The Canadian Investor - 4 Stocks on Our Watchlist for 2024

Episode Date: February 26, 2024

Join us for this special episode where Simon and Braden talk about two stocks that they have on their radar for 2024. Simon explains why Canadian Pacific Kansas City Southern (CP.TO) and Blackrock are on his radar for 2024. Braden goes over why Porsche and Snap are the two stocks on his watchlist for 2024. Tickers of stocks discussed: CP.TO, BLK, P911, SNAP 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 Dan’s Twitter: @stocktrades_ca 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 for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. 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. Welcome to the show. My name is Brayden Dennis. As always, joined by the capitalist, Simon Belanger. What's your two picks today? Just capitalism written all over you. Simon, this is going to be a fire episode because we're basically doing

a favorite segment of the listeners of the podcast, which is stocks on our watch list, but we're doing two each and we're making an entire episode about it of companies we're looking at that are in our watch list for one reason or another. There could be a variety of reasons why it makes it into our watch list. And I think it's helpful for us to kind of work through our thoughts live on the show so listeners can see what we're doing. So this is four stocks we like for 2024, aka stocks on our watch list presented by EQ Bank, but this time on steroids. So that's the setup for today's show. That's it. Yeah. And I mean, classic Simone gets carried away with doing a bit too many notes,

but that's okay. It looks more intense. You're just diligent. That's all. Yeah. It looks bigger than people would, like if they saw my notes, it's because I do have a lot of graphs that I'll be sharing with our Joint TCI listeners just to provide some context. So it does look a bit more intense than that, but I think it'll be fun. So the first one, let's get started. I'm sure we'll be chatting back and forth. So for me, it's Canadian Pacific, Kansas City, Southern Railway. I will refer to them as CP as much as I can, because that's, unfortunately unfortunately it's quite the mouthful if you do do the whole thing so for those who are not familiar with them I mean CP is just a railway it's one of two railways in Canada so we have Canadian National Rail and CP so CP goes from east to west and they also cut through kind of the midwest in the. and then goes all the way to Mexico.

And that's what makes it a really interesting play, in my opinion. Now, a quick recent history recap. In late March 2021, CP announced that it had agreed to acquire Kansas City Southern for approximately $29 billion. In December of 2021, the transaction closed in air quotes. In December of 2021, the transaction closed in air quotes. I'm saying that in air quotes because it was put in a trust, in a voting trust until the U.S. regulator. So the U.S. Surface Transportation Board or the STB gave its approval. On March 15, 2023, the STB provided its approval with some small conditions attached to that, but generally approved like most of the transaction. Both companies were officially combined effective April 14, 2023.

Now, I think the biggest attraction, at least for me, for CP is the competitive advantage that it has in its moat. So railways on their own, at least in north america they're very is that a word moaty like moaty yeah yeah definitely okay i like it yeah so they they tend to have very good moat so it would be the reason behind that and we've talked about this before it would be really difficult to build a new railway because of just a regulatory approval, especially a railway that goes through three countries like CP does, Canada, US and Mexico. Just building a new one would be incredibly difficult. Think about all the provinces that would be involved and then the states in the US. And for a railway that spans multiple countries, yeah, it really gives them

an extra competitive advantage. And the cost of building a new railway is also very prohibitive. I don't know how much it would cost, but I can say for sure that it would cost tens of billions of dollars, if not in the hundreds of billions to build these railways, get all the locomotive, the cars, everything involved behind that. To me, I mean, it must be at least, wouldn't cost at least a hundred billion to do that, right? It's the CapEx outlays. Yeah. It's absurd. It's the number, whatever it is, it's in the billions. You know what it is? It's what I call like the smart Stanford kid test, okay? So Stanford as a university, like the computer science graduates coming out of there, they either go on to build on great

things or drop out to go build great things, right? Like that's the cliche. And no smart Stanford kid is raising money for anything like this. Like there's no incentive from capital allocators like VC or the entrepreneurs that are trying to bill it. So it passes the durability and the moat of the Stanford smart kid test because there's no pitch deck flying around Silicon Valley or young smart movers and shakers who are beginning their career on raising $100

billion to build another major railway. There's just no appetite and no incentive. No, exactly. And if people also want to compare, why would it be so hard? Just think about pipelines, how difficult it is to build pipelines, and there's still a need for them and the regulatory approval to a lot of people being opposed against it. Clearly, railroads would have some issues of their own. I mean, some of them transport, well, most of them transport chemicals, they transport oil, there can be spills or can be accidents. You're also disrupting wildlife when you're building that. So there are definitely some environmental issues that would be created with building some new ones and how difficult it would be. And for our Join TCI listeners, you'll see two charts here.

So the first one is just the network of Kansas City, well, CP and Kansas City Southern. So CP, so we see that it's quite extensive. And then the second one, I mean, we all see they're all different kind of lines. You don't have to worry too much about all the different colors. It just goes to show that a different color is a different railway network. And that's why it's so, it's such a competitive advantage here for CP compared to the other railroads, because most of them are kind of more regionally located. So they don't even do all of the U.S. They're either more out east, more midwest, more out west.

