The Canadian Investor - 10 Stocks We're Watching for the Rest of 2022

Episode Date: October 24, 2022

The bear market we are currently in has brought the valuation of most companies down. In this episode, we look at the stocks of 10 great businesses that we have on our watchlist for Q4 2022. Tickers of stocks discussed: GRT-UN.TO, ISRG, ASML, ADSK, RY.TO, SPGI, AMZN, ADBE, BAM-A.TO, ACN Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Today is October 19th, 2022. Welcome into the show. My name is Brayden Dennis, as always joined by the renowned Simon Belanger. Hey, hey man, it's been three years and we have not missed a single episode during that timeframe. Has it been three years? I never remember what day or what first release

was on. It was mid-October. Okay. Okay. That's good. I never remember if it was like October, early November, but yeah, it sounds about right. Definitely pretty exciting. We started doing it in September and then I'm not sure what the date of the official launch was, but like we got into the rhythm in October. Yeah. Yeah. And we haven't missed one yet. Yeah. So there you go.

Although we were not very consistent on the day of the week, we had one weekly, but it wasn't as consistent as right now for the day of the week. We had one weekly, but it wasn't as consistent as right now for the day of the week. But I remember we had one every single week. Minor details. Minor, but maybe important details. So we are talking about 10 names, 10 businesses that we think are very interesting

or at least a lot more interesting at today's price. So we'll call it 10 stocks for the fourth quarter. This just serves as a giant episode of one of the most requested segments on this podcast called stocks on our watch list presented by our friends at EQ Bank. So today is 10 of those. It's going to be fun. So I'm looking at the ones you picked here. We have a lot of overlap in the things that we're looking for, as well as like there is at least one or two here that you picked that I would have been happy to put here today. Yeah. Yeah, I think so. I mean, it's there's a lot of valuations that have come down. I would say it's almost across the markets right now.

So it really depends what kind of businesses you're looking at. And I think we did a pretty good job at diversifying it. It's not just tech. It's not just, you know, asset heavy. It's a bit of everything. Yeah, I agree. And so this list, we're really focusing on great businesses that are defensible, have competitive advantages, but have just been absolutely beaten up from the stock price perspective.

Looking at your stock portfolio go down, it sucks. But we're here to remind you it's not all that bad because the best part of bear markets is not only on the podcast are we trying to be a great resource for research, but we're here to provide some rational thinking. And bear markets are when you make money. When I look at my portfolio and this list here today, I'm a lot more confident on the forward returns today than I was 12 months ago. And that is not what you will hear in 99% of financial news, is doom, gloom, things are going to get worse, get out while you can. That type of thinking is very common in bear markets. When Oracle of Omaha says, be greedy when others are fearful, right? And so let's not forget about that foundation. Yeah. And look, I know it can be hard sometimes in

the moment when you invest in a bear market and then a week later it's down 5% or whatever it is, but you have to think about your end game. I think that's really important. Most people I think are investing for retirement or investing to buy a house in like 10 years from now or whatever it is. So most people have fairly long investing horizons. So that's important. The other thing I would say is, you know, yes, there will most likely be harder times ahead, but is the business gonna maybe face some short term headwinds, but will be really great, you know, three, four, five, 10 years down the line? And I think that's a question to ask, because if your business, the business you're looking at is facing headwinds, but it could be, you know, critical, and they might not survive it, then yes, it's alarming. And you probably should be

looking at other businesses. But the ones here, I think they'll be really good whether you're looking at five or 10 years down the line. Absolutely. So we'll go through this list now and then we'll go through each one in detail back and forth. Today's list is Granite Real Estate Investment Trust, Investment Trust, Intuitive Surgical, ASML, Autodesk, Royal Bank, S&P Global, Amazon, Adobe, Brookfield, and Accenture. That is today's list. Let's go through them one by one. Simone, let's kick us off here with your first name here, which is by far the smallest and kind of the most off the board. So you're bringing the heat early. Let's do it. Yeah. And we'll be adding all the tickers to the show notes.

We always do. So if anyone's wondering, it'll be there. So don't worry too much if you're looking for the tickers here. Now, Granite, REIT, like you just mentioned, this one has a 4.2 billion market cap. Like you said, I think that's kind of a small cap territory. And this is Canadian dollar because it is dual listed.

It's down close to 40% from its peaks, probably 40% at this point, because I did that over the weekend. And it's gone down a little bit. It's currently yielding 4.75%. It's an industrial REIT. In terms of the assets that they own, it's 72% distribution slash e-commerce, 13% industrial slash warehouse, and then 13%, which are special purpose properties. Revenues have grown quite well. So it's grown annually on average for 8% in the past decade.

The tenant base is expanding and becoming less reliant on Magna. And that was probably the most common point of critics for Granite here because they were extremely reliant on Magna when it was spinoff from Magna back in, I think, the early 2000s. I know in 2011, Magna was representing 94% of the gross leaseable area now compared to 21% currently. And it's basically been going down every year. And Magna now represents only 28% of revenue. Keep in mind, these are two separate kind of metrics. But again, it's going down here, which is what you'd like to see more diversification and less reliant on one single tenant. The other largest tenant here is Amazon with 4% of the total leaseable area and the rest are all 2% or less.

