10 Years Later: 5 Brexit-Inspired Stocks

0:00Ten years ago this week, July 13, 2016, the world was still reeling from Brexit. The United Kingdom had voted to leave the European Union, markets had lurched, commentators were forecasting doom, and nobody really knew what would come next. A week or two earlier, I tweeted a line that captured what I was thinking, and I quote, We make fearful the things we don't understand. Well, when the future is unclear, it's human nature to imagine the worst fear rushes in to fill the vacuum where certainty used to live. So rather than spend a podcast predicting politics or debating whether Brexit would prove good or bad, I asked what felt to me like the more foolish question, given this new world, where are the opportunities?

0:51And so I built a five-stock sampler, not as a wager on Brexit itself, but as a hopeful response to uncertainty. because when the world changes, rule breakers don't simply ask what might go wrong. We ask what might go wonderfully right. Well, it's now 10 years later. How did those five stocks do? And what can we learn from them? And what might they still teach us today? 10 years later, five Brexit-inspired stocks only on this week's Rule Breaker Investing. It's the Rule Breaker Investing Podcast. with Motley Fool co-founder David Gardner.

1:3530 times on this show every 10 weeks from 2015 to 2021, I picked a five-stock sampler. 30 times where I said, here's a theme and here's a five-stock basket. Let's go beat the market and learn some great lessons together. And for each of them, we revisited them a year later. And two years later, and generally closed it down after three years. Because if we kept reviewing all of these all the time, there wouldn't be much else on this podcast to do. So I kind of shut the game off after three years. But each time I said, as I sent that sampler to Foolhalla, and we played the music to bid it adieu, I said, that doesn't mean we're selling.

2:20These are companies that I generally still like. But the five-stock sampler was a three-year game. And yet, many of these stocks we continue to hold. They're part of Motley Fool services. I love some of them even more than I did seven or 10 years ago. Some of them I kind of wish had gone away. And that's the beauty of 10 years later. It started last year. It may continue for many more. So now every 10 weeks on this podcast, we open up a time capsule. It's a past five-stock sampler that is hitting its 10-year birthday. and we're going to score each stock equal weighted from the original air date.

2:59We're going to see its return. We're going to compare that to the S &P 500 over the same span. And then we do the real work, what we got right, what we got wrong. Well, actually, I have on a Motley Fool friend to help do the real work. And this week, it's longtime fool Carl Thiel to join us and discuss together what the decade actually taught us as investors. We'll finish out, of course, with the sampler's overall result and a quick go-forward view on some of the companies. If you're new here, that's 10 years later. It's not just keeping score. We're learning how and why rule breakers win and, oh, sometimes lose too.

3:38Carl Thiel has been an analyst at The Fool since 2004, working on rule breakers that whole time, and also currently on our quantum energy and health AI services. Oh, and biotech. Carl has been an avid follower of the biotech industry almost his entire career, including pre-full time as a consultant and employee at a bioinformatics company. Spoiler alert, none of the five stocks we're talking about this week are in biotech. These days, Carl spends his non-work time dreaming of greatness in his old man cover band, these are his words, and plugs into Austin, Texas's music scene. Plus, if you're ever lost in the woods and you happen to have Carl along with you, he can totally help you find edible mushrooms.

4:26Carl, welcome back to Rule Breaker Investing. I hope it doesn't come to that, but if need be, thanks for having me. I know you've spent a lot of time in the woods, in and around Portland, Oregon. Obviously, you're now in Texas. You are a creature of nature, Carl. Have you yourself ever truly gotten lost in nature? I actually did one time while foraging mushrooms and foolishly didn't have very good GPS stuff with me, but I managed to figure it out. You know, GPS only showed up, I mean, almost since, I think the Motley Fool started before GPS was around, so you're excused for maybe not having GPS at different points in your past.

5:06Yeah, we'll say that. Let's go with that. All right. We're going to cover five stocks this week. Ten years later, here they are in order. Alphabet, Euronet Worldwide, Haynes Celestial, Booking Holdings, and Tesla. Now, before we start with stock number one, how has the S &P 500 done 10 years ago this very day? The answer is the S &P 5 ,500 is up 248.7%. Carl, it's been a good 10 years. It has been a remarkable 10 years. I guess I'm almost tempted to say unprecedented. I think that's probably not true. I don't have that at my fingertips, but it has been an amazing time. It really has been. The market has more than tripled over these 10 years.