Very essentially there is CP and I think pretty much Canadian National Rail that has such an extensive network. And Canadian National Rail goes from east to west to Canada and then all the way to the Gulf of Mexico. So I think that's just a good example and gives people an idea of why it's so important. And it really allows them to have a competitive advantage over other railways who have more limited networks. Like I just mentioned, it reduces the amount of interchange required, which is simply changing from one railroad network to another and the additional time that is required to do this. This would this should allow them to have some more pricing power over time, especially if they

provide some substantial time savings to their customers, because obviously time is money. And even if you were to remove that, there are only seven class one railroads in North America. A class one railroad is essentially one that generates at least a billion dollars in revenue. There are some smaller ones, but they're very, very local and quite small. So there's class two and class three as well. And obviously railroads are oligopolies. And you can even make a case that in some instances, if you zoom in a bit more on some geographies, they're either monopolies or duopolies. Obviously, duopolies, I'm thinking here of CP and CNR, if we're thinking of

just Canada alone. And I'm especially bullish on CP because of the change we've seen over the last several years geopolitically. And I'll elaborate a little bit on that because I think that's one of the biggest tailwinds for ACP or even CNR. As I'm thinking here more specifically with relations between the West, obviously led by the US and China. But especially under Trump where it all started, the US started imposing tariffs on a slew of goods. and China. But especially under Trump, where it all started, the U.S. started imposing tariffs on a slew of goods produced in China, which has continued under the Biden administration. And for the most part, Chinese companies have been able to continue to operate and absorb the cost of these higher tariffs in their margins. But at some point, I mean, if tariffs keeps increasing, could really

make it difficult for them to trade with the US. And recently, Trump said that he would impose tariffs of 60% or more on Chinese goods. Did you hear that? Did you see that? No, I have not seen that. But I know that regardless of who is in the potest position, there is a giant push for friend-shoring. Yeah. Whether that is doing that locally in the US or moving supply chains to friendlier type nations for this. So I see that as a long-term trend to continue. Overall,

capitalism is like water where it flows to best product at the best price, which overrules everything. But if these tariffs or whatever would be put in place does change the unit economics, then capitalism follows, right? Best price, best product always wins wins, no matter what. And so we'll see. But I'm just, dude, I've just been, while you're talking, looking at this map of the rails by each color. So you got BNSF, which is a Berkshire Hathaway company, Union Pacific, CN Rail, CP Rail, Norfolk, Casey Southern, Ferromex, which I guess is the Mexican rail and CSX. And I've just been like enthralled by this map.

It's really quite cool. Like you can kind of feast your eyes on it for a long time to kind of map out which rail is servicing which area, which ones have like a bunch of localized monopoly, like BNSF and Union Pacific, basically own all of the Western United States and into the Midwest. It's kind of crazy.

No, I know. It's kind of fascinating to look at. And I mean, one thing too, to add on to the whole like China question is I was listening to an interview with someone really connected to the US like uh china question is i was listening to an interview with someone really connected to the u.s uh u.s politics and they were saying democrats and republican don't agree on much but they agree on china and putting uh being tough on china i think

the only disagreement is how tough they are on china it's basically that's where they disagree and whether trump obviously says a lot of stuff whether he comes into power and that's where they disagree. And whether Trump obviously says a lot of stuff, whether he comes into power, and that's true if they increase the tariffs, like you were saying, it's going to force companies to friend shore or near shore. So near shoring would be closer to home. Friend shoring would be moving to places like Vietnam, India, these other countries that are friendlier to the US. And especially if they're moving operations to Mexico, clearly that would be a big benefit to a company like CP, which has the railways that goes all the way there. Just to add something, for me, the kind of number one driver kind of underpinning all of this is semis.

Semis is kind of the one thing where we can all agree on underpinning everything in this whole motivation. If you're really to look into it, it's semis. Like the concentration risk with Taiwan and the relations with China, that's to me seem, I don't know if I'm off base there, but to me, it seems to really underpin the entire effort with what they're doing with hoping Intel becomes great again and Arizona plant with TSMC. Yeah. And well, I think there's also manufacturing components even aside from semis, which has a lot of obviously national security implications. That's right.

I think for the voting base, so without going into too much in politics in the U.S., obviously we know that the U.S. election is decided by a handful of swing states, right? Everyone knows Texas is going to be Republican. California is going to be Democrat. New York is going to be Democrat. And then you have these like six, seven states that essentially decide the election. It's the swing states. Exactly. Like in Pennsylvania, over the years, they've been really affected with a lot of the manufacturing going overseas.

So it's actually good politics to try and be hard on China. I'm just fascinated by the whole thing. I'm not trying to say like, you know, you know, get into like, you know, partisanship or anything, regardless of the partisan, there seems to be a willingness to keep at least being tough on China. And that's why I think it's going to be a tailwind for these kinds of businesses. 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. Here on the show, we talk about companies with strong two-sided networks make for the best

products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host.

That is Airbnb.ca forward slash host. Now, one thing that's kind of nice, and I was looking through their information, their investor presentations that were done recently, is they are guiding for high single digit revenue growth between 2024 and 2028. That's really interesting because at that point, you know, there's no longer going to be base effects before the acquisition of Kansas City Southern. Southern. So the fact that they're guiding for high single digit revenue growth between 2024 and 2028 per year, which is that's pretty impressive for a more mature company. And they do pay a small dividend currently yield 0.66% has not increased for some time now, which actually is a big plus for me since it will allow them to focus some of that money paying down debt now it's not a perfect company the concerns and the reason i don't own it right now is just that it's trading at a pretty high multiple 63 the price of free cash flow is 63 and a 26p so the p is not that high but it's

definitely still on the higher end historically it could be that 2023 was a bit of a down year, not only for them, but also for Canadian National Rail, just because of macroeconomic headwinds. So it could be that obviously the E was a bit lower, and the price is still relatively high. So it's making the P to seem a bit higher. So there might be some room to grow there. And the debt, the long term debt jumped from 84 billion to $19.3 billion following the Kansas City Southern acquisition. So that is definitely a point of concern. They are doing some improvement in that regards in terms of the coverage ratio. So one of the most common metrics, at least the ones I looked at, is the EBITDA compared to the interest expense.