It is a mix of credit, sorry, investment grade tenant and some that are not. But for the most part, I don't see any issues with that because if you're leasing to companies, it's pretty hard to get all investment grade, let's be honest. Half of the revenue- Not every tenant is going to be amazon.com, right? No, exactly. And in terms of revenue, where it's located, so half of it is coming from the US and the rest is pretty much evenly divided between Canada, the Netherlands, Germany, and Austria. So there is a little bit of exposure to Europe, depending how it goes and how the business and the economic environment is over

there. So that's something to keep in mind. The payout ratio as part of the FFO. So FFO is funds from operation. It's essentially a metric that's used. We've talked about it a lot, but it's used very commonly in REITs, but also Brookfield Asset Management uses it. It's a much more appropriate metric for REITs because it strips out things like amortization and depreciation, which don't really have an impact on the actual cash that's being generated by a business that's asset heavy on physical asset like a REIT would be. So it's been around 70%, which is really good, provides a cushion for margin of safety here. The average lease 5.6 years. The occupancy rate has been really good in recent years. So 97.8 currently and 98.9 during

the 2020 with the pandemic. So that's something you'd want to see. The other thing that's really important for REITs, if you're looking at REITs right now, one thing you want to look at are debt levels. So that's one of the reasons REITs have been hit pretty high because they're pretty reliant on debt. It's real estate, so it is normal for them to use leverage. And you want those to be reasonable. And the other thing, you want the debt to be structured pretty well. So they have a 25% leverage ratio, which is essentially just their debt versus the value of their real estate assets. So I think that's pretty reasonable. Obviously, that will vary depending on the value of the assets.

Their unsecured debt is rated investment grade by Moody's, which is not the case for all real estate investment trusts. It is on the lower kind of end of scale, but still, that's a big advantage to have investment grade for real estate investment trusts because it allows them to get cheaper debt when they do refinance and when interest rates are ticking higher like they are right now. That's a big advantage to have. They currently have $2.7 billion in debt. However, $2 billion is due December 2024 or later. And $1.5 billion of that amount is due June 2027 or later. And these are all very low interest rates. The interest expense is well covered overall, so not an issue there. And it's trading at about 20 times funds from operation currently, which is really close

to what it was trading around the pandemic when it started in 2020. It's a good rundown, give you kind of scale of the business. It's history from being a Magna International, the auto parts manufacturer spinoff to really a bit of a powerhouse in industrial REIT, even though it's only 4.2 billion in market cap, a pretty historic rise and overall a good story after the spinoff. So not much more to add here. The occupancy rate, it looks, that's one that I'm going to be tracking probably in the next few quarters because it has you know come off it's high quite a bit so well not not a lot crazy yeah no but it is coming down a bit so that's a no it's good rundown and look at the juicy dividend yield so i know

it's a canadian name and it pays a high divvy so put it on the podcast. Yeah, yeah, exactly. And I mean, one of the risks that, you know, people need to keep in mind is Magna is still a big part. And I did talk about that. And especially if there's a slowdown in the automotive industry, there could be some ripple effects here. But Magna is a pretty solid business. I don't think, you know, there's too much risk. But full disclosure, I did start recently a position in Granite last week, actually. So, you know, there's too much risk. But full disclosure, I did start recently a position in Granite last week, actually. So, you know, just so people are aware, I'm not trying to pump this or not just saying how it is. Yeah. Yep. And of course, nothing on the pod is investment advice. It is our own research. And I encourage everyone to do so themselves. We just hope that it's useful. And this is a list that we're looking at quite

a lot. I mean, you can tell by all the facts you just spit out. So we're interested in our own portfolio. And if you do want to see our own portfolios disclosed, which I think is important, go to join TCI.com. That is join TCI.com. All right, let's talk about Intuitive Surgical, my first name on the list here today, ticker ISRG. It is a US company at 75 billion in market cap. So it is quite a large company. Top of mind for me today because they just released earnings and the stock is up big today. But you know what it is not up big? This past trailing 12 months, it's down almost 40% from the peak. This is a theme for me today. It is very interesting businesses that their stock price has largely been pummeled in this market.

Now, I want to specify something here. A stock price being way off its all-time high doesn't all of a sudden make it good value. It is not an indicator of the price being attractive today. But with these high quality businesses with economic moats, competitive advantages, and still lots of room to grow, it can certainly offer a much more attractive entry point if you were looking to buy shares. And that's how I feel about intuitive surgical tier today. So it trades at about 30 times EV to EBITDA and 11 times sales. So this is still certainly not a cheap screaming bargain stock, but it shouldn't be. And here's why I think that intuitive surgical operates what is called the DaVinci. Okay. So the DaVinci is the most widely known, most technologically advanced robotic surgery system. So surgeons are

literally operating a robot to conduct the surgery. And it provides much better results. You get a minimally invasive care and surgical procedures for soft tissue surgeries. And the results are amazing. The surgeons speak for themselves. There's actually over 25,000 peer-reviewed articles done by industry about how awesome the DaVinci system is. So these are not things done by the company. These are actual peer-reviewed articles. They truly operate a razor and blades model. You know, it's like the old Gillette razor and blades thing, right?

It's like you sell the razor and then the people got to keep buying the blades. And that analogy is perfect here because the DaVinci Surgical system, once it's installed, generates high margin recurring revenue from the instruments and accessories, don't pun intended, literally the blades required to operate it. And so we track their KPIs on stratosphere.io for intuitive surgical, the scale of the business today, which I just read from the platform today, 7,364 DaVinci systems are installed. They're performing more than one and a half million surgeries a year. The recurring revenue segment. So that's services, instrument

and accessories is now 76% of the business. So you can see it's very recurring revenue segment. So that's services, instrument and accessories is now 76% of the business. So you can see it's very recurring in nature. And the balance sheet is nearly bulletproof net cash position, and it's just a rock solid. So this is number one today, only just barely in front of your next position on my number one and two for my watch list personally. So it's just barely one spot ahead of the company you're going to talk about next. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them,

you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable, and they get exactly what I need done quickly. Switch for free today and keep more of your money.