5:53That is the bogey that our sampler is competing against, plus 248.7. in each of the stocks, if it is up 250 % or so, it's in line with the market over these 10 years. If it's above, it's a market beater. If it's below, we've got a few of those. It's a market loser. Carl, let's now strap into the time machine as we go back now to July of 2016.

6:22All right, stock number one. This is in the order I presented them 10 years ago this week. It's alphabetical by company name. And back in 2016, Alphabet, which is stock number one, ticker symbol G-O-O-G-L, Alphabet itself was barely a year old. Google had recently reorganized under its new corporate umbrella, signaling it wasn't simply a search engine anymore. Search remained a cash machine, of course, but the company is already placing ambitious bets on everything from self-driving cars to artificial intelligence, cloud computing, and life sciences. Larry Page and Sergey Brin were making it clear this enterprise was built to think beyond today's business.

7:06And why did I pick the stock for this sampler? Well, I described Alphabet as one of those independent and visionary companies that can stand alone. I was praising its ability to be guided by visionary leadership to new places. And my conclusion, Carl, was there are very few companies worldwide that have more capacity and capability to do so many things that Alphabet does every day across all of its different businesses. Carl, any initial reactions of yours to the stock either back then or now? I mean, just two things, really. One is you'd mentioned they had only recently become Alphabet at the time.

7:43So when When you put this together, I was very much not used to the new corporate name. And I'm going to admit, I'm still not used to it. I still think of them as Google. I mean, their ticker symbol, I've been contending this for a while. They should change their ticker symbol to the following four letters. A-T-O-Z. A to Z. Alphabet. That would be awesome. It also would swipe a page from Amazon because Amazon plays a little bit of the A to Z thing going on. But I think A to Z is better than still rocking G-O-O-G optional L. Maybe they'll get confused with Andreessen Horowitz. I don't know. Yep.

8:22There could be some, you know, copyright violations. But hey, that generates a lot of press around your new ticker symbol. That's true. And they can afford it. My only other thought about this, I'm just going to say, this is the only one in this five-stock portfolio that I own personally, and I have owned it all this time. And I as well, my friend, this has been a wonderful performer. Let's talk about, before we talk about the single biggest reason why this stock has done what it's done, which is Carl's research. He's bringing that in a sec. Let's see how it has done. The stock back on July 13th of 2016, split adjusted, was at$35.85.

8:59Today, it's just over 352. By my counting, that's up 883%. Carl, again, against a market up about 249. So this stock has crushed the market over the last 10 years, up more than 600 points of alpha. A wonderful way for this five-stock sampler to start. So that's how well Alphabet's done. It's a nine-bagger for those of us who've held it over these last 10 years. Carl Thiel, what in your mind is the single biggest reason Alphabet is a nine-bagger? Yeah, it's hard to say. And research is probably a strong word for what I've done here, David. But this has sort of been the smoothest ride in a way. I mean, this stock has pretty much kind of just gone in a straight line upwards over time.

9:46I mean, that's not entirely true, but mostly. And really, they've just executed on everything they sort of ever said they were going to do. So when they became Alphabet, there was a lot of ideas about the different things that they felt that they were moving into. But those were largely aspirational at the time. Pretty much 100 % of revenue is coming from the sort of search ad business. You know, we have seen YouTube take off. We have seen Google Cloud really become a major contributor. I think it was in 2015 or 2016, right around the time of this portfolio, that they started making Tensor Units, which is not, I think, anything that anybody was focused on.

10:31But Tensor Units became the backbone of Google Cloud, of powering AI for themselves, for clients, and even, you know, separate independent sales of Tensor Units. I mean, that's become a big thing for them. And then, you know, I've always just kind of loved a company that would go ahead and invest money in Blue Sky Research the way that they did other bets. And, you know, a lot of those other bets haven't paid off. One of my favorites is Makani. Do you remember that one? I don't. That's energy generating kites. I love it. I mean, this is a company, Carl, that's kind of doing everything. You know, I'm thinking back to, well, who is the CEO of Alphabet?

