The Canadian Investor - 10 stocks under 10 billion to add to your watchlist

Episode Date: August 16, 2021

In this episode of the Canadian Investor Podcast we discuss ten companies under 10 billion in market cap that are worth adding to any watchlist. Those companies are Redfin, Equitable Group, Docebo, Topicus, Innovative Industrial Properties, ANGI, Fiverr, TMX Group, Lemaitre Vascular and the Descartes Systems Group Tickers of stocks discussed: RDFN, EQB.TO, DCBO.TO, TOI.V, IIPR, ANGI, FVRR, X.TO, LMAT, DSG.TO Getstockmarket.com Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital See omnystudio.com/listener for privacy information.

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We are doing 10 interesting companies under $10 billion in market cap. I'm Brayden Dennis, joined by my co-host as always, Simon Belanger. Simon, we have five each that we're going to do today. We said, what are 10 interesting companies? And we are putting a cap on it of 10 billion in market cap. We have a good mix, like 50-50 of Canadian and US equities. So it's a great list for the podcast here today. Simon, how are you doing? And then feel free to kick us off. I do like the companies you have picked here and let's get to it. Yeah, yeah, I'm doing well. Excited to get started on that. I think we came up with this idea because we've been, like we mentioned on the previous episode, a lot of people asking about these like penny stocks and things like that and seeing that people are interested in smaller cap companies

So these 10 companies are definitely smaller and they're very interesting Like we always say make sure you do your own due diligence because this is just an overview of each company The first one I'm going to start off with is Redfin. So for those who have not heard of Redfin before, it's a real estate technology company. At a high level, they do residential real estate brokerage, where they really differ from traditional realtors that their agents are paid by salary and not commission. So they are full-time employees. They can get bonuses, but it will usually be based on the volume of transaction that they do, not necessarily the price like a traditional broker.

And that's always been my pet peeve with brokers personally because I find that even though they have code of ethics to follow, it's, yeah, the incentive is a bit out of whack. I know like if we have real estate agents, I know there's some good ones out there. So I'm not saying they're all like that. I'm just saying the incentive for the realtor is oftentimes, you know, the more they can get, whether they're representing the buyer or seller, you know, there's a strong incentive for them financially. Now, Redfin has a market cap of about $5.8 billion right now. They do have some debt on the balance sheet. It is, however, some convertible debt.

I couldn't find. I know it's in their annual report, but I couldn't find the convertible share price. But something to keep an eye on. They do have a decent amount of cash on the balance sheet 735 million they have they don't have a high gross margin for this company so it's only 26% but it is because of the nature of their sales they do obviously have Commission that they will get when they do sales, the company itself. So they tend to do about 1% commission for the sales, but they also will purchase houses from customers and resell them.

So obviously the gross margin on those is much lower. They were free cash flow positive for 2020. For the full year of 2020, their revenue increased 14% to $886 million. They have, like I mentioned, different types of revenues. The main three are in order brokerage revenue, then the properties revenue, and the partner revenue. So partner revenue is when they refer some business to another realtor that's not necessarily part of Redfin. So they will get a referral fee for that. So in order, it's $607 million for the brokerage revenues, $209 million for the properties revenues, and $43 million for

the partner revenue. They did have some other revenues for just some smaller items as well and they have a compound annual quote rate of 31% for their revenues. So just some other highlights so they help customers buy or sell more than 310,000 homes worth more than 152 billion through 2020. This again is mainly in the US but they are present in Canada as well. They are not present in every state in the US so that's something to note they save customers nearly 1 billion when compared to a 2.5 Commission rate like I mentioned they tend to have a 1% rate they drew more than 42 million monthly average visitors to their website and mobile application in 2020 that's an increase of 28% compared to 2019 they had customer returned to to them for another transaction at a 54%

higher rate than competing brokerage and so those are just some of the highlights I won't go through all of them and then the last thing I did and I did this for most of the companies I had a quick look on Glassdoor. And I would say their CEO is pretty well regarded, Glenn Kelman. 88% of employees approve of the CEO. Pretty big samples of close to 958 reviews. And 73% of them would recommend Redfin to a friend. And the last reason, it is attractive, especially in the US for brokers,

because they offer health benefits. So we know that it's private insurance over there. So there is some attractiveness to being an employee there versus the lumpiness of being a realtor. This is one of those businesses that you look at it and you go, isn't this a tech company? Why are the margins so crap? And then you remember that, you know what, it's one of these companies that are disrupting mature markets. And it is not a pure play technology company, but it's one of these companies that have brought technology into an existing market and changed the way that consumers interact with that market. And Redfin's a perfect example of that. So you're not going to see those 90% SaaS margins on this thing, but they are in a market that is old and inefficient and ineffective, which is buying and selling homes.