Visit Questrade.com for details. That is questrade.com. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building and people share their portfolios, their trades or investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then

once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like 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. Yeah, I would say probably the one I'm going to talk next is the number one on my list. I

probably overgranted, but granted, it's my top dividend play right now. And in terms of intuitive, obviously, I knew it a little bit before we started talking about it on the podcast. The model seems rock solid. And just to add to what you're saying for people who are looking at these big drawdowns, okay, like you said, it doesn't mean that it's 40 or 50% off its peak, that it's a good buy necessarily, because for some company, there's a good reason, because growth is slowing down massively. That's why it's off its peaks. Right.

But I think, you know, that one intuitive surgical and the next one I'm going to talk about, same kind of thing, which is ASML. I think they're not slowing down. If anything, they're accelerating. Yeah, I agree. It's like they got too high. The market bid up so many of these growth names too aggressively last year. ASML, Intuitive, a bunch of the names that we're going to talk about today. But the market does a pretty good job of consistently overshooting and undershooting

quite consistently. And so that's why you just dollar cost averaging the whole time and focus on the business fundamentals, because overall, the business fundamentals for these two companies are not heavily impaired. The one you're going to talk about today has a lot of like negative sentiment around like geopolitics. And I think that that's fair, but they just released earnings today. I mean, you're going to talk about it now. I mean, the business is, it's a monopoly. And monopolies tend to do pretty well for a long time. Yeah.

So ASML is $166 billion market cap here. I think it's the largest tech company in Europe, maybe. Probably. It was $250 billion market cap at one point. I'll look that up in the meantime. But go ahead. Yeah, it's just a massive company. And ASML is down 56% from its high. I mean, probably a bit less now because it popped 5% today, but let's just say it's down more than 50%. It pays a dividend of 1.3%, although I would caution people to take that as a gravy, if you like, just because a dividend is paid in euro. And it can also vary a bit depending

on how their business is doing. They are, for those not familiar with it, although we have talked about ASML recently. So it's a semiconductor play. What they do is they produce these extremely expensive machine that costs around 200 million called Extreme Ultraviolet Lithography. And they are the only company that produces those. They also produce some DUV machines, which is Deep Ultraviolet. Those are not, they're not the only ones that produce these. There's also Nokia, I believe. Not Nokia, but I had them here. There's Nikon and Canon. Nikon and Canon, the camera companies. Yeah. They also do DUV. They also do DUV. But the thing that's really important to know here is EUV allows companies,

chip makers like a Taiwan semiconductor, for example, to put more transistors on these chips. And essentially, the more transistor you have, which is something that came about in like the 1960s Moore's law. So the more you increase the transistors, the more you increase computing power. And Moore's law, who was the founder of Intel essentially said that it would be doubling every number of years. I don't remember the exact ratio that he said, but essentially the EUV machines allows you to do it on a even smaller scale than the DUV and makes the chips more efficient and more powerful. Anything to add there before I continue? Yeah, I'll just jump in. Moore's law is that the number of transistors on a microchip

will double every two years. That's basically the phenomenon called Mooreore's law and then i was just looking through like a bunch of european companies by market cap yet largest tech company by market cap and and it is the largest company in the netherlands by market cap so it is one of the largest companies in all of europe but there are a couple larger ones like nestle and LVMH, for instance, would be two examples. Yeah, yeah, exactly. And essentially the highest, so just to get back quickly, EUV is this technology, the most cutting edge chips are using EUV. DUV tends to be, you know, they're still very good chips, but they tend to be a bit outdated

in terms of technology. So just so people just kind of wrap their head around this. I know the semiconductor space can be confusing, but typically if people are familiar with like an AMD or NVIDIA, they will be designing the chips. ASML and other companies will actually producing the machinery required to produce these chips. So just so people wrap their heads around it, and then a TSM, so Taiwan Semiconductor, will be the ones producing the chips from the designs that come from companies like NVIDIA, AMD, Apple. They'll be designing chips, and then TSM will be

producing those. That's right. Yep. It's good to get a kind of a lay of the land of semis because- It can be complicated. Yeah, it's not what it seems at first glance until you really dig into how the value chain works. And yeah, there's a couple of really key choke points in the value chain. And one of them being that there's one company in the world that makes ultra extreme ultra violet lithography machines, and it's ASML. Yeah, exactly. extreme ultraviolet lithography machines, and it's ASML.

Yeah, exactly. And now one of the key risks here, and I think something that's been drawing down on all semiconductor stocks, including ASML, is that China represents 16% of its business. And last week, the US government imposed new rules on the semiconductor industry, although they've been imposing rules, I think, now for the past year or so, if not more. I think it even started back with the Trump presidency. And the new rules prevent any company that uses American equipment from selling high-tech semiconductor or tools to Chinese company. However, during their Q3 release that came out just today, management said that it does not appear that the new rules will affect the equipment shipped by ASML because almost all of the equipment that's shipped from ASML to China are DUV systems and they actually don't qualify in terms of the

nanometers. So the rules are actually under a certain level of nanometers that are produced pretty much by EUV system. So the DUVs are not really affected by that. Now, the US has indicated it wants to invest more and more in the US capacity to produce chips. The US got a reality check with the supply chain issues during the pandemic. And semiconductors are important not only for the US economy, but a lot of people don't realize that it's extremely important from a national security standpoint. And I don't want to go into too much detail. But one of the reasons that Taiwan is so important geopolitically is because Taiwan's semiconductor is there. And obviously, you know, if China starts to invade or does anything towards Taiwan, the US from a national security standpoint really has no choice but to intervene.

