Introduction to Motley Fool Stock Advisor
Motley Fool Stock Advisor is an investment research service launched in 2002 by The Motley Fool investing website. It aims to help individuals make smarter stock picks by providing stock recommendations chosen by Motley Fool analysts.
The Motley Fool was founded in 1993 by brothers David and Tom Gardner, who sought to make investing fun and approachable for everyday people. Frustrated with the jargon-filled Wall Street advice at the time, they set out to provide straightforward, easy-to-understand investment guidance.
The Gardners brought their signature humor and conversational style to their new Motley Fool Stock Advisor service. Each month, subscribers receive two new stock picks along with detailed analysis explaining why they were chosen. The goal is to identify growth stocks with long-term potential before they become well-known “sure things.”
Stock Advisor is designed for individual investors looking for guidance on building a starter portfolio. The service screens for stocks with strong fundamentals, competitive advantages, and growth runways ahead. Recommendations run the gamut of market sectors and cover both U.S. and international stocks.
How the Stock Picking Works
The Motley Fool Stock Advisor service employs a rigorous process for selecting stock recommendations. At the core is a team of analysts led by brothers David and Tom Gardner who together founded The Motley Fool in 1993.
The Gardner brothers developed an investing philosophy focused on identifying innovative companies disrupting various industries. They look for businesses with strong competitive advantages, visionary leadership, and opportunities for explosive growth over the long-term.
To uncover these potential home run stocks, the analyst team thoroughly researches companies using both quantitative and qualitative analysis. This includes digging into financial statements, speaking with management teams, evaluating industry trends, and assessing the competitive landscape.
On the quantitative side, they analyse metrics like revenue growth, profit margins, debt levels, and valuation multiples. Qualitatively, they aim to understand the company’s product, management, culture, market positioning, and growth opportunities.
The analysts also consider larger macroeconomic factors and market sentiment that could impact the stock. But ultimately, they are looking for great businesses with the potential to deliver market-beating returns over the long run.
Only their highest conviction stock picks that align with The Motley Fool’s investing framework get recommended each month in Stock Advisor. While the service cannot guarantee success on every pick, their proven methodology aims to give investors an advantage.
The Motley Fool Stock Advisor service has built an impressive track record over its 18+ year history. According to backtested results, Stock Advisor’s stock picks have significantly outperformed the S&P 500.
Some key stats on the performance include:
– Average stock pick return of 584% compared to 114% for the S&P 500 from 2002-2020
– 26 stocks with 1000%+ returns
– 93 stocks with 100%+ returns
Notable hugely successful picks have included stocks like Netflix, Amazon, and Tesla early on in their trajectories. Netflix was picked in 2007 at around $3 per share, while Amazon was picked in 2002 at around $15 per share.
To track performance, Stock Advisor measures its returns against two benchmarks:
– S&P 500 – This measures performance against the overall US stock market. Stock Advisor has consistently beaten the market.
“Average stock picking” benchmark:
This benchmark assumes holding all stocks for a year and shows the performance of Stock Advisor’s actual stock picks. Stock Advisor has returned over 3x higher than an average stock picker.
So the past returns and track record of Motley Fool Stock Advisor reveals excellent stock picking capabilities over the long run. Of course, past performance never guarantees future returns, but the long-term results are very strong.
Stock Picking Philosophy
The Motley Fool employs a long-term investing philosophy focused on identifying high quality companies that can deliver strong returns over time. Their approach combines both value and growth investing strategies, looking for stocks that are attractively priced relative to earnings growth potential.
When analyzing stocks, The Motley Fool aims to identify companies with sustainable competitive advantages, excellent management teams, and opportunities for expansion. Key factors they evaluate include:
Companies that are innovators or have established brands/patents that help them maintain a competitive edge.
Management track record:
Evaluating the background, experience, and past performance of management teams. Favoring leaders with a proven ability to allocate capital wisely and profitably grow their business.
Seeking companies with healthy balance sheets, manageable debt levels, consistent cash flow generation, and high returns on invested capital. Avoiding businesses with financial red flags.