And you brought up a good point with the incentives, right? Is poorly aligned incentives cause really good people to do bad things, even when they have great morals, whatever it is. bad things, even when they have great morals, whatever it is. Incentives are one of the most powerful structures of how humans behave. So I'm glad you brought that up. Yeah. And the last thing I forgot to mention is they roughly have 1% of the US market. That's a 2020 figures. So there is room for growth over there. So that's something to keep an eye on too. Yeah, it's a huge total addressable market. All right, moving on. Another company innovating in an old mature space trying to grab some market share from the big incumbents, which is Equitable Group. It is 2.6 billion in market cap on the TSX. It is $2.6 billion in market cap on the TSX.

I bought this stock in April of 2017 as it fell 50% in one week on news that their competitor, Home Capital Group, had some sketchy activity going on in their books. There was a big shuffle of the management team. Warren Buffett threw in $2 billion as a lifeline to Home Capital. Fun fact. And since then, my shares are up 320%. And I haven't done anything. And I don't typically do deep value. But this just seemed like, you know, a fat pitch that the market was so wrong about. And so Equitable was this business doing much better. They have a much better balance sheet.

They were growing faster. They're benefiting from this housing market. And they were building Canada's first digital-only bank called EQ Bank. And it is still so cheap today. So EQ Bank is an absolute beast. They're growing deposits at a hell of a clip. So when we talked about high interest savings accounts, EQ Bank has gained a lot of market share here in Canada.

They have now 300,000 Canadians on their platform, which is up 79% year over year and 220,000. Sorry, sorry, up 220,000. And deposits are up 99% to six and a half billion in deposits. Digital transactions are up over 100% year over year. And so this digital only bank is grabbing a lot of market share quite very quietly. And they have had very consistent growth over the last 10 years. 15 plus percent on earnings per share, recently reporting over 30% in earnings growth on their latest report. And this is not bad for a bank that trades at a discount to the big banks at only nine times earnings right now. Management in 2019 was guiding for 25% growth on their dividend per share until 2025. However, all banks were forced to stop doing buybacks and dividend hikes,

which is going to resume shortly. So I expect some good results coming out of the banks very shortly. And this company as well, buybacks and dividend hikes can resume soon. So here's a chance to get an innovator skating to where the puck is going in digital banking at nine times earnings. And I do hold the shares. I've never added to the position. I've just basically done nothing with it. But it's one of those companies that, you know, it's too small and the profile of risk is too high because of the type of lending they're doing to all institutional buyers. So that's why it trades so cheap for something growing at earnings at 30% year over year very consistently. So that's equitable. You made me laugh when you mentioned a high interest savings account though

it's uh what paying 1.5 it's crap it's crap i mean that's the term they all use so i'm obviously it's nothing against eq bank it's just it's industry leading though right like yeah they can't just go ahead and give you outrageous high sell rates when interest rates are so low that's it it's just a term just kind of makes me chuckle when it's barely more than one percent but i digress change it to a lisa low interest savings account exactly so now uh my next name it's uh dochibo which is a company we talked about i think last year around this time if i remember correctly that's right about right um so we had done a bit more of a deep dive in them. So just

as a refresher, what they do, so they're LMS, so learning management software, where they differ from some of the software you may have used with your own employer is they tend to blend kind of a formal social and experimental learning with some AI as well. So they've really seen that organizations are valuing that more and more. And obviously with the pandemic, you can see that it's really important to have a good LMS system when it comes to your learning and development in-house. So Decibo has a market cap of $2.16 billion. That's in U.S. dollars. I kept that in U.S. even though it's traded on both the TSX and in the States.

