of the “name your own price” strategy that they still use really give them a differentiated product or a loyal customer base (or a “moat,” in Buffett-speak). In the US they compete with lots of companies you’ve probably heard of, including Expedia and Orbitz (Expedia, though half the market cap of Priceline, had higher sales over the last year, though it’s growing much less quickly). And as they expand in Asia they’ll also be coming up against some entrenched competition in the larger markets (China and Japan), though they seem to be doing quite well as they push expansion first in relatively under-served areas like Malaysia. They bought much of their growth in Europe and Asia by picking up Booking.com and Agoda over the last several years.
The market has had a new chance to fall in love with travel sites, too, as the Indian travel site MakeMyTrip (MMYT) went public just a few days ago to the kind of IPO first-day bounce that we used to see in the dot com days — despite the fact that MMYT hasn’t yet become profitable, investors jumped on the chance to get in early on the extremely under-penetrated Indian online travel market and the shares are now trading for about twice what the company sold them for last week. Expedia and Travelocity are both in India too, for whatever that’s worth, though both reportedly have tiny shares of the market.
And interestingly, the Motley Fool teaser-meisters have been on the story of online travel agencies and their international growth for a long time — they also touted Ctrip in the past, though that was several years ago and I think that was in service of their Hidden Gems newsletter (they called it the “crazy idea that dazzled Bill Gates — a little reminder of the fact that Expedia was owned by Microsoft for a while). Ctrip (CTRP) and their Chinese competitors Universal Travel (UTA) and eLong (LONG) are certainly also doing well in terms of growth, though both LONG and CTRP are priced for heady growth while tiny UTA looks strangely cheap (there’s probably a good reason for that — I haven’t looked at the company at all except to note that they’re in the travel agency business in China, and they’re tiny).
If you’re interested in following up on Priceline, you can usually count on the Motley Fool to run lots of stories about stocks that are also favorite picks of their founders (imagine that!), so you can see, just in the last week or so, that they’ve run articles from a variety of writers about Priceline’s technicals, margins, and even an interesting article wondering whether Priceline’s great quarter means anything good for the economy in general.
As for me, I know Dave Gardner likes it in part because it’s expensive, but I can’t get myself excited enough about Priceline’s future in what could be a hyper-competitive global travel marketplace … maybe I’m missing out, we’ll see (Morningstar, for what it’s worth, is a fuddy duddy on this one, too, their analysts pegs the “fair value” at about half where it’s currently trading).
But it’s your money, after all — do you want to invest it in Priceline.com, or do you see more opportunity elsewhere in the space? Let us know with a comment below.
P.S. While I did note that the Gardner brothers have a pretty good record per Hulbert, I should also tell you that we also have a few dozen reviews from subscribers on the Stock Gumshoe Reviews site, both good and bad — you can see those here or, if you’ve ever subscribed, add your own opinion to the pile.
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