The Canadian Investor - 5 Reasons To Be Bullish on Stocks and Assets

Episode Date: October 14, 2024

In this episode, Braden dives into the 2022 “COVID hangover" that continues to haunt high-growth software companies. Simon and Braden discuss why these stocks, despite massive revenue growth, have struggled since 2022. Braden discusses how some of these companies that are still hitting the rule of 40 might offer intriguing opportunities for investors today. Simon then makes the case for being bullish on stocks and other assets, despite the many reasons that might lead to a more bearish outlook. With global liquidity on the rise and central banks grappling with ballooning deficits, he questions whether these liquidity dynamics could provide a strong tailwind for asset prices moving forward. Could this set the stage for stocks, real estate, and alternative assets like Bitcoin and gold to perform well, even in a challenging macro environment? Finally, we finish this episode by talking about 3 stocks that are on our radar.   Tickers of Stocks & ETF discussed: FNV.TO, ONON, DECK 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  Web player - 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 into the show. My name is Brayden Dennis, as always joined by the stellar Simon Belanger. Today is a banger of an episode. You and I both have two discussion points that we're going to talk about.

You're talking about the bullish case for stocks, where your daily dose of optimism in a world where the news wants to sell you everything ugly. And then you and I are both going to have a pick for stocks on our watch list here at the end of the show. So let's get into it. I like your segment here, man. We need some optimism, man. Yeah. I mean, I guess doom and gloom does sell better, but I think it's more of a nuanced take to, yeah, there definitely can be some bullishness with stocks and assets in general. All right. I'm going to kick us off with what I'm calling, are we in a 2022 hangover for growth software or is this still a trap? So I just did a screen of software companies that have had negative year-to-date performance while revenue growth has been over 25% in the trailing 12 months.

And by the way, they've had to have positive three-year CAGR of that as well. So the business has to still be growing on the longer-term trend and in the short-term trend, but the stock is down bigly. If I look at some of the names here, like Bill Holdings is down 51%, Snowflake is down 25%, Asana, the work management software company, that's worth down 36%. And so that list, you get MongoDB, Okta, Unity, Procore, Workday, these kinds of names, and this type of company has been very, very unloved. And so we did a piece on the FinChat newsletter a few weeks back of just companies that have had huge revenue growth, but really poor performance. Examples like Alibaba, the revenue being up 1500% while the stock is bigly negative.

Zoom Video, revenue's up way, way, like 900% put the stocks down for a lot of reasons. Roku, HelloFresh, Lightspeed, Twilio, Teladoc, a lot of these, I'd say COVID up into the right names that came back to reality. But ultimately, it comes down to factors that the market dislikes today that I think was willing to overlook in 2021. Is that a fair assessment? Yeah. These are not new factors that are wrong with these businesses. They're not profitable now, they sure as hell weren't profitable then. Yeah. I mean, it's nice to have a business that has profits.

That's as simple as it is, right? So I think it's just the market kind of returning to looking at profits, free cash flow, what's actually being generated and returned to shareholder. Because sales, increasing sales are nice, but increasing sales is no guarantee that eventually you'll be returning money to shareholders. Correct. Look at Celsius, that energy drink stock. Yeah. Explosive growth, 60% drawdown right now.

Yeah. And sure, you could make money with capital gains, right? That's fine if the market agrees with you, but then when the market starts looking more at profits, you might have a tougher time getting some capital gains there. It's that idea of growth at any cost. Now, those debts are being paid for those costs, right? Stock-based compensation. You can't just inflate the share count 3X, but look at our revenue growth is 5x it's like well net net right like shareholders did better with the you know boring industrials and i think people remember right it's been recent enough that a lot of people invested myself included have been burnt in these companies um like teledoc ended up making a bit of money. But if I sold towards the top, I would have made a pretty penny. But I mean, at the end of the day, a lot of companies just grew too quickly. And then

when money dried up, whether it was their stock price, you know, crashed down or had a significant pullback, they probably, you know, they had to issue more shares if they needed more funding, dilute shareholders even more, or tap into the debt market at higher rates, which is not good again for shareholders. I think a lot of investors are looking at it, well, is your business sustainable? Is this growth sustainable? Can you be profitable going forward? Or are we going to get hit again with this high growth, but down the line, we're going to be diluted or you're going to have to tackle some high interest debt. One that I got smoked by was Unity. I bought it like