The reason why I kept it in U.S. dollar is their financials are all done in U.S. dollar. So it's just easier to do it that way. They had revenues of $62.92 million in 2020. And for the most part, I'll be using 2020 figures throughout this. I may mention some Q1, Q2 figures as well, but I do like to look at things on a full year basis because it gives you a full picture. For the revenue, it's compound annual growth rate of over three years of 24%, so growing quite quickly. Gross profits margin of 82% no debt on the balance sheet $217 million in cash as of March 31st 2021. Further revenues in Q1 of this year versus Q1 of last year $21 million versus $13 million so almost a double. there has been some share dilution but nothing too extreme nothing to be that i would be concerned about personally and they are free cash flow negative of a bit less

than 4 million last year and it is not trading cheaply it's still trading at 30x time sales based on 2020 numbers i'm not trying to project here what their numbers will be in 2021. Just so I don't get anyone saying like, oh, well, this year they're on track. No, it's just based on 2020 numbers. And in terms of their Glassdoor's review, very similar to Redfin in terms of the approval for the CEO. So pretty big sample. 94% approve of the CEO, who is Claudio Urba, and 79% would recommend the company to a friend. So it sounds like it's a great place to work. Very, I think,

fast paced moving environment, some of the comments I had seen. So for those interested in a smaller, fast growth company listed in both Canada and the US. The Chibo is an interesting play, but I will mention this before we move on to your next name, Brayden. It is very richly valued, so this one will be extremely volatile. So if you start a position in them, don't be surprised if you see 10, 20, 30, 40% swings. I wouldn't even be surprised 50 percent swings to be honest in the share price here yeah good point good point to mention anything you know super richly valued in a space that the market likes which is remote learning high margin software but you know what so last time we talked about DeCibo on the podcast, we had people from DeCibo reach out to us and they sent a little video about how to save the company.

And it was so cute and it just seemed like a pretty good culture over there. And Claudio Urba, the CEO, has reached out to me on Twitter a few times. We really got to get him on the show. He's an Italian guy who lives in Italy. And then this business is listed on the NASDAQ and on the TSX. But a really interesting culture just from the quick take of listening to the employees and Claudio as well. So it's one of those businesses where if it's this richly valued, this small and this growing this fast, you like to see that the founder is still in charge and has lots of skin in the game.

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blossom social in the app store and I'll see you there. All right, talking about companies with lots of skin in the game, Topicus. Topicus is 4.35 billion in market cap on the TSX venture. So that is TOI.V because it's on the venture. So Topicus is a mini Constellation software. Constellation software owns a significant portion of about 30% and has 50.1% of voting rights of Topicus. I did misspeak last episode. I said that they own 50.1% of Topicus. That is not correct. It is a significant amount, but it's not. It's 50.1% of the voting rights. So Topicus was a spinoff of CSU in January. As I explained last episode, shareholders of CSU were given shares of Topicus at $62 per share. Today, they trade for $110. They officially started trading in February,

and they're up 74%, and it's only August. So this is starting to feel like CSU 2.0 in terms of returns. Okay, now here's where where things get interesting and i'm not going to talk about uh you know how fast you're going and this this kinds of stuff because we've talked about topic is a fair bit and you can look it up but i do want to talk about this from the perspective of constellation shareholders and where things get interesting is that Topicus is if Mark Leonard, the founder of CSU, who is this bearded wizard billionaire Canadian who no one knows about, there's like three photos of him on the internet, and he has pressed the reset button to build another empire here with Topicus, but now he's able to leverage everything he knows and

everything he's learned through building this $45 billion in market cap company. So it's the CSU 2.0 that Mark has discussed in his latest president's letter, but with a lower capital base, which is also an obvious advantage. They're able to do bigger deals. They're not going to bother with the dividends because they can get you way better returns than if they're to to do bigger deals they're not going to bother with the dividends because they can get you way better returns than if they're to pay that out via to shareholders they have much better organic growth and they have big brother constellation software to help with deals they're able to provide capital to do larger deals they have the same decentralized merger and acquisition organism that deploys capital at a ridiculous efficiency. It's quite impressive to see how long they've been able to

do this for. And I own shares of both. I was given shares from CSU and I've bought more shares on the open market. When we were talking about incentives earlier, Mark Leonard and Constellation, their superpower is understanding incentives. And that's why they have this decentralized M&A organism. And it continues to get it done. I'm going to own it for a long time to come. And that's Topicus. A good breakdown. I mean, I know it mostly by you, i'm just gonna i'm gonna take your word for

that one you you know it because i talk about them every single episode yeah exactly so now on to my next name i've talked about this before i think i was towards the end of last year so innovative and innovative industrial properties innovative is a word innovative innovative really struggle with yeah yeah it's just the way it's pronounced uh like when there's words that you can say both are very similar in french and english that's where it messes me up what word is similar uh i mean innovation oh oh in terms of like yeah yeah oh it's french okay yeah yeah yeah that's usually the words i i struggle with a bit more um so uh their ticker is is iipr um they are reet although they they target the marijuana or um