So obviously, the higher, the better here when it comes to that. So it was it did pretty low at the end of 2022. But now it's trending back up, which is nice to see. And that's something you will want to keep an eye on to make sure that they're not getting over their head in terms of interest payments, because it could have a pretty, you know, pretty bad impact on the business if that doesn't get under control. It's not out of control or anything like that for the time being. And then the last thing would be the free cash flow. So free cash flow per share has declined since the acquisition. Now that's a mix of issuing shares for the acquisition and some macroeconomic headwinds in the last two years. So I do anticipate this will get better over time. But overall, I mean,

my plan, my end game is to have equally weighted CP and Canadian National Rail and just kind of set it and forget it. That's the kind of company i'm good with uh i would hold with for 10 years and you know look back 10 years afterwards and uh you know basically the desert island a trick i would pick those two the infrastructure that's in the ground has been in there for you know in some places uh you know hundreds of years or a hundred years and will be for another few hundred years. It's almost so Lindy that the terminal risk is like the heat death of the universe. That's how Lindy some of these businesses are.

I think for me, you kind of touched on it. The issue that everyone knows that they're amazing businesses, right? Everyone knows that, right? Every single one, every single investor knows they're incredible businesses and they've continued to surprise to the upside. If you look at, you know, trailing decades of performance against the index, it's been fantastic, you know, multi-decade performance. I think at today's price, you're just getting something priced like a stock that has a lot of runway with very little runway and something that trades or its growth is

so dependent on macro forces. You're getting the price of something that has its extreme upside with something that's mature like a railway because the business is so good. So you're paying, paying up, up, up, up for quality. And I don't think that that's such a bad thing. So I don't have such a, I'm not saying that that's a bad thing.

It's just really hard to underwrite good returns.'s it's difficult to underwrite good returns on this and they do have times where they become more attractive valuation wise so that's why i made a point to say like that's the one thing that's kind of stopping me right now is evaluation and you know if history's repeat or at rhymes, there will be a point where the valuation will get more attractive. So that's when I'll definitely start my position in them. I'm just charting out here on FinChat for the Joint TCI listeners, the PE ratios trailing on CN and CP. And there have been a few times you've seen big divergences. 2014, 2015, you saw a big divergence. And they've traded very similar on multiples up until very recently. They're seeing

a pretty severe divergence in how investors are valuing these two companies as of today, investors are valuing these two companies as of today with like 27 times trailing earnings for CP and 20 times for for CN so something to consider there I mean investors certainly a little bit more optimistic about CP's future right now yeah yeah they love that acquisition but now we'll move on to something that moves or something yeah I guess I guess so. It also moves, right? Yeah. Yeah. Transportation kind of ish, but this is not a transportation. This is a car stock. And I'm talking about Porsche, not Porsche. My dad would be so upset with me if I came on the podcast and called it Porsche instead of Porsche. So here we go. I'm going to say the right name all this segment. So Porsche, the ticker is P911 for the 911 car. So P911, that's a pretty awesome ticker if you are familiar with the cars.

It's on the German exchange. I think there's a USADR. I'd have to check. The official company name you'll look up is Dr. Ing H.C.F. Portia A.G., which is the full title of the founder, Ferdinand Portia, which basically means Doctor of Engineering Ferdinand Portia. So the company name is like what you'd see at the bottom of an email. It's kind of strange, but that's what it is. bottom of an email. It's kind of strange, but that's what it is. Now, if you know me, Simon, an automaker would be the last type of company to end up on my watch list. And I certainly have many hesitations I'm going to talk about, but two things sparked my interest. One, international

stocks and emerging names are incredibly cheap right now compared to the US and maybe an interesting underground. And two, I've been looking more into luxury stocks and particularly Ferrari. They're an automaker, but they're really actually a luxury business. And so I was like, is there anything else that's interesting? Because Ferrari is like one of the most expensive large cap stocks I can possibly find right now. And so I thought to myself, is Porsche luxury and the stock is cheap? Or is it a traditional automaker that traps value investors for the last hundred years? And so does it deserve to trade at

seven times 2024 earnings? It's's kind of the question that I'm trying to figure out. And this is always the start of an interesting conversation. So let's work through it together here on the pod. And maybe as I work through these thoughts, I'll have a more concrete opinion. Let's start with the bad news. Let's start with the bad news first. The governance is so confusing, Simone. Volkswagen owns 75% of the shares. So they spun out 25% of the company for the IPO. Porsche SE is the entity that owns this and Volkswagen. And so that's another layer of complication. And then there's the Porsche family office, which owns a bunch of all of the above. I need to dig more into that. The pref stack is confusing. And then on the 25% IPO,

I think around 7.5% of it was bought by the Qatar investment funds and Abu Dhabi investment funds. So perfect, ESG written all over this. And so the rest of the IPO is given to common shareholders. Not to mention, Volkswagen did one of the most egregious and largest corporate frauds ever with their emissions scandal in 2018 with their diesel cars. Truly, truly one of the most egregious corrupt executive decisions ever and this cost them over 30 billion dollars to date this this lawsuit can you believe that that is absurd well and a quick note on that for those wanting to uh watch something good on that there is a documentary on netflix i think it's part of the dirty money series dirty money yeah yeah that's right so if you go i think it's part of the dirty money series dirty money yeah yeah that's right so if you go i think it's the first for first season i think uh it's really good i think it's like an hour long and yeah it's the those diesel those tdis yeah that's right i had one it was like my car in university

that my parents like were gonna give away and then i like got it and just don't put your head in front of the exhaust. That's the only thing. Yeah, exactly. Huge compromise. So the governance, the share structure, the pref stack, Volkswagen as a company, dude, not off to a good start. I really don't like the governance structure and the cap table, if you will. Other thing here, Porsche is luxury, but it's not true luxury. And for my Porsche fanatics and owners, I'm sorry, I don't mean to, it's not a shot at the brand. It's just that true luxury is a different asset class. Deliveries compared to Ferrari, okay? deliveries compared to Ferrari, okay?

Last year, trailing 12 months, Porsche delivered 331,000 cars. Ferrari delivered only 13,000. Average ticket price is way higher. And it's so exclusive that you can't even actually buy one even if you have the money to. They don't care if you have the means to buy a Ferrari.