And to show that the U.S. is putting a lot of emphasis on semiconductors here is they approve the CHIPS Act of 2022, which provides $52 billion in funding towards semiconductor production in the U.S. and significant tax cuts for those making investments in the pay space. Now, I will say $52 billion might sound like a lot. It's not that much. I think Taiwan Semiconductor invests in CapEx around $40 billion every year. So it's a good start. But one thing to note is that this has support from both Republicans and Democrats, and they don't agree on a whole lot. But the fact that they agree on this and they tend to agree on anything kind of related, putting sanctions on China. So I think that's something that's really positive for the chip industry in the US. No, good point. I think they realized really quick how reliant the global supply chain is on this and it's been a bit

of a bottleneck and there's a few key players in this value chain as we were just describing and so they're kind of realizing the importance of this and trying to pivot as fast as they can the problem is not easy to is it's not a quick pivot right like you're talking about some of these capex numbers and some of the time required to build foundry capacity in the semi business is a long time. It's not just flip a switch and you can be in production tomorrow. It's really a lot more complicated than that. And one of the reasons is because this $150 million EUV lithography machine has over 100,000 parts in it to assemble it. So all the suppliers that feed into this, this is a ridiculously complicated supply chain. I can't think of auto and semis have the most ridiculous supply chains.

I would actually compare them a bit more to airplane manufacturers. Like Boeing. Yeah, because just because it's so concentrated, there's essentially Boeing. And for commercial aircraft, it's Boeing and Airbus. I just mean in terms of complicated supply chains, like tier one, tier two, tier three, tier four suppliers. Like now we're getting down into like, you know, really small manufacturers that are like important little pillars in this giant game of Jenga of making this thing work. Like sometimes it's pretty incredible just how things really come together. Yeah, no, definitely.

Now, another bright spot here from the earnings, because again, we won't talk about them next earnings release just because it made so much sense for me to talk about the earnings a little bit as I talked about this company with the 10 stocks. Now they have- Let's just hit it now. Exactly. They have over 38 billion in backlog orders and 80% of it is EUVs. And they added 8.9 billion of orders during Q3 alone. And to what Brayden was saying, the production of the system, they're not talking in months, it's in years. That's how complex they are. And customers are still wanting the equipment as soon as possible. Based on their

current capacity, ASML won't be able to fulfill all orders in 2023. They are trying to increase their capacities, but they're still dealing with some supply chain issues, although it is improving quite a bit. And like I said, because it takes a year to build the system, even if the customers see a downturn in the near term, and AMD has said this, NVIDIA said this as well, they still can't afford to cut back too much on spending because if they do, they'll fall behind when demand picks up.

So a company like Taiwan Semiconductor would be one of the major clients and probably another risk here because obviously if anything happens to Taiwan and TSM, you know, it could have some repercussion here on ASML. But, you know, they can't stop spending because when demand picks back up, they need to have the machinery to be able to do it. And they are on track to meet their guidance for this year. And although they haven't provided for guidance for 2023, management is talking that they are looking to increase capacity, like I said, because the demand is extremely strong and currently trading at mid 20s last year's earning, which is cheap for a company that is essentially mostly a monopoly. I say mostly because they have DUV as well and has demand remained strong. It's not like their earnings will be going down next year. And

in the earnings call, they said something very interesting and you'll love to hear that, Braden. They are in discussion with customers to share the cost of inflation, and they expect margins to improve next year because of that. And I mean, that's pricing power right here. And it did sound like they're trying to be reasonable with it. But at the end of the day, I mean, they have all the leverage here, obviously, like they're the only ones to make it. And so that's something to keep like something really interesting and why I love it. And the last risk item, and I think on Stratosphere, you know, I think I wasn't sure if it was you or Adrian that did that, but you guys did great. Adrian wrote this one. So Adrian kind of highlighted that 3D DRAM chips produced by

Amazon, not Amazon, by Samsung could be a risk here in the future. But I think that's more of a long-term risk. These will, you know, we'll have to see how it evolves. But I think, you know, ASML is a great company. Full disclosure, I started a position last week. And- Hey, you did. Congrats.

Yeah, I did. I got an actually really good price, especially with it being up today. But I'm planning to add more, even if it goes up a bit as soon as I have more capital to allocate to it. I will because what's not to love here? You've went down the semi rabbit hole quite intensely over the past couple of weeks. Oh, yeah. It's a steep learning curve. I'll say that you really have to be interested in learning it. And again, do your own research and just be aware that this is not going to take you 30 minutes. Right. No, it's not.

And there's so many players involved, but there's some really good graphics online. There's some really good reading into ASML on stratusfood.io. If you type in ASML and you go into the research tab, Adrian wrote a really good piece on it. And no, this was like a semi deep dive.

Thank you for this. And, you know, it's a company that I've been banging the drum on so hard. And then all of a sudden, I feel like you know it better than me and own a position and I don't. So it's funny how the world works like that. Yeah, exactly. Now your next one is a little smaller, but still big. Exactly. Now your next one is a little smaller, but still big.

Still, all of my names are at least, this might even be the smallest one, which is surprising. These are like 50 billion plus market cap names I'm talking about today. I'm talking about entirely US names. You have two Canadian ones. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself,

I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building and people share their portfolios, their trades or investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts

are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like 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. All right, let's talk about Autodesk, ticker ADSK, one I've talked about so many times

during the duration of this podcast, but $42 billion in market cap, today's valuation of the market cap. I feel like a broken record here, okay? With all the names here, I'm like, it's down 40% from its peak, but everything in SaaS is. sas software as a service company is down like you know 40 what's the what's the nasdaq year to date let's see here now let's do nasdaq trailing 12 months not good i can tell you that yeah so 33 on the nasdaq 100 year to date trailing 12 months yeah 30 ish so i, don't be surprised when these large tech companies have been getting smashed. That's just what the index has done. And the reason for that, I've hinted at it before, some of these names just got too expensive.