Finding companies positioned to benefit from secular growth trends in their industry or changes in the macroeconomic landscape. Favoring stocks with multiple levers for expansion.
Determining whether the current stock price represents an attractive entry point relative to the company’s earnings power and growth outlook. Avoiding overvalued stocks.
The Motley Fool generally recommends holding stocks for 3-5 years or longer, allowing the investment thesis to fully play out. They do not anticipate being able to time short-term market swings. With a long-term focus, they are willing to ride out periods of volatility if the investment case remains strong. Overall, The Motley Fool’s approach combines growth and value principles, targets industry leaders, and aims to hold for multi-year periods.
The Motley Fool Stock Advisor service offers three membership tiers:
The Starter tier is $99 for the first year, and renews at $199 per year after that. This tier includes:
– Two new stock picks per month
– Best Buys Now – Motley Fool’s top stock recommendations
– Starter-level access to Motley Fool premium website
The Standard tier is $199 for the first year, and renews at $299 per year after that. This tier includes everything in Starter, plus:
– Ten additional stock picks per year
– Motley Fool’s monthly stock newsletter
– Standard-level access to Motley Fool premium website
The Premium tier is $399 for the first year, and renews at $499 per year after that. This includes everything in Starter and Standard, plus:
– Twenty additional stock picks per year
– Two exclusive premium stock reports per month
– Full archive of past stock picks and reports
– Premium-level access to Motley Fool premium website
– Chance to meet with Motley Fool analysts
All tiers come with a 30-day money back guarantee. Membership can be canceled at any time.
Sample Stock Picks and Analysis
The Motley Fool Stock Advisor service provides in-depth analysis and investment rationale for each stock pick. Here are some examples of recent stock writeups and investment thesis from the Stock Advisor service:
Teladoc Health (TDOC)
Teladoc is the leading provider of virtual healthcare services in the United States. Motley Fool analysts see a massive growth opportunity for telehealth as healthcare continues moving online. Key investment highlights:
– Teladoc has seen visits grow at a 30% CAGR over the past 5 years. The pandemic accelerated telehealth adoption, opening up a huge market.
– The company has key competitive advantages from network effects, integrated services, and acquisition synergies.
– Significant growth runway remains as telehealth penetrates the massive $4 trillion healthcare market.
– Teladoc has executed well, expanding services and acquiring companies like Livongo to expand its ecosystem.
– Attractive unit economics and operating leverage provide potential for strong profitability.
– Valuation looks reasonable given the huge TAM and Teladoc’s leadership position.
Roku pioneered streaming with its simple streaming players and operates the leading CTV advertising and content platform. Motley Fool sees it as a long-term winner in the secular shift from linear TV to streaming.
– Roku has an impressive scale with 60 million active accounts and is present in 1 in 3 US TV households.
– Its ad-driven business model benefits from the shift of TV ad budgets from linear to streaming TV.
– Roku takes a cut of advertising spend and subscription revenues across its platform, resulting in high gross margins.
– International expansion and new revenue opportunities in content, services, commerce give Roku multiple growth levers.
– While competes with giants like Amazon and Apple, Roku holds its own through neutrality and focus on TV streaming.
These examples showcase the in-depth qualitative analysis that accompanies each Motley Fool stock pick and forms the core investment thesis. The service aims to provide convincing rationale for why the stock could be a long-term winner.
Pros and Cons of Motley Fool Stock Advisor
– Access to two new stock picks per month from Motley Fool’s team of analysts. This can help generate investing ideas.
– Detailed analysis and rationale behind each stock pick. The Motley Fool team explains why they think the stock could be a winner.
– A proven track record over the long run. The service has outpaced the S&P 500 over 15+ years.
– A focus on picks for the long-term. Motley Fool aims for stocks that could be held for 3-5 years or more.
– Access to the members-only Motley Fool discussion boards. Connect with other investors in the Motley Fool community.
– Discounts on other Motley Fool premium services. Stock Advisor members get lower pricing on add-ons.
– Guidance on when to buy and sell. The team provides recommendations on entry and exit points.
– Educational resources on investing strategy. Members gain access to Motley Fool’s lessons and frameworks.