cannabis license market in the u.s they have a market cap of 55.5 billion. This is a company I should have bought when I talked about it because they have been on a roll. It is quite interesting to see how they do it. So I'll go over that. First of all, they have triple net leases. So triple net leases, for those who are not sure, is when a tenant is responsible for most of the costs on top of the actual lease. So they're responsible for structure maintenance, property taxes, insurance premiums. So these are just things that the tenants would be responsible for and they tend to be very long-term leases as well. Their strategy is they do a sell lease back strategy, which ideally they kind of have this on their website. So they tend to

target deals of $5 to $30 million. There has to be additional expansion capital available. They'll do lease terms of 10 to 20 years. So essentially they'll target a company who owns a building, they'll buy it from them, and then they'll lease it back to them. So that's how they do it. The initial base rent is usually 10 to 16% on the total investment. There's an annual base rent escalation to 3% to 4.5%. So it does increase over time. They require security deposit and corporate guarantee based on credit underwriting and the transaction timeline usually they'll want to be closing it within 30 to 60 days from sign purchase and sale agreement so that's really their big strategy you think they would have a lot of debt

actually they do not have a lot of debt they tend to finance it through share issuance so when you look at their annual statement, it's a bit out of whack. You'll see the increase in share is really, really high. So just for context, they went from 3.5 million common shares in December of 2017 to 24 million in December of 2020. So that's like a 6, 7, 7x right there. So that's close to that's also close to a double in the share count just from 2019 to 2020. However the revenue for 2020 was $116 million versus $45 million in 2019. So you're seeing that they're actually increasing the revenue faster than that share count. That really what's important the AFFO so

adjusted fund from operation this is a metric that is typically used in REITs I won't go into too much detail but it's it's a good representation of their revenue and kind of adjust for some of the lumpiness that they might see especially if they for example would sell a facility and then buy a new one and things like that so the AFFO per share that's diluted so with the share dilution was five dollars in 2020 versus three point twenty seven in 2019 so that's a really important and metric in this specific situation I don't love usually the share metrics but for them it really applies very well because of that share dilution you want to see how much it is per share. The

dividend per share was $4.47 in 2020 versus $2.83 in 2019 and if you look at their dividend increase and I say dividend but it should be distribution it's pretty amazing just looking at it per share it's crazy how much they've grown it over the years and they have a roughly 90 payout ratio which is fine for a REIT because they do have these triple net leases over a long-term period of times with rent escalation every year. So that's not an issue on my end. Not seeing 90% there makes total sense. And Q1 of 2021 and Q2 of 2022, sorry, Q1 of 2021 and Q2 of 2021 at dividends of $1.32 per share and $1.40 per share. So they're definitely on track to grow the dividend again

this year compared to last year wow uh interesting what they're doing i'll give them i'll give them an innovative for sure and uh i can't believe how much the dividend and like revenue per share has increased when they're diluting at this rate um and you mentioned that payout ratio. I mean, they're a REIT, right? They got to pay that out to be a REIT to begin in the first place. This is a perfect example. And my last one, number 10 on this list, is a perfect example of what you're seeing here, which is don't go for the competitive commodity space of weed growers. Just buy the ones that are selling the properties to the weed growers, right? Like that's been the better model so far.

And it's been the better model in a lot of industries. And my last example, I think, is a good example of that as well. Yeah, and what I like is they seem to have found really a niche and they look from all I can see is they seem to be executing, executing really well when it comes to that. So, um, I mean, look, I think they, now they have definitely a decent track record. So it's, it's one that I'm definitely interested in for more of a dividend play. Uh, but their stock has performed quite well in capital appreciation as well. Simon, we are on the sixth one here. We've passed halfway, but just selfishly, can you explain triple net lease again?

I know you said it the first time, but I'm trying to wrap my head around this, and I don't know this term. Yeah, so triple net lease is just an easy way. Like I know you said it the first time, but I'm trying to wrap my head around this and I don't know this term. Yeah. So triple net lease is just an easy way. So there's different type of net leases. Triple net lease is really when the tenant is just responsible for pretty much almost all the maintenance and so on of the property. So let's say if I rent you a house, for example, usually if you rent your house or an apartment to someone, utilities might be included. They might not.

You're the owner. You're responsible for property taxes. You're also responsible for the maintenance. Whereas a triple net lease, the tenant is responsible for structure maintenance, property taxes, insurance premiums. So it's really, it lowers the risk on the owner's part. So for example, Store Capital Group, that company that Buffett owned, it's also a triple net lease. Got it. Okay. Thank you for that clarification. Because I know you said it through the first time. I'm like, wait, what?