11:15And it's Sundar Pichai. And I was just checking. He started in 2015. I'd forgotten this. But he's been the CEO of this company all the way through, Even though I would say he's not the most easily named or recognizable CEO as big and successful as Alphabet has been. That is true. But boy, he's really presided over an incredible period for the company. Incredible. And I will say that one of those other bets at the time that seemed sort of colorful and interesting is Waymo. And that seems way more than just colorful and interesting at this point. I think they just got valued at$126 billion in their latest round, which is, that's like 3 % of the company.

11:55That's not nothing. Carl, I know you're in the Austin, Texas area. Have you ridden a Waymo? I have not ridden one, but they are a daily part of my life. They are everywhere whizzing around. I see them constantly. And you've not ridden them because you have your own wheels and so you don't need them, or you're terrified of the idea of sitting by yourself in a car that's driving itself? No, no, I absolutely would ride in a Waymo. It just hasn't come up. just because, yeah, when I go down, I just drive myself. Yeah. You know, as I wrote my Rule Breaker Investing book that came out last September, I just thought, is there a more expansive, diversified innovator on planet Earth than Alphabet?

12:35And I think I concluded in the book, there isn't. And I do believe that's a pretty good sign for Rule Breaker investors. When you're looking for the great innovators of our time and you tend to orient your portfolio toward companies that innovate at scale. And yeah, they fail sometimes too, by the way. It's sort of the VC mentality. Carl, I can't think of a more innovative company than Alphabet. I mean, I think that's true. And what I also love about it is that I think it's a great stock for today, right? I mean, over that period, profits have roughly gone up eightfold. The stock itself has gone up roughly tenfold.

13:12So not really that out of balance with each other, especially when you consider that each incremental dollar revenue is worth more now than it was then. It still looks like a great company. All right. We're going to park Alphabet right there again in nine baggers. So a very strong start for this company. By the way, when I closed this sampler out three years after it was picked, Alphabet was up 60 percent. The market was up 40 percent. So it was a market beater, but it has skyrocketed in these seven years since July of 2019. And that's through some really tough times, COVID, for example. Let's move on to stock number two, Euronet Worldwide, ticker symbol E-E-F-T.

13:53So back in 2016, Euronet Worldwide was one of those wonderfully under-the-radar businesses that quietly powered global commerce. It was best known for its vast network of ATMs, currency exchange, electronic payments. Euronet stood to benefit from a Europe where people, businesses and money might have to navigate new borders and new complexities. If Brexit made cross-border financial transactions more important, Euronet was already helping make them happen. So at the time, Carl, I called Euronet an electronic payments company, pointing out that as borders become more important, companies that help people move money across those borders become more important, too.

14:37I also like that it was not a company most people had ever heard of, yet one whose services millions of people were already using every day. Carl, any initial reactions of yours to this stock? I'm just going to give a fun bit of trivia that I guess is maybe going to give away what you're going to say next. But EFT stock hit an all time high on July 10th, 2019, two days before you did your original sampler. All right. So you are reminding listeners that when we picked the stocks and then reviewed them one year later, two years later, and three years later, at the three-year mark, we stopped reporting.

15:17And indeed, I do see it was up 134%. The market was up 40 % at that time, Carl. And it is regrettable. I am regretful now to note, 10 years after I first picked it, here's the performance. Uranette Worldwide has gone from 72 to 77 and change. The stock is up 8%. Over 10 years, it's up 8%. The market's up 248%. So we are hugely behind 240 percentage points with my pick of Euronet Worldwide. Carl, in your mind, what is the greatest reason this company is basically flat over 10 years? Okay. When I say what this company does, I feel like that'll give some away. It's a little unfair. But to paraphrase the graduate, I have one word for you.