A pullback was warranted. Investors got a little cray-cray last year. So Autodesk, it is computer-aided design, aka CAD, and it dominates the AEC market. I'm hitting you with some acronyms here. AEC is architecture, engineering, and construction. For context, the scale of the business today, Autodesk has over 6 million active subscriptions across their software products. AutoCAD still somehow grows like a weed, like their core flagship AutoCAD product, the Revit product, still growing somehow and so sticky. Opportunities moving forward in media manufacturing and across AEC, as well as their bundled Fusion 360 products, they're really smart. They've kind of written the book on the distribution and

marketing playbook of give these to the universities so that when engineers and architects are learning how to become that profession, they just are used to using this technology and they learn it and they go into industry and learn it. And they've really kind of been some of the pioneers of that distribution strategy. They sport some ridiculous 90% gross margins that generate tons of cash. It's sticky AF and they have lots of room to grow the SAS model, converting users from free to paid plans and converting a lot of these non-compliant users. There's this like huge historic legacy that I won't talk about right now, but there's over, I think it's over 9 million people are using AutoCAD on a third, like freaking like they're MAUs. They've used it within the last 30 days.

It's in the millions and they're using it for free, but AutoCAD and Autodesk, they have the ability to kind of shut it off for them now that they are on SaaS, but they're using it for free. But AutoCAD and Autodesk, they have the ability to kind of shut it off for them now that they are on SaaS, but they're trying to like slowly convert them over time versus like going cold turkey. And a lot of these customers looking for a competitor, even though competition hardly exists, they're just trying to think about this long-term. And I think that's probably wise. Yeah. No, I think you put it well, you know, this one way better than I do. I know it mainly like I've mentioned before, because my dad used to be in architecture. So he learned the software actually in school. So exactly what you were saying. There you go.

Now the next one here, this is not a name I'm particularly looking to buy myself. But I know a lot of people like banks in Canada. So I decided to add one of the banks because banks have been down pretty, you know, pretty hard in the past, like, you know, few months at the very least. So for me, if I were to choose a bank, it would be Royal Bank. And it's now yielding 4.2%. You know, all Canadian banks are down. Even most of the U.S. banks are down as well in the recent months. Personally, I would stick with Royal Bank because it's the most diversified one. It does have a lot of mortgage exposure, so that's something to keep in mind.

But it also has capital markets, investment banking, and a few other divisions. The other ones I would consider TD or BMO. I don't know National Bank all that well, but apparently they're also very well managed going on what people are saying that no banks well. The two that I really don't love is CIBC and Bank of Nova Scotia. So CIBC is pretty simple. They have just massive exposure to the real estate sector. It's around 50%, a bit more than 50% of their loan portfolio that is Canadian mortgages. So I don't know to what extent it's variable and

whatnot, but that's a big risk in my mind. And Bank of Nova Scotia could be a decent value play, but based on what I've seen is that their operations in Latin America are struggling, and that's weighing down quite a bit on the stock. I think it's a good portion of their earnings that normally come from there. Their overall banks are good income stock. I think it's a good portion of their earnings that normally come from there. Their overall banks are good income play. I think I would just warn people to be careful when they look at things like P ratios for bank because you may find them right now being like a good value in terms of price earnings ratio. But what you're most likely to see is banks earnings going down. So if that E is going down, it means that they're actually not as cheap as they may appear if you're looking on trailing 12 months basis, because that's most of the sides, that's what they do. But something to

just be aware of, if you're looking to buy into bank, I would definitely dollar cost average, because if the economy takes a bit of a downturn, banks will be affected by that. And do your research and don't be necessarily picking just Bank of Nova Scotia, for example, because it has the highest yield. Make sure you pick the best bank of all of them. And the last thing I would mention here, if you're looking to just have one size fits all here, the HEWB Horizons Equal Weights Canada Banks Index has all the six large banks in Canada equal weighted, and it's the lowest management fee I could find, which is 0.27 management expense ratio, which is lower than other alternatives. So that could be a good option for someone who has a bit

less money to invest and doesn't necessarily have the money to invest in full shares of each of the banks in positions that make sense. I just pulled up on the doc here, quarterly revenue for the specific segment. Here's the graph you see here. Yeah, capital markets. From the platform. Capital markets revs have really fallen off as, I mean, to no one's surprise, but there it is just kind of visually. So one to track if you own a real bank. And so we've highlighted it as an important one to track here. Yeah. And I think just a last mention on banks

here, you know, I think personally there's going to be pain for banks in the next short term, but if you're bullish on the Canadian economy long long term, you know, this is probably the time to start looking at adding to positions or starting a position. But be aware that, you know, you could very well be putting money in. And like I've said before, you know, a couple of weeks after it's down 5% already. There you go. All right. A couple more on the list here. We are over halfway, I think, or maybe halfway. Let's talk about-

Yeah, I think our longest ones are done. Our longest ones are done. S&P Global here, I'm going to put on the list. It is exactly a cool 100 billion in market cap today. Ticker SPGI. Now, you all know the S&P 500. Well, how about owning the business behind the S&P, ticker SPGI. Now, the company's name is S&P Global. Many people are familiar with the term Standard & Poor's. That's this company. Now, I look at S&P as the behind the scenes type business of capital markets. It's like the thesis where people go, why own the index when you can own the exchange? Because it's such a good business, right? It's like intercontinental exchange, ticker ICE is like a perfect example of this. It's like, why own the index when you can own this rock solid, highly profitable business

SBGI? Now, of course, that is an oversimplification, but it is the business behind that name that everyone knows. So it's trading at 22 times earnings today and now has a dividend yield of over 1%, which has been historically quite rare. It is 37% off its peak price. Now, this is one of the best boring businesses in the world. SPGI penetrates capital markets from literally all angles, whether it's data subscriptions, information, pricing, indices, and their largest thing, credit ratings. Now, one of two premier credit rating agencies, them and the company you mentioned earlier with rating Granite's debt, Moody's Corporation. So S&P and Moody's Corporation are two of the premier credit rating agencies. I own both of them,

almost equal weighted. I have SPGI just a little higher, but not by any real scientific reasoning. Now, S&P has compounded free cash flow on a per share basis at 20% on a compound annual growth rate of 20% over the last decade. That is tasty. More than half of their revenue is now recurring on high margin subscriptions. They have a juicy net 40% profit margins. They're buying back stock left, right, and center, and quite opportunistically, they've now merged with IHS market. Dude, look at this graph I just pulled up here from Strato, which is share repurchases. Look at the latest bar. Yeah. The reason is probably just timing though. I would think with the acquisition or merger of IHS market, right?

It was early this year. So I'm assuming they were planning, they probably decided not to repurchase last year and then wanted to close the acquisition because it was mostly stock base, if I remember correctly, right? Yeah, that's right. Now, they had to issue a bunch of shares to do that merger, but then I got to see how it works out. But it's like, you know, these big tech companies that have SBC, but they net buyback stock. Yeah, yeah. And so, you know, expect more of the same for this company. On a per share basis, I expect free cash flow to grow at, you know, a pretty reasonable 9% to 12%. So it's not going to be some game-changing stock in your portfolio. It's already $100 billion in market cap. But this is one of the best and most defensible, boring businesses you can find.

No, I mean, look, the results speak for themselves. You know, I don't have too much to add. You know it better than I do. I'm familiar with it to some extent, but not much to add there. Move on to the next one. Yeah, let's keep going. Okay. So, you know, from Granite with a $4 billion market cap to Amazon, part of the trillion dollar club at $1.16 trillion market cap. Amazon is quite down like the rest of the NASDAQ. It's down 40 plus percent from its high. I said 43%, but again, I did this a couple days ago. So markets are so volatile, so we can keep the percentages a bit wider here. The last few quarters haven't been great for Amazon on a free cash flow basis, but they are still looking at 13% to 17% sales growth in Q3 of this year. They had increased 7% in Q2 earlier this year.

And AWS, so Amazon Web Services, is still growing at a 30% plus clip year over year. And Amazon can really leverage its platform if it needs to get rid of inventory. So I suspect that's exactly why they did Amazon primarily access day because you're seeing all these retailers saying they have excess inventory. And Amazon has such a powerful platform that if they see that they can leverage that and I don't know about you, but did you buy anything during the prime day? I didn't. It seemed like the Amazon kind of whiffed on their marketing. I didn't even hear anything about it until it was over. Really? Yeah. We were all about it. They're spending all their money on marketing the Lord of the Rings show. I mean, I guess so. We

knew about it because we had stuff to buy for the baby that wasn't super kind of required immediately. There's a couple of things we had on our radar. So we just waited to see if we could get a better price. And a lot of them we actually did. So but you know, you're busy. You work like 100 hours a week. What do you mean busy? Come on, I gotta I gotta work. Regular people would have seen it. Regular, right? I don't have time for regular people no so obviously i'm joking but you can let us know if you you bought stuff on amazon prime early access day and they're taking the right measures here to reduce costs after they made huge investment to bolster their fulfillment centers and obviously they had because if we remember early on the

pandemic you know it wasn pandemic, you know, it wasn't always, you know, one day or two day took a bit more time and they invested heavily in that. But then, you know, like a lot of businesses through the pandemic, it probably got overdone. I mean, it got overdone. They did say it. And in their most recent quarters, they mentioned their focus was to optimize long term free cash flow. And keep in mind, there was a lot of pulled forward growth for Amazon. I'm talking retail here, obviously not AWS because of the pandemic. And their stock performed well because of that up until last year.

And if we look at the chart of a U.S. Census Bureau that I pulled here, so you can just Google it, U.S. retail sales. This is official data from the U.S. Census Bureau that I pulled here. So you can just Google it, U.S. retail sales. This is official data from the U.S. government. And you see there was kind of a huge peak of retail, of actually e-commerce sales in 2020, 2021. And now it's calmed down a little bit. So it's not, you know, it's not as high as people would think. It sits at about 15% now of all retail sales that are e-commerce. What that tells me is that there's still a lot of growth to be done in the U.S. alone. And that's not counting the other countries that Amazon is in.

I don't think it'll ever get, you know, to 50% or anything like that. But I think it's safe to assume that, you know, 25, 30% in the next decade is probably reachable. And clearly, Amazon will be a big benefactor from that. So I just wanted to pull that because I think sometimes people think that there is actually more e-commerce sales that are done than there actually are. Well, I think that that's fair. I mean, like you said, overshoots, right? And Amazon overshot their CapEx. They just overbuilt a little bit too. But look at the AWS. So I just pulled up a graph here and screenshotted it here. Look at the run rate on AWS. So they're going to be printing on their quarter in a week. So I would estimate close to 22 and a

half billion in revenue. So do some math there. You got a pretty much close to 100 million today an AWS run rate, it's pretty easy to justify that market cap just alone on AWS. Yeah, get the retail business for free, basically. Yeah, pretty close. Retail for free, 3P for free, Prime free, whatever else they're working on, which is lots. And it's sticky, right? AWS and even Amazon. Oh God, is it ever. Everything's sticky with Amazon pretty much. They have a few side projects that are not as sticky, but for the most part, everything, their major businesses are sticky. I would agree. And so, yeah, I think my bold

prediction was that it would be the best performing large cap tech for this year. I don't know how it's stacking up against the other ones, but I'm going to say I'm going to take the L on that one. I don't think our bold predictions will be all that great this year. It'll be fun to... You came off some real hot bold predictions the year before. Hey, you can't bat a thousand in this game. What I can say with complete confidence is, you know, very soon we're, you know, maybe two quarters away from a $100 billion AWS run rate, which is ridiculous.

Most other cloud stocks are trading at 10 times sales, throw a 10X sales multiple on there for the best in class cloud provider, and you have a $1 trillion in market cap business right there. Yeah. So, I mean, it's pretty easy to justify. All right, let's talk about another tech name, Adobe, one that's been very popular in the news lately, $140 billion in market cap. Now, not often do you have a business like Adobe, which is a very large company, $140 billion in market cap,

on a drawdown of 56%. When you see those kinds of drawdowns on a mega cap name like this, you typically have something very fundamentally wrong with the business. Is that fair to say? A drop in that much market cap erased, there's something really wrong with the business or it's like a meta situation where it's like really like there's a line drawn in the sand today where their future kind of goes in two distinct paths and no one's really sure what the probability of each path is. Yeah, I think that's fair. With Adobe, I mean, is that true today? I don't think so. Fundamentals wise, the business gushes almost 7 billion in free cash flow a year,

ridiculously profitable margins, total ARR, so annual recurring revenue, has basically doubled since the first quarter of 2019. Creative Cloud is a monster and still growing. They just bought a, what I'll call concerning competitor, growing they just bought a what i'll call concerning competitor like a competitor that like was really keeping adobe management up at night for probably way too much money but hey let's see what figma can do with adobe's distribution in the creative cloud and now it trades for less than 20 times ebita so i mean is it the sexiest name in sticky large cap tech today? Maybe not, but I think it deserves a look at the price here today.

Oh, my God. It's really, I do think that people need to familiarize themselves with what they're buying, which is the Figma product, if they want to think about buying an Adobe position, because, you know, there's so much of, what does that deal, like $40 billion or something? So, it's significant amount wasn't it 20 i think 20 billion i think yeah 20 billion yeah 40 sounded like a lot as soon as i said that so yeah i mean something to something to think about with this company it's not one that i own it's not you know top of my watch list but it's getting pretty interesting

man yeah yeah i mean i don't have too much to add. I mean, again, we've talked about it before quite a bit. And I think it's mostly, you know, tech stocks being down mixed with the Figma acquisition that I think the market felt like it was too expensive. But I think I'm with you. Let's see what happens in the next five years, because, you know, it's not something that you can judge in the next six months. It'll take more time than that. I like the way you said it when we talked about the acquisition. Did they forget it wasn't 2021 anymore when they paid that multiple? I think that that's well put.

Yeah. Now, next one. So a company we've talked a lot on the podcast. I won't go into too much detail. The early ones, I wanted to give more context and people a good understanding of what they were. Brookfield Asset Management, $88 billion Canadian dollars here, market cap. So BAM is down more than 30% from its highs. Even two of its subsidiaries that I own separately, BIP, so the infrastructure partners and Brookfield Renewable Partners are down substantially. That's really because of higher interest rates, because those were plays that people wanted to get into to recycle capital in the short term because as interest rates are higher, potential acquirers of assets from Brookfield that they feel like they could sell at a premium compared to what they bought them, the capital won't be as easy. So

it's just something to keep in mind here. They currently pay a dividend of 1.45%. They've grown their dividend at an 8% compound annual growth rate in the past five years. And that's the same for their subsidiaries. Usually they look at 5% to 9% kind of range for increasing the dividends. So if you're looking for that, it's definitely an interesting company. And they own really high quality fee generating assets, and they're mostly indexed. So if inflation increases, they will be able to get higher fees in return. And, you know, I don't know what's not to like. Probably the biggest concern with BAM is the fact that, you know, the structure is very complicated and really hard to understand.

I don't fully understand the whole kind of mothership sometimes. It's a bit complicated to understand. I don't fully understand the whole kind of mothership. Sometimes it's a bit complicated to understand. But the added bonus here is that they will be spinning off the asset management part of the business as a new subsidiary here. So you'll get, I think it's one share of the asset management business for each four share of the current BAM that you own. Yeah, we talked about the spinoff, what, two episodes ago? Yeah, exactly. And it wouldn't be an episode of the Canadian Investor Podcast without talking about Brookfield. Yeah, I mean, but man, the valuation has really come down.

So it's definitely a really interesting play. It's so funny because if someone was to ask me like how the stock's done, I would not be able to even tell you. That gives you an insight into my psychology around owning the stock, right? Yeah. It's like, I would not be able to even tell you. That gives you an insight into my psychology around owning the stock, right? Yeah. Is like, I don't know, I can tell you what's happening with assets under management and fee bearing capital. Yeah.

I couldn't tell you how the, you know, what's happening day to day with the stock price. I want to be at that level with every single position I own. And I'm pretty happy to know that I know exactly what's happening with this business and almost no idea what's happening with the stock on a like quarter to quarter basis. And I think that that's a pretty good way to live your life as an investor in long-term businesses. All right. Let's talk about last one on the slate here today, Accenture. And so I was trying to think of like, you know, there's a theme here.

I'm talking a lot about tech, right? I'm talking a lot about tech because what's been smashed? Tech. Tech's been smashed. Everything's been smashed, but tech's been especially smashed. I mean, look at the QQQ compared to just SPY, for instance. So Accenture is a $175 billion in market cap company. It's an Irish business, actually. So we've had some huge European names on the pod today, but it's a US listing. So it is ticker ACN. Now, what a surprise, 40% off the high here too, because this is tech, right? Well, yes, they are definitely a technology company, but they are a technology consulting company. This is a service business.

Now, they have a lot of competitive advantages in the way that they do things and leveraging technology and using these innovation hubs, which I think is great. It helps them be good at what they do. But this is a service business, and it is one of the largest employers in the entire world. Accenture is the most diversified player in the technology services space, providing services to 40 industries across the entire planet, every major market. Now they've had some real nice acceleration in the business because there is cloud and digital transformation trends that have happened, right? Like if you're a fortune 500, fortune 2000 company, and you're not heavily thinking about digital transformation, cloud security, then you're going to be left in the dust, right?

And who has a lot of that, like a technology talent in house? Not many companies. You know why? Because the large tech companies, these trillion dollar companies have like drained the talent pool largely. And then the other talent pool sits in these like small to medium size startups because these people are building, you know, the next big businesses. And so you're stuck with these like, you know, fortune 2000 companies, you know, with not a lot of talent when it comes to tech. And so they're outsourcing so much of it. And Accenture is a happy beneficiary from that. So they've got double digit top line growth, you know, across pretty much every category, top line growth across pretty much every category. Operating margin continues to trend up nicely. They added new bookings of a whopping $72 billion in their latest trailing 12 months,

and it's accelerating. They pay a growing dividend. It's gone from $1.50 to nearly $4 a share in the past 10 years. And I pulled up an interesting metric here from Stratisford.io, which we cover here, which is sales per employee. I like this metric because it's a service business. Look at the acceleration from 2013 to 2022, generating over $900,000 per employee, which has gone up from about 550 in 2013. So that's continuing to go up and at an accelerated pace because of those reasons I mentioned. I'll throw this at number three in my list of companies I should probably smarten up and own. Yeah, no, I think I've learned about this one because of you. For those wondering, it's about 1.7%, which that is the one thing with this downturn that is interesting. Obviously, yields have gone up pretty much across the board, but you're seeing tech companies-

And for reference, you're talking about the dividend yield. Yeah, the dividend yield. Yeah, exactly. But for tech company, it was in recent years, it was hard to get anything above 1% unless it was a dying tech company that's just giving dividends because they're not really growing and doing a poor job of investing as IBM, let's just say. But, you know, if you're looking for good growing companies that are generating a lot of cash flow, you know, Accenture or ASML, even Microsoft and Apple is starting to be a bit higher too. You're actually getting more than just breadcrumbs. So that's interesting too for dividend investors, because in the past, I would probably want to have been one of the biggest critics of dividend stock portfolios is that they didn't have much tech

exposure. And when they wanted to, they had to get these pretty crappy tech plays, if you ask me. Yeah, you'd have to be underweight quality in tech just so you could get some income. And you're right, the tide's really turned on that. Look at a company like this, look at a company like Accenture, sorry, ASML that you talked about. And I talked about S&P Global, Autodesk doesn't pay a dividend, neither does Interactive Surgical. But some of these companies, you're getting more than breadcrumbs for a company that's structurally getting better over time. The top line and the bottom line is growing very nicely. There's still a long runway for growth. If they pay a dividend, the dividend is actually growing much faster than some high

yield play. And you're not getting paid breadcrumbs like this is this is a great thing and i i definitely share your sentiment yeah yeah exactly not too much to add anything else before we it's been a long one so hopefully people like it i feel like i need a nap after what what just happened no you know what these episodes fire me up honestly because i feel like this is up, honestly, because I feel like this is what we're good at. I feel like this is the type of content that provides a lot of value. And it's just fun to, I'm speaking for the listeners, I think it's fun to listen to. I think it's definitely fun to talk about because we're talking about the core of these businesses and we're at a unique time right now

where they're trading at mostly reasonable prices all of a sudden. And so I think that that should get people excited. Yeah, I think so. And look, like we said, again, this is not investment advice and do your own research. And, you know, the tech companies that are really trading at like dirt cheap valuation, I'm just going to go ahead and say there's probably something wrong with them.

The companies we talked about here, you know, they're not cheap, but like I totally agree with you. I think they're trading at reasonable valuations and you're getting for like really quality companies. So, you know, I started some positions. I added, I forgot to say, I added to BAM too recently, the mothership, just because I think there's a lot of good opportunities right now. Yeah, this is a good basket. I've tweeted today, if you want to go on my tweets, so recording this on October 19th, I did tweet today, a longer list of today's podcast. And you see, you can follow me on Twitter at Brado Capital and the tweet I did in the morning of October 19th. So you can see a longer list here.

And of course, that longer list is important because there's a lot of names here that are like, I think, could be in here. I mean, that's the beauty of a market downturn. I'd even list a bunch of names that I own in extremely high conviction, like Google or Constellation, for instance. We didn't even talk about those because we're really focusing on what we're looking at right now is like really exciting and potentially new positions. Would you say that's fair characteristic? Yeah. Yeah. I think for me, it's fair to accept the banks, but I felt like they're looking like a bit better value. And I wanted to also talk about some of the pitfalls for those who may be looking to invest in them. But aside from that, I would agree. Yeah.

Yeah. All right. Let's wrap it up there. Thank you so much for listening to today's podcast. If you're new here, this is The Canadian Investor. And if you're not new here, I have a small request from you. How about this? I have two small requests from you. First off, if you haven't rated the show, we've now passed 500 ratings on Apple Podcasts and over 1,500 on Spotify. But it really helps us get launched up the rating. So if you can throw us a five star,

and if you have time, no pressure, if you have time and you're on Apple podcast to write a little sentence about why you like the show, we'd really appreciate that. And number two, if you've already done that rating and you thought, I have some friends that could really benefit from the list here of 10 businesses that we're looking at. Notice how I'm not saying 10 stocks for me to look at. It's 10 businesses, right? We are business owners. We are not business traders. And that's how you really accumulate wealth long-term. And y'all know that list, that listen to the podcast, but some people don't know that. So share it with three friends,

copy the link, fire it off in some text. We'd really appreciate that. It helps us grow the show, gets it in front of more people. So if you send it to three people, I would greatly appreciate that. All right, Simone, this is us signing off. Take care. We'll see you in a few days. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.