So thank you for that. Yeah, I said it, but that's okay. They were confused with my accent. They got to relive it. Exactly. All right. Next on the list, Angie Home Services, $5.4 billion in market cap on the NASDAQ.

Angie, which is ticker Angie, A-N-G-I. They own home services marketplaces. They own Travo, MyHammer, WorkSpot, MyBuilder, Homestars, and Instapro names. Homestars is the one I know. I don't know the other ones. Maybe Homestars is bigger in Canada. I don't know any of them. You don't know any of them?

I know Homestars, and I've seen their trucks. And I even, I even know buddies that use it. Anyways, as of December 31st, 2021, it had a network of 208,000 service professionals. So that's on the other side of the marketplace. These are actual service professionals, trades people, you know, carpenters, plumbers ready to perform work. So it's Uber for contractors. And that's the niche they're filling. All right, they have had revenue growth of over the last five years average of 38.49%. So the revenue over the last five years has been excellent. The gross margin is 85.7% because it truly is just the marketplace. And here's the kicker.

It trades at 0.5 times sales. And you're like, what's going on here, right? And so I need to dig in more. I'm going to be totally candid on the podcast. Why is this thing so cheap? And I've noticed that it's so cheap it meets all my screens. And I think it has something to do with their spinoff from IAC. Like this used to be part of Interactive Corp, who has done tons of spinoff, you know, they spun off Angie, they spun off Match Group, which is like the Tinder owner. So this stock is very undervalued on the surface

for something and growing this fast and benefiting from secular trends. So it's this group of marketplaces for homeowners, for contractors to find work, and the other way around because it's that two-sided network. Now, like I said, I am familiar with Homestars, and I know buddies who are carpenters, my cousin, a couple other buddies from school that are carpenters. They build fences. They build stairs for people. By the way, it has been an incredible few summers for them, as we know. Like that needs no introduction.

And it fills some gaps if they're not going directly to jobs that they found on their own. It fills in some gaps in their calendar on Homestars if they find some jobs there. So marketplace businesses are awesome. And this is a perfect opportunity in this market, for my opinion, where technology is connecting service workers and prospective customers. It's growing fast. It has this interesting structure, this legacy spinoff type thing. It's really cheap. If you look at a stock chart of it, it's really flat for a long time. And so something has to give in terms of some sort of catalyst for shareholders in this. I know a lot of value investors just love this name because

some catalyst is going to pick up and there's going to be some expansion on the multiples at some point, like unless I'm blatantly missing something here. I mean, this is the growth is incredible and it trades at halftime sales. Yeah, no, I mean, uh, like I said, I, I don't know the company really. Um, but it is definitely something that sounds like it should have some pretty big tailwinds. So anyone looking to invest in them, you'll probably have to figure out why they're, they're,

they're trading so cheaply. I tweeted today. Like what, what am I missing? I'm trying to do some diligence. And usually won't IAC kind of spin them off when they, like they believe Dave can extract a lot of value. Exactly. Anyway. Yeah. Oh, well we'll and we'll see yeah if anyone left with nothing he's literally left with nothing

it's just like chills at 10 billion market cap i don't even know what's part of the company anymore um so my next choice we did talk about this platform before fiber Fiverr, the ticker is FVRR. So it's a platform for freelancers. So anyone can book a freelancer through the platform on demand. It was originally founded in Israel. Now it has a market cap of $6.1 billion. Of course, there's been huge tailwinds for them with the pandemic, a lot of pulled forward growth.

One of their main competitors is Upwork. Oh my God, Upwork. There you go. I just had a blank for a second. This happened last time we talked about Fiverr. Yeah, so it's Upwork. So they have revenues of $189 million for 2020 versus $107 million for 2019. Q2 revenues for this year increased 60% year-over-year. Their projections is that it should increase 30% to 38% for Q3 year-over-year. If you look at their stock chart, you'll probably notice that it took a pretty big nosedive in the last couple weeks. I would venture to guess that it's because pretty big nosedive in the last couple weeks I would venture to

guess that it's because of that deceleration in revenue increases and I know that management is basically saying yeah people are going back outside more they think there's probably going to be a bit less demand compared to what was happening with the pandemic for Full year projections of 48 to 52% increase in revenues versus last year for about 280 million in projection. Like I mentioned, bit of deceleration. Their gross margin are pretty fantastic. So 83% gross margins. Free cash flow positive in 2020. So that's always interesting for companies that are still small and growing quite quickly. Something I love to see for companies being free cashflow positive or at the very least very close to it.

