Motley Fool Review
- Quality of Research
- Track Record
- Quality of Stock Picks
The Motley Fool is arguable one of the most well-known online stock advisor programs. The company has been around for over 25 years and remains one of the most trusted names in the industry. The question is – should you shell out your hard-earned cash for their research? Read this review to find out more.
About Motley Fool
The Motley Fool Stock Advisor (SA) is the flagship stock-picking newsletter published by multimedia financial and investment advisory services giant The Motley Fool (www.fool.com). The monthly newsletter service is still produced by the company’s co-founders, brothers David and Tom Gardner and their respective team of analysts. Primarily implementing a mostly fundamental analysis-based investment strategy with a buy-and-hold investment management style, the SA newsletter picks have generated a 343-percent average return performance compared to the S&P 500 time-weight (TR) return of 80-percent since its 2002 launch. The newsletter has an illustrious history of discovering future high-flying momentum stocks including the “FANG” stocks, which are largely credited for pushing the S&P 500 and NASDAQ to all-time highs.
History of The Motley Fool
Founded in 1993, the Motley Fool grew its popularity through its partnership with dial-up service America Online (AOL) providing content for the investing message boards. The spirit of empowering the “little guy” with the ability to outperform the Wall Street analysts and professionals hit a high note with self-directed retail investors. The combination of humor and humility tempered with compelling research discovering undervalued stocks spawned a community of like-mind followers aka “fools”.
The company eventually migrated to its own website at www.fool.com and a U.K sister-site (fool.co.uk) in 1997 as the world wide web became more accessible courtesy of web browsers and faster internet speeds enabling the mainstream growth of the internet. In 2002, the Motley Fool Stock Advisor newsletter was launched as its first premium subscription newsletter service to great fanfare. The success of SA was parlayed into the rollout of additional premium newsletters including Motley Fool Rule Breakers, Hidden Gems, Inside Value and the Motley Fool Options. The company embraced diversifying into different media channels including publishing many New York Times Best sellers (giving it mainstream exposure), syndicated newspaper, radio and live podcasts. Money management services were launched including Real Money Portfolio which enable subscribers to track the trades of actual real-money portfolios and in-house mutual funds managed by Motley Fool Funds. Motley Fool Wealth Management services provide in-house portfolio managers to create and manage personalized portfolios for clients.
Styles of Trading & Investing
The SA newsletter is a long-term, buy-and-hold fundamental research-based service catering to investors with a long-term outlook. The picks are segmented by Team Dave and Team Tom’s picks and the reasons for investment along with the potential risk and fundamental triggers for selling the position.
These aren’t day trades and most of the research is backed by fundamentals with compelling catalysts that make the picks stand out from their sector peers. Stock picks are long-only recommendations. Management of the entry and exits are solely at the discretion of the readers. However, SA does a great job of listing the potential risks and triggers that would warrant selling the position. This should enable an investor to weigh the risk and reward factor to derive the right position sizing to match their risk tolerance level.
Motley Fool Stock Pick Strategy Components
SA uses a combination of fundamental components to present the arguments to buy a position as well as the counterarguments to avoid the position. I personally like this approach of playing devil’s advocate simultaneously to keep the reader on their toes and not be overly subjective to just the long-only story. Most of the picks are detailed in an interview like manner as both teams lay out the drivers behind their picks. Here are some common strategy components and drivers that help SA shape their decisions in selecting their picks:
Catalysts are the most compelling active factors for taking a position. These can range from upcoming product cycle upgrades and robust product pipeline development to global/macro to industry/sector trends. For example, the China U.S. trade war is perceived as detrimental to U.S. imports, but XYZ stock may benefit from shifting their supply chain early to Vietnam-based manufacturers unaffected by tariffs.
Valuation is a key component used in all SA stock picks. The more under-valued a stock is compared to its peers, the more attractive it becomes if there are catalysts on the horizon. For example, XYZ is trading at only 2X sales and 2X book value (BV) at a forward price-earnings (P/E) of 8, while the industry average is 5X sales and 4X BV and forward P/E of 15. If a metrics are truly comparable, then the undervaluation premise becomes compelling. For example, a company trading under its cash-per-share (CPS) value with zero long-term debt and five-percent year-over-year (YOY) top-line growth would raise the (under) valuation premise to the top for investment consideration.
Overreactions on unexpected fundamental news may present short-term buying opportunities assuming the trigger is a temporary event. For example, XYZ stock plummets 20-percent on a top-line earnings miss. However, further investigation reveals the miss was based on expected large contracts closing three-days after the end of the earnings period. Meanwhile, the company maintains its original sales forecast and raises EPS full-year guidance. In this case, the market overreacts on a temporary short-fall in revenues that will show up on the next quarterly earnings report.
Trends within sectors or macro and global markets are taken into consideration. These trends can be a combination of cultural, social and/or business. For example, a monetary tightening policy and Fed balance sheet unwinding could impact mortgage rates and the housing sector, therefore investors should look to avoid or trim real estate investment trusts (REITs) in their portfolios. Trends can also include regulatory and legislative rulings and trends like the crackdown on social medial privacy policies.
Themes are a strong component of stock recommendations. For example, while crypto currencies may have been a bubble, the core blockchain technology is being adopted globally. Stock XYZ is a ‘trailblazer’ pioneer that established several key business blockchains with major corporations early on and worth investment to ride this theme. Momentum can also fall into the themes as well as trends components as it describes accelerating velocity in price appreciation usually anchored to theme/trend (IE: FANG stocks).
Financial Metrics are always a key component of analysis. Whether based on valuation, forward growth forecasts, debt-servicing or free cash flow analysis, the financial metrics paint a picture of the stability of the enterprise. SA stock picks usually have strong leadership positions with solid financial metrics, unless it’s a turnaround situation with stronger catalysts and deeply undervalued. Any combination of the drivers will add or take away from the decisions to buy or sell the stock in question. Long-only strong balance sheets, value and catalysts.
Motley Fool Stock Advisor Pricing Options
The Motley Fool Stock Advisor service ‘normally’ costs $199 per year, which is the regular rate. A yearly prepaid plan is available for $99. This comes with a 30-day 100-percent membership-fee back guarantee.
The monthly membership is available for $19-per month, no money-back guarantee. All memberships have recurring auto-billing per period unless cancelled by the user.
Membership to SA service includes: two new monthly stock picks from David and Tom Gardner, one monthly stock each. The 10 “best buys now” stock list monthly as well as 10 starter stocks for new portfolios and access members-only Motley Fool Stock Advisor community enabling engagement through message board forums with members and the Stock Advisor team. Also included is full-access to the SA investment library which includes every archived issue of SA, with the average pick gaining 371-percent since inception.
What Type of Trader is Motley Fool Best For?
This service is best suited for fundamental-research heavy, self-directed investors with long-term portfolios. It is not suited for day traders since the stock picks are heavily reliant on fundamental analysis. Prudent swing traders may use the stock picks and research to find ideas and time trades using technically analysis triggers.
Is the Service a Good Value?
The $99 annual plan is a very good value for investors. The access to the community and the performance of the stock picks gives it a compelling value proposition. Each monthly issue is packed with compelling ideas.
- Solid history of consistent performance and research format
- Moderated members-only message boards have intelligent posts without spam
- Fundamentals-based investors gain the most from the content and presentation of bullish and bearish components of the monthly picks
- Motley Fool analysts update recommendation changes on their picks
- Great introduction to portfolio building and investment research
- High quality
- The non-stop flow of other Motley Fool product offerings can get overwhelming
- Technical analysis-based traders may not find the content timely or tradeable