Are you looking to venture into the stock market? Chances are that you have heard about the Motley Fool stock-picking service and that is quite understandable because it is one of the most recognized in the market right now.
In this guide, we are going to talk about one of the founders of the company (Tom Gardner) and his stock picks. Keep reading to find out more.
Who is Tom Gardner?
The Motley Fool is a stock-picking service founded by brothers Tom and David Gardner but just like we have previously mentioned, we are going to focus on Tom and his stock picks. Now, he has an investment background spanning over 30 years.
You may also want to note that he is a best-selling author and has some investment books under his belt including "Million Dollar Portfolio", and "The Motley Fool Investment Guide". Now, the Motley Fool offers investment newsletter services and Tom is one of the advisors of one of its products known as the Stock Advisor.
He has an estimated net worth of about 22 million.
Tom Gardner’s Investing Strategy
Before we get into some of Tom Gardner's stock picks, we thought it would be a good idea to get into his thought process as far as picking them. From the get-go, Tom Gardner recommends business-focused capitalizing, and he, therefore, seeks out great and promising businesses.
He also recommends approaching the market with a business owner mentality rather than a stock buyer one. That means that you need to ask yourself questions like where the company you want to invest in is likely to be in the next few years.
Once you get a promising business to invest in, you are supposed to hold the stocks for at least 5 years while regularly adding money to them. Anyway, here are five of the factors that Tom uses to determine whether he is investing in the right business.
1. Company Culture
Tom Gardner first looks at the culture of a company. By that, he means how the company treats its stakeholders, suppliers, customers, and staff. According to him, companies that treat all their players well tend to flourish in the long term.
You can easily tell that a company has a positive culture by looking at its employee retention and engagement.
2. Company Strategy
Next, he looks at the strategy of a company, and in doing that, he asks questions like what competitive advantage the company has over others and whether it has pricing power. This helps in keeping the company in business regardless of how many competitors it has or whether it needs to increase its prices at some point without losing customers.
3. Financial Situation
Even as a novice, you can already tell that a company's finances play a huge role when it comes to determining whether it is likely to thrive or not. It wouldn't do you any good to invest in a company with a winning strategy and a great culture but in a financial mess.
In that regard, the company needs to be generating good sales and have a sustainable profit margin so if a company is not offering that and you invest in it, you will simply be setting yourself up for failure.
4. Potential Risk
Tom also looks at the risks that a given company is likely to face in the future. This is because a company may look like it is doing good presently, but present serious issues down the line. One of the major risks that most companies face has to be industry disruption risk.
For instance, magazines and newspapers are being replaced by blogs and social media. Likewise, companies like Lyft and Bolt are in high competition with the taxi industry. Of course, many other companies are at risk of being redundant because of technological advancements and the like.
It is therefore important to consider all the ways that the business you want to invest in can run into trouble and what can be done to mitigate that.
5. Company Valuation
Lastly, Tom focuses on valuation. This has to do with how much the market thinks a particular business is worth. Is the business under-estimating itself or being over-confident? You are probably wondering how Tom values businesses.
Well, first, he looks at the per-share cash flow and where it is likely to be in five years. He looks at cash flow because it is difficult to manipulate even by accountants.
You can tell how a business is doing by looking at how much cash flow it can generate. Tom also advises against giving an ear to the short-term noise in the market.
Top 3 Stock Picks by Tom Gardner
Now that we know how Tom picks his stocks, why don't we get right into some of his top picks?
1. Tesla (NASDAQ: TSLA)
Tesla is an electric vehicle manufacturer based in the U.S. and it is currently and consistently ranked among the best companies to invest in. Now, we will tell you that it is quite difficult to separate this company from its founder, Elon Musk who is thought to be controversial and impulsive.
We say this because his attention usually tends to be divided between his business and capital-intensive ventures like subterranean transportation (the Boring Company). Moreover, his public statements have had an impact on Tesla's finances making him a highly scrutinized company owner.
Should this be a cause for concern for anyone interested in investing in Tesla? Probably not and here's why.
As an investor, you need to keep in mind that Tesla is set to change human mobility in a great way with the government looking to put up 500,000 electric charging stations all over the country by 2030. That means it is not a question of whether electric vehicles will replace gas-powered ones, but how soon it is going to happen.
Anyway, the company's for five years stands at 74.13% as of June 2021. This is more than 2.5 times compared to the returns of other auto manufacturers. Tom Gardner did recommend buying stocks from his company and as you can see, he was right.
2. Shopify (NYSE: SHOP)
Shopify is essentially an e-commerce retailer based in Canada and it facilitates small businesses with big projections to sell their services and products on the internet. The company also provides the necessary expansion for brick-and-mortar sellers who are interested in reaching customers beyond their locations.
Of course, Shopify has been the bridge that many small businesses required to reach customers, especially amid the pandemic. The platform's revenue almost doubled in 2020 such that the shift to online shopping looks like it is here to stay. Needless to say, it seems like Shopify is going to benefit from this for a long time.
That said; this is not to mean that Shopify was not performing well before the pandemic. As per the Motley Fool, Shopify's IPO was worth more than $ 286,000 in February of 2020 which was the last month before the pandemic. This shows you that the company was already successful and the unfortunate event only kicked its growth.
According to Morningstar, Shopify's yearly return is 116.44% as of June 2021 and after our calculation, that is about four times more than the 29.96% five-year annualized profits of the software application sector.
3. Crowdstrike Holdings Inc (NASDAQ)
CrowdStrike Holdings, Inc. is a cyber-security enterprise based in Sunnyvale, California. Some of its services include cyber-attack response services, threat intelligence, endpoint security.
Its performance has risen by 38% percent since it was recommended by Tom Gardner. Here is his reasoning behind picking this particular stock.
First, Crowdstrike's platform is more effective compared to competitors and with more people now working from their homes, cybersecurity is more critical. This has increased the need for the services that the company offers.
It is therefore not hard to see why Tom recommended the company. You can tell that it is going to be in business for a while.
The Gardner brothers are experts when it comes to picking winning stocks. You can see that Tom does a good job of analyzing companies and recommending them to Motley Fool's subscribers. We would therefore recommend considering his picks if you are looking to get into the stock market.
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