16:10ATMs. I think I get it. ATMs are, you know, they were such a big part of life, I think, more so 10 years ago than they are today. I mean, we're not a cashless society, but we're a lot closer to it. I don't handle much cash anymore these days. And I am being unfair because the company literally had a business in stocking, maintaining and having an ATM network. But they do make money on top of that. It's just that what they've kind of done. And the reason, honestly, that the stock is is flat and the business is, you know, at least stable is that they they've actually managed to continue to layer services, essentially on top of a pretty sort of stagnant or even slightly shrinking world of ATMs.

17:00So one of the things they do, it's just I think the problem is what some of those things are. So like dynamic currency conversion. So when you're traveling abroad and at the point of sale, you'll be asked whether you want to have that charged in the local currency or in your home currency. Yeah, I was just in Spain and I got that question over and over. Euronet is counting on you to take the bad deal, essentially. And to be very clear on this, because I did spend a fair amount of time abroad this past year, the correct answer is always that you want to pay in the local currency, Carl. We don't want to do the dynamic currency conversion to, in our case, U.S.

17:41dollars. We want to buy in euros. And it sounds like Euronet is benefiting when we make the poor choice. They do layer on services on top of their ATM business, and that has allowed them to actually sort of grow revenue per transaction and at least kind of tread water as a business. But the problem is that some of those services that they've layered on are not really all that great a deal for consumers. A prime example being dynamic currency conversion. So when you're traveling abroad and you do a point of sale transaction and they ask you, do you want to charge this in the local currency or do you want to charge this in your home currency?

18:20If you choose your home currency, they will do a dynamic conversion on the spot and take a decent slice of it. It's a far worse deal. And my recollection there, Carl, having done some international travel this year is, yeah, that's not the right call. The call is generally paying in the local currency because then you're not triggering a conversion, which then up charges you maybe five percent. And so it sounds like Uranette Worldwide has set itself up to win when I lose, which is probably not a great business dynamic. Yeah, not a great dynamic and also not a very well kept secret at this point.

18:58Yeah. Well, in a lot of ways, I think I'll reflect this at the end as we draw lessons from the sampler. But I'm noting this company, not very innovative. And when we talk about rule breakers, what usually wins in investing for us as stock pickers is when we find the innovator. So let's not spend any more time on YourNet worldwide. I wish I could sweep it under the carpet. I can't believe I love that you check this, Carl. I can't believe it hit an all-time high two days after we stopped covering this sampler, and it's pretty much been downhill ever since. So for now, thus much for Euronet Worldwide.

19:35Let's move on to stock number three, Haynes Celestial. Things are about to get even darker. Haynes Celestial, ticker symbol H-A-I-N, back in 2016, was riding the wave of consumers eating healthier and paying more attention to what was in our food Long before natural and organic became mainstream grocery aisles, Hain had assembled a portfolio of brands serving exactly that movement. With Brexit creating uncertainty around trade and consumer confidence, I saw a business whose appeal wasn't tied to politics so much as just to enduring shifts and how people wanted to live and eat. And at the time, having re-listened, I described Hain as one of the world's leading natural and organic food companies, noted that regardless of political upheaval, people are still going to eat.

20:26More importantly, I believe the long-term trend toward healthier, more natural foods was intact and that Hain was well positioned to benefit from that. Carl Thiel, any initial reactions of yours to Hain, Celestial? Mostly that when you brought up this company, I had not looked at them or thought about them in many, many years. And I thought on the surface that the general trend of people wanting to eat natural and healthy brands was still a pretty strong trend. So I was a little surprised by what I saw. Yeah. And, you know, looking, since we are thinking back to three years after I picked it in our last full howl-up moment for this sampler, things already weren't looking good for Hain.

21:10The stock had declined from 51.5 to 21. So of the five stocks, it was already the dog, Carl, more than cut in half in just the three years we were following it. Carl Thiel, I suppose I should provide the numbers before you tell us what happened here. Okay, I will. Hain Celestial has now gone from$51.54, cost 10 years ago this week, From 51.5 to 57 cents. This stock is down 99 % over the last 10 years with the market up 250. As you might imagine, that 600 points of alpha that Alphabet set us up with to start with, pretty much almost entirely given away by Uranet Worldwide and especially Haynes Celestial.