And then there is some debt on the balance sheet through convertible notes. I forgot to put the numbers, but I remember it wasn't too big. And again, I went on glass doors just to have a look the ceo mika kaufman is uh very well rated 95 91 percent approve of the ceo and 88 percent would recommend the company to a friend so these are very good uh reviews and there's a large sample size as well there are some great israeli tech entrepreneurs out of tel aviv that they've been producing lately and fiverr is a good example of that now you brought up a what's that you said that and then i just thought about adam newman oh you're right the we work guy

i listen to a podcast about him the other day it was uh what a bizarre story adam newman from yeah anyways no sorry i just i digress no you're you're right i mean adam newman what a like polarizing character he is anyways uh this is an interesting company and i've used fiverr i've used it a couple times. And I've, I've gotten graphic designers from this last guy he was from Poland, he did a great job. And it was like, this aha moment people have, and it's this freelance economy that I'm talking about, like with Angie, right, they're benefiting from this freelance economy, which is connecting consumers and service workers on this two-sided network. So it's a great idea. The thing that has caused me to not invest is I don't like the platform. I don't love the product. Like I love being able to be connected to these people who do great work for such a cheap price, but I don't like the UI. I don't like the UX. It's kind of weird when you search something, there's no real way to know if you're getting a good deal or the product's good

compared to the like 30 million other people who do the same job of graphic design on the site. the like 30 million other people who do the same job of graphic design on the site. So I just haven't quite figured that out, like what makes the product great. But if I was able to answer that question, or they changed it, or they made it better, which they very well could, I might be interested in the business. Yeah, if I were to, you know, to dab my toes in that space and start an investment i probably just would do a small position equally weighted in fiverr and upwork they're really the two market leaders there um i haven't looked at upwork recently but that's probably the approach i would do upwork's a little different like five fiverr is um you have a job so what they're called gigs. So you say, I want to do this graphic design gig. So you'll find someone on there and you pay them and then they do it. You're allowed a couple

revisions, they deliver the work. Whereas Upwork is connecting you to freelancers. So it's connecting you to the person versus connecting you to the specific job that's the that's the main nuance i've seen between the two platforms and i kind of like connecting to a freelancer because then they'll be it'll be easier for me to hire them and they get again in the future it reduces some of that friction versus going ahead and ordering their gig again if that makes sense. Yeah, fair enough. Yeah.

I mean, they still very, very closely. It's very similar. In terms of market. That's why I think for me, it would just be you do the basket approach. I mean, I'm sure there's competitors, but to me, they're the two biggest name in this space. So that's how I kind of see it.

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learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the App Store and I'll see you there. Number seven, I was talking about earlier about how there's, you know, what was your example? I was like, oh yeah, an innovative industrial property. It's like, this has been a better stock to own than any of the weed producers lately. They're the ones, you know, renting out the space for the weed producers. TMX group ticker X on the TSX,

7.8 billion in market cap. Why dig gold when you can sell the miner's shovels? Why buy airline stocks when you can buy the airports? The exchanges, which is TMX operates, the Toronto Stock Exchange and the TSX Venture, has been an awesome business. Lots of public listings lately, lots of trading volume, and the exchanges have really wide moats. Check out the stock chart for the public listing of NASDAQ. It's beat most of the names inside the NASDAQ 100, which is kind of ironic. I'm a big fan of these extremely wide moat financial service businesses that have been dominant for decades and successfully pivoted and benefited from technology. These are these old businesses, yet they've been benefactors of a shift in technology because their margins have

actually improved while providing their same super wide moat business. So look at S&P Global, ticker SPGI, they manage the S&P 500 index, or Moody's Corporation, these companies have super wide moats. They hold the power of credit ratings that can make or break any company by just upgrading or downgrading their debt. Even countries, they can influence a country or a company's ability to raise money from debt markets overnight, which is kind of crazy to think about. So as for TMX, the TSX Venture and the TSX itself have been great assets and they're growing really well and they're pretty much impenetrable. I can't really think of a disruptive force here. I honestly can't think of one. It's steady as she goes. You're not going to see some groundbreaking growth, but it gets it done. So the exchanges like TMX,

ICE, which owns the New York Stock Exchange, or NASDAQ, who of course owns the NASDAQ, have been some of the best stocks around and many people don't even know that they're publicly traded go check out ice or nasdaq stock like throw out a 10-year chart on that thing and it is one of the best looking compounders uh you can find yeah definitely they've they've benefited a lot for um like intercontinental exchange from derivatives to futures and stuff like that, that kind of trading. Like the high frequency stuff? Yeah, exactly. Clearing houses?

