Motley Fool Review
- Quality of Research
- Track Record
- Quality of Stock Picks
In this Motley Fool review, we do an in-depth analysis of the Stock Advisor service. The Motley Fool is arguably 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?
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 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. This is a considerable performance when 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. Read our Motley Fool review to see if the Stock Advisor program is a good fit for you.
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 investing site 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 and financial advice 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 service is similar to GuruFocus and IBD, with many great features for new investors. The stock market 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.
During our Motley Fool review, here are some of the common strategy components and drivers we noticed:
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. Motley Fool stock market picks consist of both large cap and small cap stocks. 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 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.
Motley Fool Review – Additional Benefits Considered
Most Stock Advisor subscribers sign up specifically for the stock picks. It’s a strong value proposition. For less than $20/month, you can get access to stock market picks that have the potential to make back 100x your subscription cost. Better yet, these stock picks don’t have added fees like mutual funds. The Stock Advisor Program comes with a few additional benefits.
The Stock Advisor Members Area provides access to some top-quality investment education. This is valuable for investors who want more than buy and sell alerts. Investors can learn about the strategies Motley Fool uses to make their stock recommendations.
Stock Management and Alerts
Stock Advisor members can create their own portfolio of stocks, similar to a watch list. They can analyze the performance of the stocks and receive alerts for buy/sell alerts and significant price movement in their stocks. The functionality here is simple, but it’s a nice addition to the service.
You can add your own favorite stocks or add stocks to your “Favorites” after reading a Stock Advisor report.
Stock Advisor Community
The Stock Advisor members section is home to an online message board where investors can discuss different investment ideas and strategies. I was expecting this area to be relatively quiet, as I’ve seen many failed attempts to create message boards. I was pleasantly surprised to see that the boards actually have a decent amount of activity. They’re not as active as InvestorsHub and other similar sites, but it’s a nice feature to add to the program.
Motley Fool Special Reports
The Stock Advisor program delivers a couple stock recommendations every month. On top of that, Motley Fool will also issue special reports when there are unique opportunities in the market. These reports may be based on recent short-term trends in the market and provide additional opportunities for investors. These reports may also include investment guides that help investors improve and expand their investment strategies (such as lessons in options trading).
Is Motley Fool Trustworthy?
By this point in the Stock Advisor review, you should have an understanding of the services offered in the Stock Advisor program, as well as an understanding of the Fool’s basic investment strategies. The next obvious question is, “is the Motley Fool legit?” The company talks a big game, with bold marketing and claims of outperforming the markets. Do they deliver? Here are a few things we took into consideration:
The Fool’s Track Record
The first, and most obvious, point we analyzed during our Motley Fool review was the company’s track record. This is the most important metric to look at when analyzing any investment research firm. We wanted to see if Motley Fool delivered on their promise to outperform the market. We are happy to report that the Motley Fool Stock Advisor program has a strong track record of optimal performance since their launch in 2002. In fact, we personally spoke to a few investors who have been using the service for years and have achieved great results.
You can find a record of the Fool’s performance on the chart below:
As you can see, The Stock Advisor program beats the returns of the S&P 500 by identifying stocks and sectors that are outperforming. They make this clear in their marketing, but they also lay out all of their stock picks (both winners and losers) for you to analyze yourself. This leads to the next point of transparency.
The Stock Advisor program provides full transparency into stock recommendations, the rationale behind the recommendations, and the performance of the recommendations. You can navigate to the “Performance” page of the members area to see every single stock recommendation the company has made since 2002. You can view a data table that includes:
- The stock recommendation
- The recommendation date
- The risk score for the recommendation
- The recommended buy price
- The returns of the stock
- The returns of the stock relative to the returns of the S&P 500
In the spirit of full transparency, this list includes both winners and losers. Since inception, here are the returns:
- Tom’s Stock Picks: 143.6%
- David’s Stock Picks: 499.4%
- S&P 500: 81.2%
It’s clear that Motley Fool outperforms the market (with David’s picks returning exceptional gains).
The company will also add a disclaimer if anyone involved currently holds a position in the stock they are recommending.
Furthermore, Motley Fool will issue reports and alerts when it’s time to sell a stock.
Quality of Investment Research
Motley Fool’s transparency is evident in the research provided. The research is thorough and unbiased. Motley Fool reports don’t simply “hype” a stock; they present the full story. The reports include information on the companies performance, sector performance, upcoming catalysts, and the risk level of the recommendation. The reports even address counterarguments to the Fool’s recommendation on the stock.
Some of the reports make recommendations for stocks you may be familiar with (such as FANG stocks that have been outperforming the market recently), while others uncover hidden gems. The reports are well-researched and thorough.
What Type of Trader is Motley Fool Best For?
Motley Fool’s Stock Advisor service is best suited for fundamental-research heavy, self-directed investors with long-term portfolios. Prudent swing traders may use the stock picks and research to find ideas and time trades using technical analysis triggers.
Overall, the service is very easy to use. It’s non-intimidating for new investors while still providing great value for experienced investors. The service is great for investors who want the research done for them. Motley Fool does a great job of identifying unique investment opportunities and providing high-quality research reports. This doesn’t excuse investors from doing their own basic research and risk management, but it can make it a lot easier for investors to find better stock picks with minimal work.
Is the Stock Advisor Program a Good Value?
Last but not least, let’s discuss the value of the program. At $99, it’s hard to go wrong. The investment research is high-quality and the subscription fee can be recouped with a single good trade. Subscribers get instant access to a wealth of resources, including both research reports and educational materials.
We highly recommend choosing the annual plan over the monthly subscription due to the price difference ($99/year vs. $19/month). Every month, Tom and David Gardner continue to put out high quality research reports packed with compelling ideas.
If our Motley Fool Stock Advisor review didn’t cover any information you were expecting, don’t hesitate to reach out to us directly. Feel free to leave a comment below or reach out via the contact page.
- 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