22:03My golly, Carl, what happened? that's like failed biotech territory i agree with that i mean i have picked stocks that have done slightly worse but never much worse than down 98.9 percent over 10 for a company that i think was on trend and that i like it had a pretty good pass leading up to me picking it 10 years ago yeah well so again just weeks after your original podcast in august of 2016 there was a sort of accounting scandal announced around Hain. And I don't really even think the accounting scandal in the end amounted to all that much. I mean, there was some there was some questions around inventory and allowances for spoilage and some things like that.

22:49And the company did go through like a 10 month period without reporting any figures to the SEC as it sort of messed around with all that. But they ultimately came back and said, oh, it's fine. We don't need to restate anything. But that just was the beginning of a very poor path for the company. And I do want to say one thing in defense of you. I don't know if you remember this, but the old CEO was Erwin Simon. And I do remember you saying way back then that he was not your favorite guy. He was not really a selling point for you as far as the company went. You thought he was kind of a bland numbers guy and not really somebody who was passionate about the business.

23:27I truly had forgotten that. But first of all, I love working with people long enough that we can remember this about each other because, Carl, you and I have been now working together more than 20 years. So thank you for remembering that. And also, I am glad that I had sort of a question mark a little bit around the CEO. It's only been born in on me more and more over the course of the last 10 years how important it is to have people, I think, that are true leaders, people of character, visionaries, smartest guys in the room, if possible, gender neutral statement in any industry, in any stock pick.

23:58And I think Erwin was maybe near the end of his career. And yeah, he wasn't really an iconic mover and shaker for the organic foods movement. He was more of a spreadsheet guy. Yeah. Well, he was definitely near the end of his career after this. He ended up leaving in 2018. He was a numbers guy when he didn't like the numbers. I guess he was maybe a massage the numbers guy. Ouch. But this goes a long way to explaining why the stock was down at the three year mark, but down so much more now is not really anything around the accounting. It's just what came after that. So revenue at this company has not grown since 2015.

24:33Every year for 11 years, they've had shrinking revenue. They haven't turned a profit since 2022. And, you know, that said, when you think about Heinz Celestial and you think about brands like Celestial Seasonings or Greek Gods Yogurt, I mean, these are all things I still see regularly in the supermarket. They're around. They have shelf space. The company still has$1.5 billion in annual sales. They have a$50 million market cap against that. I mean, it is astonishing to note that the company's market cap, this is a game show we play every quarter on this show, is$50.7 million. Five, 0.7 for a company with a billion and a half sales?

25:18Yeah, that's a price to sales multiple of 0.03. The problem is, I think, as I look over the numbers, if they do have a billion and a half in sales, their income is minus 500 million. So they're selling a billion and a half worth of product in order to lose$500 million over the past year, hand over fist. Maybe that explains a tiny, tiny market cap. Yeah, and their strategy of divesting various plans, They had previously been a big acquirer of brands. They were just kind of rolling up stuff, and they've spent the last decade mostly getting rid of it, and it has not turned things around yet. This is a company that has become irrelevant, even though the products are still on the shelves.

26:01And yeah, I like Celestial Seasonings. Salad Dressing, they had some other good brands I appreciated. Sometimes the world and your stock portfolio doesn't play out as you expect, or at least your thesis for an individual stock, And this would be an incredible example of this. This goes down as one of the worst stock picks I've ever made, whether it was for Motley Fool Stock Advisor back in the day or for this sampler. Haines Celestial has all but disappeared. So going to close the chapter on stock number three. We'll come back and share some lessons a little bit later. Did you know three out of four U.S.

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27:37Join 98 % of customers who say their drinking water is cleaner, safer, and healthier. Go to Aquatrue.com now for 20 % off your purifier using this promo code RBI. Aquatrue even comes with a 30-day Best Tasting Water Guarantee. That's Aquatrue.com, Aquatrue spelled without the E on the end, so that's A-Q-U-A-T-R-U.com. And remember to use the promo code RBI, Aquatrue.com. But let's now move on, Carl, to stock number four, and that would be Booking Holdings, ticker symbol B-K-N-G. So back in 2016, Booking was still known as the Priceline Group, a name it would keep until it rebranded in 2018. It was already one of the world's great online travel enterprises.