– No guarantees on individual picks. Some stocks will underperform, especially in the short term.
– Mostly large-cap US stock picks. Limited exposure to small caps or international stocks.
– Relies on fundamental analysis. Those looking for quantitative or technical models may want to look elsewhere.
– Membership fee may be prohibitive for some. The lowest tier is $99/year.
– Frequent promotional emails. Motley Fool’s marketing can be aggressive at times.
– Canceling membership can be a hassle. The process is not as streamlined as with some other services.
– Heavy growth stock tilt. Investors wanting income or value stocks may find better options elsewhere.
Who It’s Best For
The Motley Fool Stock Advisor service is best suited for investors who are interested in long-term stock picking and want access to the analysis and recommendations from the Motley Fool investment experts. Specifically, Stock Advisor is a good fit for:
– Investors with a longer time horizon who are focused on building wealth over many years or decades. Stock Advisor aims to identify companies that can generate high returns over the long run, not quick trades or day trading.
– Those interested in buying and holding individual stocks instead of just mutual funds and ETFs. The service provides regular stock picks along with analysis on why they are recommended.
– Beginner or novice investors looking to develop their stock analysis skills. The motley fool experts provide clear explanations on what they look for in identifying top stocks.
– Those seeking more hands-off investing. While research is still required, subscribers can leverage the expertise from the Motley Fool team instead of analyzing stocks completely on their own.
– Investors interested in beating the broader market over time. Stock Advisor aims to pick stocks that outperform the S&P 500.
– Anyone seeking well-known picks. Many of the Stock Advisor recommendations are for large, well-established companies.
The service may provide less value for short-term traders focused on capitalizing on quick stock moves or technical analysis. But overall, Stock Advisor is a good fit for regular investors aiming to build a buy-and-hold portfolio over the long run.
Alternatives and Competitors
The Motley Fool Stock Advisor competes with a number of other stock picking and investing research services. Here are some of the main alternatives for investors to consider:
Other Stock Picking Newsletters
The Motley Fool Rule Breakers: Motley Fool’s growth-focused stock picking service led by David Gardner. More aggressive stock picks aiming for bigger returns.
Morningstar StockInvestor: Newsletter featuring exclusive Morningstar research and recommendations. Focuses on individual stocks across all market caps.
– **Zacks Investment Research** – Offers various stock picking newsletters with different strategies, including value, growth, income and momentum picks.
Timothy Sykes PennyStocking: A trading service focused on penny stocks priced under $5 per share. Higher risk but potentially very high rewards.
Green Zone Fortunes: Run by Matt Badiali, this service targets small cap natural resource stocks with big potential.
Betterment: Leading automated digital advisor that builds and manages customized ETF portfolios. Much broader focus than just stock picking.
Wealthfront: Another large robo-advisor that offers automated investing services and portfolio management. Not focused on individual stocks.
Ellevest: Robo-advisor designed specifically for women, with goal-based portfolio recommendations. Uses ETFs, not individual stocks.
The key difference between these alternatives and Motley Fool Stock Advisor is the manual stock picking approach based on the Gardner brothers’ philosophy and expertise. Many competing services rely more on quantitative factors and algorithms. However, Motley Fool does lack the full portfolio management of a robo-advisor service.
The Motley Fool Stock Advisor service can be a helpful tool for individual investors looking to beat the market, but it requires research beyond the raw stock picks. The service is based on the Motley Fool’s philosophy of long-term buy and hold investing, emphasizing growth potential over short-term profits.
The stock picking track record shows strong performance historically, but past returns do not guarantee future gains. Not all picks will be winners, so you still need to evaluate each stock individually before investing. The research reports provide a starting point for further due diligence.
Overall, Motley Fool Stock Advisor is best suited for investors interested in a professionally curated list of stock ideas to research further. It likely offers more value for casual individual investors than active traders. But you still need to put in your own work to determine if the recommended stocks fit your investing strategy and risk tolerance.
Ultimately, Motley Fool Stock Advisor can provide valuable stock ideas and analysis. But responsibility still falls on each investor to research picks appropriately before making any investment decisions. Use the service as a useful source of potential investments, not a definitive guide.