80 bucks. It was expensive stock, but the story was there. Shot up to 200 bucks. I think it peaked at 198 US. I felt like a genius. And then they did these string of goofy, goofy, goofy acquisitions. I was like, I'm out. Did lose some money, but would have lost a lot more had I stuck around and held out. So, you know, I guess minor consolation after losing a boatload of money. But the peak 2020 euphoria into this 2022 hangover, you had zero interest rates, COVID growth rates pulled forward. This is what I'm referring to. Stimulus, left, right, and center. Yeah. And this is what I'm calling that 2022 hangover. Because let's not forget

the NASDAQ 100, which is a fairly good index to what I'm tracking here on like growth fee, high stock-based compensation, a lot of tech, finished down 33% in that calendar year. On top of a variety of things that the market dislikes now that it was willing to overlook, willing to turn a blind eye, huge stock-based compensation, reckless expense lines, huge SG&A costs, still not particularly cheap today even after these drawdowns. Gap profits are a distant future. You have adjusted, adjusted, adjusted EBITDA to maybe tell a story. Growth is still there. That's the other side of this coin. When I do this screen and I list a bunch of those companies I'm talking about, Mongo, Okta, Procore, UiPath, Snowflake, the growth is still there.

Of course, it's decelerating. They're not going to double every year forever. So I think the answer here is some of these names I think are worth another look. Some of them for sure, no. And it's actually a very good hunting ground, I think, particularly in that first list of growthy software companies that are still achieving a true rule of 40, software companies that are still achieving a true rule of 40, which means revenue growth plus EBITDA margins is over 40. The rule of 40 is a really good kind of rule of thumb for buying software companies that are fast growing or super profitable because you get that rule of 40. Again, that is revenue growth plus EBITDA margin being over 40 is a sign of a really healthy growth name. They're not cheap, but I think that there's some unloved companies that

are still in that hangover and the stock price and valuation can somewhat be justified here again after going briefly parabolic and then going you know jumping out of a plane so i'm just bringing that up as a as a potential hunting ground yeah and even looking at mongo db one of the names that was there i mean i everyone knows i like to look at free cash flow but especially free cash flow per share because it accounts for the share dilution and mongo db has actually been performing, you know, it's turned into the positive for free cash flow per share until like, well, it's been what the last year and a half probably or so. So it is something to, you know,

to look at. It's not crazy amounts and it's still a company that's growing quickly, but it may not be profitable on a net income basis, but they are doing decent on a free cashflow basis. Yeah, and it's really easy to kind of track metrics like on FinChat of things that really matter for these types of companies, like total customer counts, customers that have over 100K of annual recurring billings, total annual recurring revenue,

different margin profiles across the different products they have, net retention, dollar-based net retention. These kinds of things really, really matter for these companies. And a lot of them look fantastic. So if you liked them then, it's the old saying, if you liked them then, you're going to love them now. And so some of them really hard to justify between the stock based compensation, between some of the goofy acquisitions that they did, between the expense line items and the SG&A still being out of control, profits a distant future. Those ones are hard to get by, but there are a lot of stuff being thrown out with the bathwater here.

Yeah. Yeah. I mean, at the end, like, look, it's all investings like that, right? When I did that segment on China, I think it was a little bit like that where you have some companies that were still performing very well, but because it was a Chinese bit like that where you have some companies that were still performing very well. But because it was a Chinese name, the valuation were just, you know, just extremely low. And not to redo the segment, but clearly, you know, there was a lot of risk baked in already. And that's where, you know, there's some crappy, I was going to say, other companies in China, don't get me wrong. But I think, you I think you can probably assume that Alibaba is a pretty solid company and their financials are pretty accurate overall.

So that's just an example that came to mind. 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. So not so long ago, self-directed investors caught wind of the power of low cost index investing. Self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast,

I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products.

Please check out the link in the description of today's episode for full disclaimers and more information. Okay. So now we'll move on to my segment. So the bullish case for stocks and assets. I'll talk about assets in general. I'm talking here a bit more about kind of, I'll say air quote hard assets, whether you want to call stocks hard assets or not, doesn't matter, but there's clearly no shortage.