Didn't Justin Bieber get banned from buying because he like painted it a different color or something like that? Correct. When you buy a Ferrari, you enter in a contract of that you're going to be a diligent owner. Take care of it.

It's not going to be left in public parking lots. It is not going to be repainted. There is a long list of things that make sure that it is kept true to the Ferrari brand. And they don't care how much money Justin Bieber has. They'll never sell them another one ever again. And they've been true to this the entire time. So it is actual true luxury. Like Simone, if I had a hundred million dollars, I can't even go buy a Ferrari right now. First of all, the current owners of Ferrari, as soon as they,

you know, how know how many deliveries are going to make for that year. Almost all of them are already scooped up by existing owners and collectors. They have first dibs. So if you already have a Ferrari, you can get another one. And it's ultra exclusive,

dude. It's really hard to get one. And the way I see, and I'll say Porsche, cause that's all like, that's the way i i see and i'll say porsche because that's all like that's the way i said it and that's all good and brad you can text me if uh if it's uh if it's loving this episode right now by the way the way i see porsche is a bit like kind of an in-between right so i think the way i kind of think about car brands is you have your like normal car brand so in this case would be volks brands is you have your normal car brand.

So in this case, it would be Volkswagen. Then you have the higher end, more luxury, which would be Audi. And then I feel like Porsche is like one step above Audi, but below Ferrari. It's kind of that in between, maybe the three out of four kind of echelons, if you put it that way. That's exactly right. And the price point reflects exactly what you're talking about it's like more luxury than mercedes audi a bmw but it's not like exclusive like true luxury like um these and true luxuries is beyond a price point it's it's It's literally like we decide as the owners of this who gets to buy our product.

Exclusive club. That's true luxury beyond a price ticket. And you can see that in the gross margins. Gross margins of Ferrari are almost double, 50% gross margins on these cars. Porsche's great gross margins for the automakers at high 20%. And so where I'm going with this is you've never seen me and never really excited to buy a car stock ever, ever on this podcast. I bash them all the time. But this is me just, this is again, not saying I'm going to buy the stock or anything.

This is a watch list name, but going through like where there might be opportunity, like where is there's huge discrepancy. Ferrari's trading like, I have to check. It's like 70 times, dude. It's absurd. Like it's a very expensive stock. So shifting gears. I think the stock is objectively cheap at today's multiples.

Total deliveries grew at almost 10% in the trailing 12 months. It is a steady grower. It's one of the few automakers that is a steady grower. Of course, it's a cyclical business, but it is a steady grower. It's one of the few automakers that is a steady grower. Of course, it's a cyclical business, but it is a steady grower. It's generating 5 billion in free cash flow, guiding up a little bit through 2024 and 2025. The good news is people love these cars. People love Porsches. I love Porsches. The models are classic. The 911 is a true classic design. It remains true decades later. I believe an incredibly durable brand with pricing power.

It has cult-like ownership group, especially in the 911 category and the classic models. My dad, for instance, as you mentioned, Brad. Brad, my dad, is a Porsche fanatic. He goes to these meetups. He's gone to Germany and done all the tours in Stuttgart. He's done every museum you can possibly think of. He cleans his classic Porsche with a toothbrush on Saturday mornings. It's very cool because the people in this, he's not alone, have a real passion for the engineering and everything surrounding the brand. You know what it makes me think about is like, you remember the Friends episode about Joey who has like, who pretends like he has a Porsche and buys like a jacket.

I don't know if you saw it. And basically like he thinks like he's pretending that this like car parked is like his own porsche so he's like oh taking care of it and then the owner actually comes and grabs the car yeah so he builds like a silhouette with boxes puts a tarp over it and says that it's actually a porsche and he has all he's all decked out in the gear until I think someone's throwing a football and lands on the car and then all the boxes reveal themselves. That's hilarious.

I haven't seen that. But dude, that's exactly right though. It's a brand people adore. It's sought after. It's not cheap price point, but it's not also egregious. And the brand is enduring in the fact that they've kept the cars looking the same brand and look and feel and emotion across through the years. I have here Porsche deliveries by model.

You can stack these up on FinChat really easily. So these are Taycan, Panamera, McCann, Cayenne, 911, and the 718 models, which includes Boxster and Cayman. So those are the models that they sell today, and that's how they group their models. And Porsche is an SUV company. Do not get it twisted. Yes, they sell a lot of 911s. They're selling like 45,000 a year. But they're selling like 200,000 SUVs in the Cayenne and the Macan models. I personally think that the electric vehicle SUVs are going to be a hit product looking forward. That's the car I want.

Because, yeah, I'm kind of an SUV guy going up to the cottage, going to golf. That's the car I want because yeah, I'm kind of an SUV guy going up to the cottage, going to golf. That's like the only reason I use a car. I think I want to buy an electric vehicle Cayenne when these release. When comp to Mercedes, you have similar multiples, both at like seven times EV to EBITDA, but Porsche is actually growing. Mercedes top line sales is declining. A lot of these automakers, dude, they have no growth left to squeeze out of the business. Porsche has an obsessive customer base, a much better margin profile, like double, and so on and so forth and so on and so forth. So it's not Ferrari, but it's way better than these automakers and trading at the same multiples. Maybe because you can only buy it on the German

stock exchange, maybe because the governance is confusing. There's a long list of reasons why, but it's certainly objectively cheap. So my question to you and my question to the audience and the question to myself, is this an opportunity or is this another automaker value trap where I'm going to be glad that I passed on it, you know, five, 10 years down the line. I think investors can probably do quite well with the stock from here, even though, yes, it's not a typical business I'd like. No, I don't think it's a super wide moat, but I think it's a super, super impressive brand that is going to stand the test of time when it comes to brand. Yeah. No, I think, I mean, I think the brand is is a really

good brand i think i agree with you there i'm gonna stick with the railway to transport the porsche from east to west i'm gonna stick with the ref you're probably smart about that no i think it's a good one i mean i know i think they went public volkswagen sent them public what in 2022 so they haven't been um yeah training new listing yeah you were listing so no i mean there's a lot to like and like i said it'll be interesting just to see how it evolves in the next few years especially for you know again it comes down to the macroeconomic environment geopolitical like if that will have an impact on this kind of business i know for example like chinese people love their german luxury cars over the last decade whether that continues uh into the future that'll be i i just get really fascinated with that kind of stuff yeah

yeah exactly so for those who want to to look up the name on fin, type in P911, P911. That is the ticker. You'll see the little German flag and it's basically the initials and title of the original founder of Ferdinand Porsche. You can look it up there. 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. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some

extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. All right, let's talk about the big bad BlackRock. Yeah, the company who owns the world, I guess. Yeah, yeah.

I'll see all those TikToks that are horribly misunderstood. Yeah, that's the one. Yeah, yeah, exactly. So BlackRock. So for those are pretty new for BlackRock, if you've ever seen an ETF for iShares, this is a BlackRock ETF. And since they're an asset manager,

I think it's really important to look at some of those numbers. So as of December 31st, 2023, they had $10 trillion in asset under management. This makes them the largest asset manager in the world. They cater pretty much to any type of investor here. So whether it's institutional, retail, or ETF, they do break it down. I do encourage people that would be interested in the business to just have a look at their investor slide decks. They have some really good information in terms of client types, in terms of asset under management. It's 56% institutional, 9% retail, and 35% ETF. Now, the ETF part will probably be a mix of institutional and retail, so keep that in mind, and that's for their asset under management.

And in terms of region, it's usually in terms of asset under management, AUM, it's 67% in the Americas, Europe, Middle East, and Africa, 25% in Asia Pacific, 8%. So there is some diversification there. But of course, the US is the most important market in the world. And that's reflected there. BlackRock gets most of its revenues from fees charge, although their fees are quite low on index ETF, they do have some higher fees for other types of products. For the most part, they do well because of volume. Three quarters of the revenues are base fees, which are administration fees and investment advisory fees. So that's 74%. And then they also get revenue from securities lending, performance fees, technology services, distribution fees, and advisory and other revenue.

Now, they generate tons of free cash flow. I mean, it's been like just up and to the right mostly for free cash flow per share as joint TCI listeners can see. As joint TCI listeners can see, there is some cyclicality to it because if you think about it, asset underRock, clearly that would have, you know, an impact on the fees that they generate as well. But the valuation is actually pretty, I wouldn't say it's the most attractive it's been, but I think it's pretty reasonable in terms of what it's been historically. It's kind of in the norm. I wouldn't say it's cheap or high by any means, but I think it's definitely interesting. Do you agree with that in terms of valuation? This is a name where, okay, so what's it trading at today?

You have it here on the screen, 31 times. Yeah, exactly, 31 times at PE and then- Yeah, it's a little elevated off the median, but it's not crazy. It's one of those names where it's the ultimate large cap stalwart, where it's not going to be cheap. It's probably going to rarely trade very cheaply. It gives you the odd opportunity as the market draws down. It has given you the odd opportunity. It feels like slightly above fair value, but most large caps of quality are slightly above fair value, which is in itself kind of a cringy statement. But I don't think it's overstretched or anything.

No, no, exactly. And to specify, it's around $32 price of free cash flow and then 21 in terms of price earnings. So definitely, like you said, pretty reasonable, I would say, historically for BlackRock. And what I like about BlackRock is it's not afraid to get into new spaces. And obviously, if you've been living under a rock, no pun intended, but there's been the spot bitcoin etf at that launch and black rock was definitely center stage for that so they are already the top dog in terms of asset under management so aum for the spot bitcoin etf when you exclude gbtc the reason why you want to exclude gbtc is because gbtc was a close-ended fund that got converted to an ETF on January 11th when

spot Bitcoin ETF launched after the SEC approved it the day before and GBTC had close to 30 billion in AUM now that's been significantly down and clearly back BlackRock is still behind but you know I think they'll slowly claw that market share because for a lot of GBTC holders is they're staying in that fund because there's tax consequences if they do sell because they're selling, they're sitting on profits. And GBTC is also charging 1.5% of fees versus BlackRock, which I think it is around 20 basis points. So I think it's just a matter of time that you'll actually see that money flowing to a BlackRock or Fidelity or any of the other spot Bitcoin ETFs that offer better fees. But BlackRock is definitely the number one when you exclude that,

because obviously, GBTC had a bit of a head start here. What's the ticker for the BlackRock one? iBit. iBit. Yeah, I think it's around. I know VanEck launched theirs and it's HODL. Yeah, and there's some good one out there. And I mean, BlackRock has had 5.7 billion in AUM in iBit since the launch in five weeks. And apparently, according to Bloomberg, this is in the top 0.1% of ETF launches of all time. So it's, I think needless to say, it's a pretty successful launch. What a hilarious headline from Bloomberg.

This is in the top 0.1% of launches. It's like, okay. It's pretty good. Yeah. Like how many launches got any fund flows at all? Like I don't think those are in the top 99.9. Well, they were comparing it to like 5,000 launches. But obviously, this was a whole asset class.

It's a bit different context. But still, all that to say, it's pretty successful. And I do have some mixed feelings here because I first owned Bitcoin in 2013, although got rug pulled by a scammy exchange. And then I bought back in 2018. And obviously, I believe in the technology for Bitcoin itself. And BlackRock having so much control over a large swath of Bitcoin is definitely worrying from a decentralization perspective. But I digress. That's not the point here. But what I'm saying here is for those who

are maybe not as open to Bitcoin or even skeptical, BlackRock is actually a pretty good way to get some exposure to that space while still mostly getting exposed to the traditional financial system. Even if you don't buy the BlackRock iBit ETF, just owning the stock will give you some exposure to that. So I think it's definitely an interesting, you know, viewpoint from that perspective. Because even if you're not really interested in Bitcoin and cryptocurrencies, I think it's probably a good thing to have some kind of exposure. And BlackRock does offer that because they've been dipping their toe into the space. And one of the things that I'll give props to Larry Fink is that he's made a kind of 180 fully on Bitcoin and cryptocurrencies. And he's actually been pretty outspoken about the potential

for tokenization for financial assets. He went on, I think it was CNBC about like a month and a half ago, two months ago, right around the time that the Bitcoin ETF launched. And tokenizing a stock means that you put shares on the blockchain. Typically, the token representing the shares would be backed one for one by shares of the company. If we take a stock, for example, and the shares would be held by a custodian and the token would be traded on a blockchain whether it's a public blockchain like ethereum or bitcoin or a private one and the main advantage here is that these token representing a share would eliminate settling time which is one of the biggest problems with our financial system so if you're new to

investing what happens is let's say I buy a share of Microsoft. So I buy it today. Well, it will typically take two days after the trade is done to be settled. And that's why you'll often see T plus two. So that's the trade plus two. And having a tokenized system would essentially have the trade settle within a matter of minutes at most. And that's a big, big advantage, especially if you're thinking, you know, I know we have some dividend investors, right?

You have the ex-dividend date and all that to keep in mind. And you have to own the stock by a certain date to be able to get the dividend. Well, oftentimes, sometimes people will kind of buy it on the kind of the date of record, thinking that they're good. But it's actually two days before that, because if they buy it on the date of record, the trade won't be settled for another two days and they won't be the holder of record for the dividend. So that is one of the potential efficiency that it would bring. And speaking of dividends, they have a growing dividend that currently yields 2.5%. In terms of concerns, I mean, the main concern is to me the cyclical nature of the business. Obviously, I mentioned it, if there's a market downturn, that's going to lower the AUM. And of course, there's going to be lower fees collected on that. Or if there's a big wave of

selling, and investors are getting out of the type of products that BlackRock is offering, that would also impact them. And of course, there could be some potential disruption with innovation that BlackRock may not see coming. So that's another kind of concern in terms of this company and owning it or not. concern in terms of this company and owning it or not? I don't know too much about tokenization of assets. I think I'm a little more skeptical than you are. But if I can do my Norbert's Gambit in the same day and not have to wait for T plus 2 and then T plus 2 again, when you do Norbert's Gambit, since you have to do two trades, it's actually T plus 4 and you you gotta wait and do that whole process so if i can do that in one swift uh brokerage

session hey whatever you gotta do larry fink uh whatever you gotta do pal i'm good yeah i mean i think he was in davos for that the world economic forum that's when the world hypocrite for the world hypocrite forum the world hypocrite forum yeah that's it and uh it was just really interesting because they were asking him about the bitcoin etf and then they asked him about the spot bitcoin ethereum etf which blackrock has an application for and he didn't want to talk about that really but he diverted the conversation to tokenization and just went on for minutes about talking about tokenization. So that's why I thought it was just good to include that here. But I mean, all that to say is they seem to be more open-minded than some of their

counterparts, Jamie Dimon, but no. And I think that's a positive. Whatever you think about BlackRock, obviously I have my reservation too, but it's not a company I'm looking to buy, but I think you could own a lot worse things in the stock market than owning a BlackRock. So the ETF business has been a real winner. I mean, when they first started reporting it in the fiscal of 2016, it was doing three and a half billion in revenue. Now it's almost 6 billion. It peaked 6 billion in 2021. And it's been solid through like a market of 2022, which was rough for equities, fund flows and fees in this business were still great. So they're still capturing that. I've always said the asset

management business, if you can design a business, it's one of the best businesses. To get software-like margins and software-like recurring revenue, it's really quite amazing. The question really is just how commoditized is the service that they're offering now become? I think that that's a real kind of concern or like hole in the bull thesis is around how commoditized this business has become. Of course, they're gigantic. And of course, they're going to be able to do things that others can't. But when I look for an asset manager, I'm looking for an actual edge. Usually those are coming in the form of like private equity style management, whether it's like a constellation who has like their tentacles into everything,

or it's like a Brookfield because they're actual owners and operators of these infrastructure assets and have access to very scarce infrastructure assets. Like a hydro dam, for instance, is much more lindy because infrastructure assets, like a hydro dam, for instance, is much more Lindy because you can't build a hydro dam on a hydro dam. There's only so much water power available. And so that's just a core example of if I want to own the asset manager, I want them to also have some non-commoditized edge. I still think you'll do quite well with BlackRock, but that's just something to think about if you were to own the name.

No, no, that's definitely, that's fair. I think where they get is definitely on the volume, but that could, you know, that may not always be there. Yeah, but at least, I mean, they have all different kinds of assets available for people. So, you know, if equities become unfavorable, people want fixed income alternatives, like BlackRock's got you covered. It's a one-stop shop. That's the advantage. Yeah. Yeah. All right. This one's interesting. Do you see the name I picked to round us out today?

Yeah. That one, you'll have to do a lot of convincing. I just saw the name. I'm like, oh boy. Dude, it's not convincing. I wanted to kind of preface at the beginning of the show. I just saw the name. I'm like, oh boy. Dude, it's not convincing. I wanted to kind of preface at the beginning of the show. I don't know if I did well enough. First of all, of course, none of this investment advice. These are not names we own or chomping at the bit to own. I just talked about an automaker. It's turning over rocks where there might be opportunity or maybe not. But it's my job to turn over rocks. And so I'm sharing that information here on the podcast. Maybe they'll be leveraged by a private equity fund.

Yeah. I don't know. When do they get? Okay. I don't want to steal the thunder here. But on that note, when is Zuck... Zuck should have just sold this to Zuck a long time ago. But anyways, Zuck's not allowed to do any acquisitions though

because Congress hates the guy. All right, Snapchat, ticker SNAP. Now this one's off. Again, not my style of business. Not profitable. List goes on and on and on about how I could dunk this stock. It's been- Terrible governance too, yeah.

Clown car. It's been a clown car. They have treated shareholders like trash and continue to have terrible performance. I'm wondering if I'm even off my rocker looking at this one live here on the podcast because it's been such a dumpster fire. Snapchat stock has been a wild ride. They

IPO'd in 2017 for $27. In 2021, the stock went nuclear to 83 bucks. Pinterest and Snapchat were like going mental. Everything ad dollars was going mental. And now it's on a huge drawdown to $11. now it's on a huge drawdown to $11. It's been an absolute rollercoaster. They reported their Q4 earlier this month, and it was rough for the stock. I think it was down like 30 odd, 40%. And investors are basically saying, what's it going to take? What's going to give? You know, like something's got to give. Theeverage buyout. The cost structure is out of whack. Operating income was negative $1.4 billion for the year. It's growing faster than top line. Every other tech company's cutting spend, you know, getting their SG&A costs under control.

And Spiegel's just out here wilding out. And so investors are like, hey, can you just be like Zuckerberg instead? Go on the air, go on the Q4 and call it the year of efficiency. Can you please? What's got to give here? Now, first in the short term, the obvious things here is sales growth is stalling. Guidance was weak. The reason investors are just frustrated with the stock, okay? All right. I've started with the bad news. I've started with the clown card that is Snapchat. But, here's the but, active users for a large scale platform, I don't know if there's anything better than Snapchat today. Just share the doc because I got the stacked bar charts that show average active users

for North America, for Europe, and rest of world. That has grown from 2014 at 71 million to 414 million. So if you just scroll down, you'll see the stacked bar made on Fincheck. There you go. Here's the user growth. Everything you know about Snapchat aside, what do you think about this chart? What comes to mind here? Yeah, I mean mean the chart is uh doing well like it went from what it's in millions right yeah so it went from 71 in 2014

to 414 in 2023 and then as of their latest quarter yeah the latest or latest year i guess you have right yeah but we it's it's time yeah yeah it's That's right. And it was 375 last year, 319 the year before. So basically it's been steadily growing with the exception of 2017 to 2018. And it's not like, oh, it was doing great in the mid 2010s. Like it's been rocking since 2018. Like the user growth has been rocking.

It's grown from 186 million to 414. The rest of world segment has exploded. It's gone from basically zero to over 200 million active users. The North American segment is not growing as fast, but it's been a really sticky initial cohort. And Europe's been rocking as well, about to hit a hundred million actives. And a similar story, if you scroll down, this is the quarterly number. This ticks up like a SaaS company. If you keep scrolling down, this ticks up like a SaaS company. It's not that chunky. I am shocked by the user growth of Snapchat. The Gen Z and the Gen Alpha kids love it. That's all they use to communicate. I kid you not. It's absolutely absurd. For people who have

like teen kids, they'll know that their Snapchat and their friends, they don't even use iMessage. They don't use WhatsApp. They Snapchat, whether the text or they send each other photos, and they have like thousand day long snap streaks. It's out of control. So average revenue per users back up to $3.30 globally and back up to $9 in North America. For context, you're looking at close to $50 for that segment for Facebook. And that's not even the bull thesis here because it's really hard to be like, oh, they can get it as high as Facebook. No, Facebook is a unicorn in terms of average revenue per user.

It's out of this world. It's so good. And their ads platform has better metrics than anyone else. It gets its tentacle and sucks you in and then you're never gonna get out. Exactly, exactly. So of course, there's room to grow at an R approval, $9 in North America, $3.30 globally. But I'm not saying it's going to all

of a sudden touch 50 and be, you know, meta numbers. So I talked about the Gen Z, the Gen Alpha kids, they love it. Heck, I use it. Me and my buddies, we have a Snapchat group. We're in our late 20s to early 30s using this thing. I actually think it's hilarious and literally one of my favorite apps because it's actually social. Other apps they call social media are like unsocial media. It's ironic, really. Doom scrolling videos made by other people on how to bake sourdough is not social at all. In fact, it's unsocial media. This is actually collaboration with your friends. The problem with Snapchat is they've tried to monetize this other part of the app, which is like the explore feed, which is like watching, you know, Gen Z TikTokers, you know, vlog their weekend.

It's really not that engaging for one. I don't know if they have a lot of creators on it. I don't know how those creators are getting compensated. And the ads platform sucks. I've heard, I've talked to insiders and marketers. They've said that the ads platform, yeah, sure. If you're specifically catering to that niche, it's good. But like, you can go find them on Instagram for less cost and better attribution. So it's a tough sell to marketers, right? So what gives? Despite this, everything that they're doing,

the user growth is one of the most impressive of all large scale applications today. The user base is extremely sticky. The young kids love it. People like me even love it. I've had the app for like since high school, you know, like long, long time. And so what's the turnaround?

There's no more leash left, Spiegel. Like, you know, like you're in the seventh inning and you just threw another home run to the DH. Like there's no leash left to give a baseball analogy. And it's like the turnaround or maturation that investors have been looking for with this company that never happened. So it's like you're waiting for your degenerate friend to finally grow up and become an adult. Next thing you know, they're 37. So it's like you're waiting for your degenerate friend to finally grow up and become an adult. Next thing you know, they're 37.

You know, life comes at you pretty fast. Next thing you know, you're 37 years old. It's like me, 17 years old in high school. My friends are growing beards. And I'm like, puberty is going to come for me eventually too, right? I was a late bloomer. Don't you worry. What's going to give?

Like, what's the catalyst here? When are they going to mature as a company? And so it's in a weird place as a public company. I don't know what to think. The user growth is sticky, undeniably great at this point, way better than a Pinterest or anything like that. The bear case here is it's run like a clown car in perpetuity. The bear case here is they never figure out management of the cost structure. They never get profitable. But perhaps today's price reflects that. It's 18 billion in market

cap, three and a half billion in cash on the balance sheet. There is a way to make a shit ton of money on Snapchat. There is. There is a way. You just have to believe that there's going to be some sort of turnaround on the clown car that is management. I don't know. Maybe Spiegel takes steps down to see you. Someone comes in there and matures this company up.

I don't know what that answer is. Yeah. Yeah. And one of the other issues I pulled this up on FinChat.io is, so you have two bars. So you have the total shares outstanding. And then you also have the repurchase of common shares. And they essentially have been issuing a lot of stock. I'm assuming it's all stock based compensation. stock-based compensation and then trying to compensate that with buying back shares, which is not a great use of capital in my book. And it would look a lot worse if they weren't buying back shares in terms of total outstanding shares. But I knew that was an issue with Snapchat, is they tend to have a lot of stock-based compensation. And I suspected that they were

buying a decent amount of shares. And we see the shares increase steadily when they're not repurchasing shares. And then it kind of stabilizes when they're repurchasing shares, which obviously you can put two and two together. Yeah. It's a tech company at their stage. I expect stock-based compensation. Stock-based compensation has kind of been leveled off since 2019 a little bit. It has increased. They did spend that billion dollars you're talking about there in 2022 to buy back some stock. Very, very kind of silly move in my mind that maybe they think the stock was cheap. Maybe they think it's really cheap here. I don't know. But you know how you stop issuing more stock?

You right-size the cost structure. Yeah. I get it. There's going to be stock-based compensation, part of this story for a little longer. I get that. And I actually think that that's the right move to do here. Getting tech talent is very difficult in this day and age for these large tech companies. I don't know if they can pay Facebook, Microsoft salaries, and they have to do some sort of SBC. But there is a way amongst all of this, that they figure it out. I don't know, like,

maybe right? Like, I don't know. That's why it's on the watch list. They're sitting on a gold mine. And maybe another catalyst to mention here, maybe as their user base of the Gen Z and Gen Alpha kids that are messaging each other all day long, drive ARPU up. These are not high ARPU users at the moment because, you know, unless they get their parents credit card they're not buying stuff and and having actual like checkouts which drive the the marketing platform to really work and drive up those numbers maybe that they're sitting on a gold mine like it's undeniable i do believe that they're sitting on a gold mine and ARPU is just average revenue per user in case people weren't sure. And, you know, I think there, I mean, there's potential there, but it's hard for me to know if they can fulfill

that with, it's not like they've been public for a year, right? Like it's been some time, the platform has been there. At this point, I'd expect them to be profitable on a regular basis, which they have failed to do, even when it was ripe. Like basically, they should have had like 2021 2022. Like these should have been like years where profitability would have increased. I think one of the years they were profitable. It's just I have a hard time saying that there will be able to improve on that, especially if there's a tougher economic environment. Advertisers will just go where their ad spend money brings them the most value when clearly right now it's not Snap. That's right.

If two things can happen. I'm not saying that they will. And I'm actually very pessimistic that they will. With that framing in mind. That's the best shot stock pitch ever. Like, you know. Yeah. Yeah, exactly.

Hey, by the way, this thing's a shit show clown dumpster fire. But hey, if two things can happen, if ARPU can increase meaningfully, meaning that they improve the product on the ads platform or figure out monetization that neither of us are going to be able to brainstorm on this podcast. Whatever they do, those two avenues, whether it's ads or other services, our poo goes up. And two, the operating expenses and the SG&A come down.

I don't, what are they spending money on? I don't know. Like, I really don't know. So if those two things can happen, you will very likely make a ton of money on Snapchat. Like I, I believe, I truly believe that here. We're at a point here. I'm calling my shot here February, 2020. You're either going to continue to have a dumpster fire management team, or you make a ton of money on the stock. Like of the i believe it's binary at this point so investment thesis so you're saying there's a chance exactly so you're saying there's a chance on this dumpster dude i you know what i mean though like

oh i know what you can't not look at that user count and think, huh, something's here. There's been very few apps that have had this kind of enduring stickiness, let alone growth at this stage. Very few apps. Just a few in history. You're right. Yeah. I can't argue with that. That's for sure. Okay. Well, let's wrap this up. Thanks for listening to the pod, guys. Yeah, that's for sure. Okay, let's wrap this up. Thanks for listening to the pod, guys.

That's four stocks on our watch list presented by our friends at EQ Bank. I personally really like doing this style of episode. We get easily carried away with these kind of episodes. Yeah, we're already in over an hour here. But dude, it's helpful. It's like even in a self-serving way, I'm sure the listeners get a lot of it too, but it's helpful to kind of talk through these things live. As you can see me trying to chew on Snapchat. Opportunity or am I an idiot? TBD here. And that's why it's on your watch list.

It's so important to chew on these things as not a shareholder. Yeah, yeah. You know what I mean? You chew on these things while they're on your watch list. You don't buy a stock and then chew on them. Like that's a sure way to overtrade and a sure way to lose money from my view.

Yeah, no, definitely. Well said. Hey, so listen, we'll see you in a few days. All the data provided today is on finchat.io. Finchat.io, you can get 15% off with code TCI is the quickest. This research, you know, would have taken us three to five times longer in my view, if we weren't able to pull up these stats very quickly. So we did that on Finchat. Use code TCI for 15% off. We will see you in a few days. We are here on the podcast Mondays and Thursdays, every single week, show goes on. If you can give us a five-star on

Apple Podcasts, you can leave us a nice little review there, give us a boost of dopamine. And then if you're on Spotify, you can press that follow button. It costs you nothing and gives us a lot of value. So that's all we ask. Thank you so much. We'll see you soon.