That's it. So no, very interesting pick. I've had my eye on a very long time for TMX, never pulled the trigger. It's not going to be earth shattering stuff, right? It's a slow growth stalwart type business. Yeah, that's it. So now on to my next name. I know you did not know this one before I brought it up. I still don't. This is my first time hearing of it. So hit me up here. So it's called Lemaitre Vascular. I'm sure I'm pronouncing it incorrectly, but I'm going to use my French pronunciation because it is a US-based company. The ticker is LMAT. So Lemaitre Vascular is a global provider of medical devices and human tissue cryopreservation, which is basically putting things at a very low temperature to avoid deterioration. The services

are largely used in treatment of peripheral vascular diseases and stage renal disease and to a lesser extent cardiovascular disease. About 80% of their products are used by vascular surgeons and they tend to operate, and this is straight out of their annual report, they'll tend to operate in low rivalry niche segments. That's exactly what they look for. So they want to produce product or service, well, it's typically products that have 200 million in annual worldwide revenue. The reason why they target that is they know that large medical device manufacturers won't target these niche markets because it's just not worth it. If you have a Johnson & Johnson, for example,

or pick your large medical device manufacturer, $200 million in annual revenue will not move the needle for them. They won't even care. So they just don't go to those markets. So they strive to be some of the top performers in these small markets or have the most market share. They have a direct sales force and they're a bit of a growth through acquisition. And to a lesser extent, they do as well are in the in-house. So the numbers look like they have 1.23 billion market cap. Again, this is all USD. like they have 1.23 billion market cap again this is all usd revenues 129 million for 2020 if you look at their chart it's actually remarkably consistent it's not going to be a crazy grower but it's like steady as she goes i did not see any kind of dips for covid19 compared to previous

years just kind of continued compound annual growth rate of revenues of 10% over the last five years 65% gross margin fairly very low debt on the balance sheet they are profitable on earnings and free cash flow basis 21 million in net income for 2020 31 million in free cash flow for 2020. Very minimal dilution. And they pay a quarterly dividend of 11 cents per share, which is 0.77% yield. So it's not very high. You can make an argument that maybe they could use that money to grow a bit faster. I know the CEO, I believe, is the son, but I'm not 100% sure. Anyways, he's part of the family that founded the company, and you'll see it with the name. His name is Georges W. Lemaître. The biggest red flag, I would say here, is I pulled in the data again from Glassdoor. It does not look good. It's not

a big sample. There's about 30 reviews reviews but 23% approve of the CEO so remember what we talked about a bit earlier was in the 80s 90s 29% would recommend the company to a friend so it's not and I was reading a little bit of the comments to just to get a sense of what people were saying and for the most part they say that the company is very frugal um they push people a lot long work hours um so that's obviously nothing that's not something great to see but their numbers look pretty good like it's just yeah it's kind of a capitalist baby i know i mean i'm like obviously i i you know i love where i work so i think for me it's really important to have employees that are happy but it's kind of i want it i still wanted to put it

because all the numbers i was talking about i thought were pretty good but then i pulled that off glass door i'm like oh my god this is that's that's pretty bad i've never seen a snapshot of glass door this bad yeah i, it's only 30 reviews. So maybe it could be just, you know, a sample sizing type of deal where it's just employees that left that were a bit disgruntled for like majority. I did see some positive comments in there as well. So take that with a grain of salt because some of the ones I mentioned earlier had like, you know, six, seven, 800 reviews. So when your sample size bigger, it makes a bit more sense. So something to keep an eye on, but it's definitely a smaller cap and it's profitable, which does not happen that often.

Yeah, no, good point. And you're seeing Simon pull up these Glassdoor ratings for all these companies because they are small, you know, they're mid cap or small cap businesses. ratings for all these companies because they are small, you know, they're mid cap or small cap businesses. And the culture of a company as they're smaller, does matter. And it matters a lot more. And I would argue quite a bit more for these smaller companies. And the reason for that is, you know, culture is important at every company. But it's really important for when there's a smaller team, you know, less than 500 employees, less than a thousand employees, because like Warren Buffett says, you know, buy a business so good that an idiot can run it because one day an idiot will run it. That is for well-established