I mean, you said it right. No shortage of bearish. I think they call it like bearish porn almost in terms of stocks here. So there's no shortage of that. Clearly, you don't have to look very far. You can find a lot of macro experts that will give you tons of reasons to be bearish. And I try to listen to both sides of the bearish and also the bullish because oftentimes you have really, really smart people that bring you data forward and both make a very compelling case. So that's why I think it's important to remember that if you kind of start focusing on everything that's

bullish or everything that's bearish, you end up having a little bit of a kind of narrow view of what could happen, because the reality is we've said it time and time again the future is probabilities there's multiple different paths and it's just trying to figure out which path has a certain type of probability and then you know you kind of do your investments that way at least that's the way i see it it's easy to understand right the bearishness there's tons of bellwether companies that are issuing warnings. We look at earnings pretty frequently. I look at them, you know, on a weekly basis with Dan. So if you're looking at FedEx recently, that revised its guidance lower. Canadian Tire, it's been well known in Canada now that they've, you know, said

the consumer is not doing well. Walmart,ation couche tall brp winnebago like there's really no shortage of companies that are saying that the consumer is stressed i mean you can even look at companies like go easy financial which is a subprime lender and their loan originations are through the roof and when you look at subprime lenders usually when their loan originations tend to go through the roof is when, you know, there could be some problems down the line because you're not paying 20, 25, 30% interest on loans unless you really have to. So these are just examples, obviously. And of course, every month, it seems like there's a report of record levels of debt for households,

high consumer debt when it, debt, and specifically credit card debt. And then you add in geopolitical tensions, what could have the impact on the economy, whether it's the price of increasing oil because of the Middle East tensions that are happening, the US-China relations. You can look at the US or the commercial real estate space, especially certain sectors that are really struggling. So there's really no shortage of bearish things. But again, you've done segments on this before for the wall of worry. I mean, there's always going to be some indicators that are not good. But the real question, I think, and the biggest case to be bullish right now, in my opinion, is liquidity. So just a few weeks ago, we talked about it actually last week,

just a little bit, is China announced some significant stimulus measure. I mean, it's the second largest economy in the world after the US. The US has a 1.9 trillion deficit for this year alone. That means they are spending a whole lot of money that goes into the US. The US has a 1.9 trillion deficit for this year alone. That means they are spending a whole lot of money that goes into the economy. So again, same in Canada. I think the government in Canada were projecting a 40 billion deficit, probably going to be higher when they come out with their fall economic update. But again, that's more money that's being pumped into the economy. But again, that's more money that's being pumped into the economy. France, one of the largest economies in Europe, is expected to have a 6% of GDP deficit, which would be around $200 billion.

Clearly, this could cause some problems, but it could also be a big tailwind because you have a whole lot of liquidity. And there's different measures that you can use for liquidity. You know, there's a lot of different experts here, but I think a good way to look at it is the growth of the M2 money supplies. So M2 money supply measures the money that can be relatively quickly access like checking account, savings account, time deposit, something like GIC would be a time deposit, money market funds. Well, the M2 has been rising pretty, you know, it started to rise again, I would say after central banks were contracting the money supply with quantitative tightening, which is essentially reducing the size of their balance sheet. But now it's starting to increase again. So for those on joint TCI,

I'm showing the M2 money supply and there's an M1, M2, I think there's M3, possibly an M4. My M2 is the one that's most widely used in terms of the money in circulation. And you can see in the US where it really ballooned in 2020 for obvious reasons because of all the stimulus that was happening. And then it kind of went down a little bit and now it's starting to creep back up. And if you're looking at Canada, same kind of thing. So Canada, if you're looking at the last five years, kind of leveled off a little bit, although it seems like it never really stopped increasing for Canada and China would be in a similar boat here. So that's kind of a sign that liquidity, there will be more liquidity in the system. And that typically is a tailwind for

asset because if you think about it, it's quite simple of an argument. That's because most assets are just finite supply or at the very least, a very slow growth compared to the growth of the m2 money supply or money supply in general so what ends up happening is there is more and more dollars competing for assets like stocks real estate bitcoin gold other precious metals even collectibles right if you have rare collectibles. So it really could be a big tailwind here. But of course, I mean, if there is a major liquidity crisis that happens that triggered, whether like it's a major G-SIB bank, so that kind of, you know, is in trouble or something like that, there's some fear and people are really selling their assets to try and get

some cash as quickly as possible. Of course, that could impact that. But I mean, there are scenarios where, you know, it is just bullish going forward because of this. And what I decided to do is it's pretty interesting. I talked to you a little bit before we started recording and I'll share this for our joint TCI listeners, is comparing the return of stocks and real estate, and real estate specifically in Canada, to gold. So I'm sharing here, and I'll explain the chart. So the chart goes back to, I guess, 1928. So you have the S&P 500 compared to ounces of gold. And pretty much it bounces between, you know, as low as, you know, 0.19 roughly, you know, the ratio for the S&P 500 in terms of ounces of gold, and then goes all the way up for the max to 5. So it kind of goes in between that ratio over the years.

But the important thing to think about when you look at this is just think about the charts that everyone has probably seen for the S&P 500, but denominated in US dollars. Brayden, what does that chart do? Well, you just talked about it. It climbs the wall of worry. It just goes straight up in the right pretty much, right? wall of worry. It just goes straight up in the right pretty much, right? Straight up into the right. It looks like a nice, if it's a log scale, it's pretty linear. If it's not, it's pretty exponential. Exactly. And then, so the other one that's really interesting is, again, you use the same thing and everyone in Canada, I'm sure, can relate to this. So, what I'm sharing here is a tweet from, a really good tweet from Hanif Bayat. I think he's the founder of WoWad, the site where you can compare, I think, mortgages, amounts, other things. And he did a really good chart which compared the average, the benchmark home price in Canada in Canadian dollar since the early, late 1970s.

So 1971, Q1 of 1979, sorry, up until Q2 of 2024. And it's very interesting to see the divergence between, you know, home prices denominated in gold versus home prices denominated in Canadian dollars. So yes, you know, the benchmark home price has gone up in Canadian dollar. But spoiler alert, since pretty much, I would say, mid-2000s, it's been going down slash sideways in gold prices. So it just goes to show, and the reason why I'm using gold here is I think it's the best historical kind of monetary unit, if you'd like, that has proven, you know, over the years, over thousands of years. So I think it's a good one to benchmark against these real assets to see what the assets are actually doing. And when you denominate them in prices of gold, they're probably not doing as well as you thought. And I'll probably just finish on that is clearly the S&P 500 has outperformed gold. But in terms of, you know, measuring it compared to gold, especially since

1971, when the US went off the gold standard, I think performance of gold is around 8% since per year, which is quite good. And the S&P is probably around 10 and a half percent roughly. And the S&P is probably around 10.5% roughly. So you're still outperforming by a couple percentage point on a yearly basis, on an average basis, but very different performance than comparing to dollars. And that was my point is holding cash, having cash if you don't invest, I mean, it may feel safe. And I mean, it's fine. I do have a little bit of cash myself to have a little bit as a hedge. But if you have too much cash because

you're scared, this is what the risk you this is the risk you're facing is that the value of your purchasing power, you may feel safe, but the value of your purchasing power is actually eroding slowly over time. up into the right and looks better than any stock chart i can find uh when it comes to the s&p 500 that and with no signs of slowing zero signs of slowing especially in the u.s i think it was two three days ago the u.s put out their the the budget and it's like this is just you know they don't major governments don't have a revenue problem. They have a spending problem. Yeah. This is... Well, and revenue. And revenue. Well...

I guess the revenue is not... Yeah, the revenue is never going to be good enough if you have a spending problem. Yeah. You know? I can live pretty good, but if I buy seven G-wagons tomorrow, then I'm not going to be making enough revenue either. I guess my only kind of pushback is I just don't find gold... There's not really anything better to use. So I see your point. There's just not really a perfect

measure here. But gold is just not... It's just not a currency anymore. And I get it's a store of value, but you could just kind of put this against anything and see how it's performed against prices of Ferraris. And it might look terrible if you do that too. So I don't know. I just don't think gold's a very good measure of currency anymore. I know that's not a particularly – I know it's a controversial take that I have, but I just don't think it is. There's probably, there's no perfect measure, like if you'd like to talk about currencies,

but I think personally gold is probably one of the better ones, at least from a historical basis. And you still- It has the history. It has the history. It certainly has the history. And you see central banks accumulating gold as well. So there is definitely a monetary premium of all the different, you know, metals.

Gold has the highest by far monetary premium assigned to it because there's a lot less industrial uses for gold. So that's why, you know, it's basically jewelry and, you know, using it as a store of value. And so that's why I use gold. and using it as a store of value. And so that's why I use gold. Of course, you could use all different kind of assets and compare them to the money supply or the purchasing power. I think it's more to try and compare the purchasing power in one constant currency that hasn't been debased like our fiat currency,

which was more obviously my point here. You know, the summation here for me is stay invested, remain invested. It's been a good bet. I continue to think it's a good bet. But just remember that the market, as it has climbed that wall of worry for, you know. I zoomed out quite a bit. Yeah. For, you know, the last good 150, 60 years of good data here, it has climbed that wall of worry, sure.

But there has been mega, mega drawdowns on large bearish macro events. Don't hear what I'm not saying. Yeah, right in the bear. That's a change of thing. Don't hear what I'm not saying. Yeah, right in the bear, that's a change of thing. Don't hear what I'm not saying. It's just setting expectations for the fact that there could be some real ups and downs, but you stay invested through it. Dude, there is a lot hanging in the balance

with what's happening in the Middle East right now. Yeah. There is a lot of tension. I mean, this is a surprise. This is news to no one. But there is a real risk of it turning into something a lot bigger than it already is. And it's already there. There's two major international wars with large powers involved

today. And people need to be aware that if you are investing in equities, buckle up. But I'll counteract that with, I remain invested. I continue to invest regularly. And nothing will change because it does climb that wall of worry. But don't think like, oh, it just goes up and to the right. I mean, there are going to be major drawdowns over the next 10 years, next 20 years, next 30 years, next 40. That's what we sign up for if you're heavily invested in equity markets. Yeah, exactly. I mean, there's going to be some ups and downs.

But at the same time, I'm sure there's still some people that are sitting in cash from 2008, hoping for a better entry point. And they've been completely crushed in terms of purchasing power ever since. So you have, of course, if you can't handle the volatility, by all means, sit in cash and watch it erode over time you're purchasing power that's that's your prerogative but again it doesn't have to be an all or nothing i think we've talked about that for long periods of time you know you can balance things out if you want a bit of cash for some more safety in your portfolio give you some dry powder some ammunition still collecting four percent on short-term treasury bill by all means i, I mean, I do it myself, but I think it's when you start having like massive allocations that gets pretty dangerous. And the one thing I'll

mention about the Middle East, and I highly recommend that you can look up Ryan Bohl, B-O-H-L, fantastic Middle East expert. If someone is looking, if you're looking for a very objective view, so understanding the conflict from all the different perspective they don't make, so they do a consultation work for different institutions to how to invest and stuff like that. But they look at it very from each different potential actor, whether it's Israel, it's Iran, it's Russia, it's China, it's the US. They look at it from each different perspective. They have no bias. They just say it, what each actor's perspective, how it could escalate, how it could potentially not escalate. They don't make recommendation. They just tell you how it is and how they view things.

Very good, because I find a lot of the experts will tend to have one bias on one side or another. And that's their thing the firm he works for is they're one of the only firms that do not have a bias. 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 gonna 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.

So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get

global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. Move on to stocks on our watch list presented by our friends at EQ Bank. You and I both have some names here. You did yours first. Sure, yeah.

And you said that you're, well, you wrote yours first, and you said that you're breaking the rules. And so I'm like, hey, I'm going to break the rules too. Who wants to go first? Why don't you go? Because I feel like I need a little break. Age to the big macro segment. All right, I'll kick us off.

It's called the Nike Killers. So it's actually two stocks. Going off the board here, usually it's one name, but you know, this is two names because we make the rules and there are no rules. So the stocks on my watch list today that I've added to that list are the Nike killers. And let me just be clear, Nike is an epic brand. The Nike swoosh is on the Mount Rushmore of brand connection with consumers. I basically only wear a fresh pair of white Air Forces for casual shoes. I was at the gym two hours ago. I was wearing the Metcon trainers. My runners are Nike shoes.

Iconic shoes, love them. The workout stuff, it's good. It's all solid. I like the golf, everything, good. If they get dirty, just have a magic eraser and boom good to go boom gone and so so let me be clear nike is an absolutely epic brand and still the king today but there are a few two in particular brands coming from new angles in the shoe category and i say this mostly tongue in cheek because Nike's product lines are much more than just running shoes, but the company Nike is doing 50 billion in sales. And there's no question that they are a shoe company. 32 of their 50 billion in sales comes from footwear. This is on their annual reports. So I see a lot of people saying, ah, they're not just a shoe company, but 32 of 50 billion comes from footwear. So

if that gets disrupted, Nike's going to have some problems and they have, and the stock is on a huge, huge drawdown right now. It's been really, really rough for Nike stock. So as a result, Nike revenues are actually decreasing slightly just by a few percentage points year over year. And the stock price has basically been cut in half since August 2023. So it's been tough sledding. Now, the two companies I'm talking about are the two brands of Hoka and On Running. Hoka is a brand owned by Deckers Outdoors, which is a $25 billion shoe conglomerate company. They operate four brands, but the three big hitters are UGG. So everyone knows those UGG boots. HOKA, which I'm going to be

talking about today, which are mostly running and training performance shoes, and Teva, which are sandals. So HOKA, they've taken from a tiny little brand to now nearly 50% of Decker Outdoors' total revenue, doing $100 million in 2017 to now $2 billion in sales in the last 12 months and growing very fast. The shoes are stylish, comfy, popular for runners, casual, and particularly popular for healthcare workers who are on their feet all day. So they've really won that niche. It's generating nearly half a billion in operating profits for their company, Decker Outdoors, so some pretty nice operating margins. And it's no secret that Hoka is an exciting story. Decker's stock is up 10x in the last 10 years.

Next is On Running, ticker ONON. So ticker for Decker's is DEC. On Running is ticker ONON, ONON. Only founded just in 2010 by Switzerland, former Ironman champion Olivier Bernhard, David Alleman, and Kaspar Kapeti out of Switzerland. They've been ultra successful reaching 267 million in revenue in 2019 when they got Roger Federer, who was obviously the legendary Swiss tennis player involved. Since then, sales have 10x to 2 billion. So both brands are nearly identical in scale. Hoka and On are both doing right now 2 billion in sales and growing at 30% year over year and doing phenomenal, both carving out a very similar type of market share from the big dogs, which is Nike.

Before I go on, have you tried either of these shoes? They are very, very popular right now. No, I need to buy new shoes because I feel like mine are disintegrating. So I need to go buy some shoes. So maybe I'll look at those. Try the Hoka'sas they have them everywhere like dude that i went to sport check even just the other day they have like the premium spot like they have the real estate right now yeah i like dsw just because i can do my own thing

and try them out i don't have to wait for the person to bring me my size and stuff yeah yeah i know what you mean i'm a self-serve kind of guy yeah i know what you mean it's like sometimes i want to try on the half sizes you know yeah exactly these things matter right you're gonna wear the hell out of these shoes you gotta get it they gotta get it right but but try try them on them and on running the popular shoes shoes for On are the Cloud line, the Cloud Monsters. I tried them on when I was in LA. It's like you're bouncing. It's like you have springs in your shoes.

Okay. And it's kind of got like a rocker camber on them. It's pretty cool. It's different, but both are extremely comfy. People are figuring out how to make shoes comfier when I tried these two new brands on and the performance is there. Here's the key part, Simone. Both brands, especially Hoka I'd say, are cool. Both brands are cool. This is the key. This is the key. There have always been high-performance running shoes

like Saucony, Asics, Brooks, New Balance. Saucony and Asics, these are the purest if you're a runner. These are the best brands. Do they look cool? No, not really. Merrell would be a good one for hiking, I would say. For hiking yep yep so they're not very cool brand no they're very like dad shoes it's right in my alley yeah

yeah they're right up your alley but you know they're not up the the gen z's alley right so those brands have always been there and they're known as the performance shoe, but they're not cool like Nike. They're not cool like Nike. It's just a thing. addressable market here is more use cases. It's performance, it's casual, it's going out, it's the healthcare workers, it's the more people, it's the cool factor. And this is why these two brands are really, really interesting right now. They're winning those markets beyond just the performance market and particularly in the younger generation. Anecdotally, the younger generation, like anecdotally, the younger generation, they don't care about Starbucks. They don't care about Nike. It's like the two millennial dominant brands. They don't care. They want something else. They want something different. And so there's two brands here to look at. It's apparel. I'm allergic to this market, but they're 25 billion and 15 billion in market cap today,

so pretty big companies respectively, and trading at premium valuation multiples. But the thesis is pretty clear here. Nike does $32 billion in shoe revenue. These players are a combined $4 billion. So buckle up. We'll see what happens nike is at a pretty bad level of sentiment right now yeah and uh you know i'm surprised you meant you put starbucks in there i mean i'm sure uh i'll raise you a brian nichols see yeah see how he does see how he does i guess lululemon too right is um they're also in the the shoe game yeah they they just started, I think, a couple of years ago. I don't know. They're underwhelming.

I tried them on. Yeah, they're not good. Yeah, my wife. I didn't love them. My wife had the women's one. She liked them, but again, kind of a bit underwhelming too. I tried them on in the store. I was very underwhelmed compared to these companies

that are specifically focused on shoes look i mean people like they're making comfier shoes like it's it's as is happening right like they're the shoes are getting better and they're more comfy they last longer they look cooler and yeah so so two two ones for the watch list growth Growth is fantastic. Yeah, no, I think that's a great name. So I'm going to go a completely different direction. I mean, it's a name I talked about a while back on a stock on my watch. I think it was like a couple of years ago. Related to a little bit what my segment I did earlier.

So Franco Nevada. So this one, it's a company I do own. So full disclosure, I had done this segment for last week and I actually bought, I added to my position about a week ago. It's a little bit down since, but not a whole lot. So for those not familiar with Franco Nevada, it is a precious metal streamer and royalty company. If you have no idea what that means, that is is okay i will just give a brief overview so a royalty just mean that what they'll typically do is they'll provide cash up front to a company in exchange for a percentage of their revenue an example of this was recently

with new mount gold corporation which is not a small mining company franco nevada made an upfront payment of $210 million, which will give him 1.8% of net smelter returns on all minerals for the Yanakoka operations that are owned by Newmount. Net smelter just means that the metals have been extracted from ore. Now streaming is a little bit different. A streaming agreement involves an upfront payment to a mining company in exchange for the right to purchase a fixed percentage of future production at a predetermined price. So this model provides mining companies with immediate capital while giving Franco Nevada access to future production at very favorable terms. This is especially attractive for junior miners because sometimes they will have found deposits of precious metals but are unable to

get financing or desperately need financing. So a company like Franco Nevada can come in and actually provide some financing for them and oftentimes they'll get some pretty good term especially if the environment is not very good for those mining projects and getting financing now the bonus here because the problem with mining stocks oftentimes is unless you own like an etf or you know a basket you'll be pretty concentrated in a few projects. And that's where Franco Nevada is great. So they have interest in a total of 432 projects, 118 of them are in production, while the rest are pre production or still in exploration stages. So what they do is they take a whole lot of small bets with that business model. And it also allows them to not be overly dependent on a single project if there's an issue that happens.

And of course, those familiar with this company will probably be saying to me right now while listening to this. Well, a year ago, Franco Nevada lost one of its bigger projects that they have an interest in, in Cobra Panama, stopping production production which they had a streaming interest in. It definitely hurt the financials here, hurt the total amount of GEO which is gold equivalent ounces that they were able to get. It reduced that amount by about 34% but it was offset by higher gold prices which led to only a 21% decline in revenue. Now why do I like this business? Well first it is a pristine balance sheet and despite losing you know the Cobra Panama stopping production and I guess it's a non-zero chance that it comes back online but

that was a decision taken by the Panama government over there. Again even despite that they have so many other bets that I think it's safe to assume that a few years down the line, this will likely just be a blip on the radar. And they also have zero debt and $1.4 billion in cash. They generate large amounts of free cash flow. I mean, they don't have any high operating costs because they don't actually operate the mines. Their pressing balance sheet allows them to take advantage of Distress Miner with a lifeline on extremely favorable terms, like I mentioned earlier. The stock has lagged gold prices, and that is one of the things that makes, I think, this name really attractive. So the stock was up about 2.8% when I did these notes a week ago

over the previous six months, while gold was up more than 13% during that time frame. So I think it could be that investors are still a bit snakebitten by the Cobra Panama mine decision, and the stock is trading rather cheaply because of that, but I think it does provide a pretty good opportunity. Anything to mention before I continue? Snake Bit by the Cobra Panama. Yeah, I didn't even think of it. That was well played. Yeah, thank you. Yeah, hi.

Well played. No, this is one of the better business models in the entire commodity sphere, without question. There's a reason you like it. There's a reason their balance sheet looks like that. Yeah. It's a really good model. It's almost like a venture capital, right? They just take a lot of different small bets and some end up paying quite well and it's trading in the low 30s on a forward p basis and a forward pre price to free cash flow basis which is actually

historically pretty low for them forward basis is the way to go here i think because you don't really want to factor in the cobra panama result. Which would be in the past year. And again I think it's just. I don't know. I have a feeling that the market will probably. Once earnings come out. And they start reflecting higher and higher gold prices. That they're able to be selling a lot of their streaming gold.

The agreements that they have. I think the market will probably realize that they've been overly bearish because keep in mind for those streaming contracts their cost basis is constant so any appreciation in gold prices go straight to their bottom line here and a lot of the royalties that they have will be based on the top line in terms of the gold being produced or precious metals. So they do have a whole lot of upside if the price of gold keeps going up. And again, I think this is just a way for people to play precious metals if they want to stay away from owning actual gold, for example. This is a great way to play it because it will have some upside because

of those precious metals and even if the prices go down they've shown that they can generate a whole lot of cash flow regardless of lower gold prices again because a lot of these streaming agreements allows them to purchase gold at such low prices that they just end up generating a whole lot of cash flow. And they just, you know, what's not to like of, you know, a company with 1.4 billion cash as well on the balance sheet? Definitely, I think in my view, it's one of the better ways to play gold if you're looking at equities. What are the major risks to this model?

at equities. What are the major risks to this model? Well, like we saw with Cobre Panama. Cobre, I think is that. Cobre Panama. Cobre Panama. Cobre Panama. Yeah. My French is coming in here, but- That's my French speaking. Yeah. I think that's one of the bigger risks, like geopolitical risks because they have mining mining interests around the world so oftentimes whether governments topple there's change in regime um they can get more aggressive towards different mining companies and at least for them it's you know they have an interest in those mines so there's probably less of a risk i can't remember the mind company was um behind the cobrie panama mine because they had an agreement with them. It's a Canadian company.

I think it was like Quantum something. But they have a whole lot less risk than the actual mining companies. But yes, they still have geopolitical risk. I think that's one of the bigger ones that they have. Yeah. Got it. It's a really cool, cool story. I guess I just asked,

I just asked Finchat, what are some of the main risks that, that it can point out? And it said that there's a lot of potential political and social term turmoil in there. Yeah. The company has structured the transaction to mitigate these risks but the situation remains a concern source from uh the conference call in q2

and cobra panama mine is currently on preservation and safe management the new administration in panama has indicated a willingness to reopen negotiations but the company's awaiting comprehensive environmental review before further discussions. Very interesting. Yeah, when I meant geo. I love AI, dude. This is amazing. When I said geopolitical, that's what more I think you probably understood the way I was saying it is more like, yes, kind of, you know, local governments, social unrest, things like that.

Change in regime for local government is definitely going to be i mean we've basically read out right that's what it is those are the biggest risk and i guess the other not a risk as much but potential downside would be a strong correction in gold prices for example that could be a risk but again i think their cause basis is so low for a lot of these streaming deals that they have that it's more limiting their upside than an actual risk i would say yeah it's got a cool story with uh simar shulik i think we're talking about yeah that's uh the roots of this business the for people who uh recognize that name simar shulik heick, the Shulick School of Business is named after him at the York University Business School.

He's a very successful Canadian entrepreneur. Yeah, and I guess the last thing I'll just mention here is if you compare it to miners, those who are looking, you know, really focusing on valuations, I mean, miners will be much cheaper. Like you're going to be able to get them at a much cheaper valuation. But again, the miners, their costs for the most part are not fixed, right? So that's the one thing that you have to deal with with miners is, yes, you can get them probably in the low double digits forward price to earnings ratio. But again, if oil prices go up,

one of their big inputs starts going up in terms of operating costs. So it is kind of give or take. I'm going to go personally, I'd rather own the more premium business of the two, even if it means I'm paying a bit more of a premium in terms of valuation. Yeah, performance has been solid.

It's been kind of flat for a while, but pays a nice little growing dividend as well. And 32 billion market cap. That's a lot bigger than I was expecting. And the market is, I think the market is probably underpricing it a little bit, just based on how much gold is appreciated and how sideways. I mean, gold is up like 30% year to date. And Franco Nevada is not up 30% year to date. Yep.

I like it. Interesting pick. You know, something for everyone on the show here. You want running shoes or a gold streamer? Yeah. Hey. Take your pick. Or go buy your house with gold ounces, yeah.

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