mature companies. Whereas the team, the founder, the, you know, the executives, the culture of the business for a smaller company, that has not been proven yet. It's not mature enough that if, you know, someone was to stop driving the bus, it wouldn't crash versus a company like really, really mature like Coca-Cola. You know, that thing, that thing is going to keep crushing it no matter who's in the in the driver's seat from my opinion anyways so that's that's a good point to bring up yeah and for them i mean they've been listed for quite some time too so if you ever if anyone looks up at their chart i didn't pull when they were founded but i know they've been listed for a very long time so it's just been kind of a small gap growing over time and you know it's not going to blow you out of the water but the chart if you just look at it the overall returns over that long period of time it looks it looks pretty good i don't know how it did versus the market but uh you know steady as she

goes is probably the the best thing for them like the best way to sum it up for the mind vascular i heard human tissue cryoreservation services in your description there and i just instantly thought of austin powers that's the only thing i thought of i i had to actually google what that meant because i was like reading it i'm like okay he's probably gonna ask me what it means so i need to definitely google oh don't worry i've seen austin powers i'm good all right number 10 we have finally ran the marathon of this 10 list episode last one here descartes group dsg i'm assuming that's a french name like simon am i saying that this guy descartes like how would you say that if it's french i would would say Descartes.

That sounds way more right. Let's go with that. I'm going to call it DSG for now. Their flagship asset, the Global Logistics Network, aka GLN, is a logistics communication software that has helped clients connect with their supply chain to improve their logistics network and communicate seamlessly. This software has helped many businesses improve their network and increase efficiency. DSG primarily grows by acquisitions. They've made 27 acquisitions over the last seven years. They integrate them into the business, provide new services and complement them. So it's a buy and integrate type model instead of let them run autonomously because they're trying to tack on more features onto their global logistics network, that GLN. It's a really small Canadian compounder. I mean, it's a $6 billion in market cap now, but

it's one of those 10-year revenue charts that you're talking about that just don't miss a beat. Every year, it's so nice on the eyes. It's just a little bigger every time. They've grown revenues at 11% on the last five years. Historically, it has been over 20%. So we've seen some slowdown. I don't know why. We'll have to see. The business is accelerating again really well right now with logistics being such a good secular business to be in. And it really comes down to how many acquisitions they're making because that's what's going to really move the needle. But overall, for an acquirer, there's lots of organic growth as well. And that's why it's been such a good stock to own. Gross margins about 75%.

EBITDA margins of close to 40%. So this thing's really profitable. And very, very good balance sheet. Tons of cash. They're like two current ratio. So they're expensive at over 20 times sales, which is important to know. But compared to other Canadian tech consolidators, 20 times sales is quite a bit. And it's been a great stock. I know Chuck Aker has owned it for a long time of Aker Capital Management. And I

always look at his 13Fs. He's for every compounder bro out there, you should read his work on a site at Aker Capital Management. He has owned this thing for a long time, and he, for some reason, has had a knack of holding Canadian gems that were really small and sticking with them, like Constellation Software. They actually own such a significant part of Topicus because their stake in CSU is so big, the shares they got from the spinoff were huge alone. Anyways, that is DSG. If you want a full report on DSG,

Stratosphere has one. It is in the top pick segment, and we break down the business in full there in an easy-to-understand five-minute type primer. So even if you're not a CFA, you'll understand the business. All right. Thank you guys so much for listening. Hope you're liking the two episodes per week. The feedback's been exceptional. We'll keep doing it. We're going to keep grinding. You know, these types of episodes

are obviously a lot of work, but we love doing it. And that does it for this week, guys. We'll see you later again this week. We don't ask that often. Just for a little bit to help the podcast, which is review it, share it with a friend. If you haven't shared the podcast with someone who could benefit from it, I just want to read something really quick. Philippe, one of our listeners, he said, because of the podcast, along with some knowledge from other books, his experience at his job, I'm not going to go into that because it's personal. He's talking about how he built this $10,000 TFSA since the beginning of the pandemic.

I have never had so much money as I have now. I feel so good about it. Thank you for taking the time to do the podcast and talk about what you talk about. I used to live paycheck to paycheck and now my savings is growing and I have an emergency fund and a down payment on a house. Thank you. It really changed my life. Dude, thank you so much. I sent that to Simon. It's like those kinds of messages make this all worth it. So thank you so much i sent that to simon it's like those kinds of messages like make this all worth it so thank you so much share it with a friend because you know what apparently it changed philip's life maybe it'll change someone else's as well thank you so much for listening we'll see you soon bye-bye the canadian investor is not to be taken as investment advice braden or simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions.