The Canadian Investor - 5 Small Canadian Stocks & 10 Sector-Specific ETFs

Episode Date: May 27, 2024

In this episode of The Canadian Investor Podcast, we shift our focus from broad-based index funds to explore the world of sector-specific ETFs. While index funds provide a great foundation, they often concentrate on certain sectors more than others, potentially leaving gaps in your portfolio.  Join us as we break down the S&P 500 and S&P TSX sector weightings, highlighting areas where investors might be underexposed, such as real estate, utilities, materials, energy, and consumer staples. Drawing inspiration from John Templeton's timeless wisdom on diversification, we'll provide you with Canadian and US listed ETF ideas for each of these sectors. Additionally, we'll delve into Warren Buffett's insights on achieving impressive returns with a smaller investment pool and share five intriguing Canadian small-cap stocks that have recently caught our eye.   Ticker of stocks/ETF discussed: MDA, PSI, BDT, CVO, KITS, VGT, TEC, ZNQ, IYF, ZEB, VCR, XCD, VOX, COMM, IXJ, ZUH 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 astute, Mr. Simon Belanger. Good, sir. We have some fire today, I think. This encapsulates the Monday episode extremely well.

You are going to talk about some ETFs and some thematic sector-style ETFs. And then I am going to talk about some small caps, and particularly Canadian small caps, and some rocks that I'm trying to turn over. But it's good to be on the air with you. Yeah, yeah. It's good to be on the air with you. Yeah, yeah. It's good to be back. Well, it's good for you to be back to your home base in Toronto. For one more hour.

Yeah, for one more hour. And for me, I mean, finally feeling less congested, so I feel like I'm a brand new man. The boys are back. Yeah, I'm off, dude. I'm going to have some really good content for the podcast, I think, for the next episode. I'm going to be writing notes like crazy. I'm going to this event with a bunch of investors in the middle of nowhere America, very famous, successful investors that

are going to be there. And I'm just going to be a sponge and kind of do like best of next week on the pod for uh from the event because there's there's some shooters as well as i'm meeting chris pronger he reached out isn't that right like the the hockey player why the like why did he reach out i don't know he's gonna be there and i'm pumped to meet him because he was one of my favorite defensemen like literally of all time that guy could lay a body check like no other but i heard he's pretty big he's a pretty big guy he's a big lad he's a big lad and he's into investing now that's his thing like he ran his fund yeah that's his thing now that's really cool okay yeah we'll get him on the show after yeah i thought he still worked in the nhl but hey if you want to get him on the show i think that uh people would love to hear that that'd be a good collaboration all, Simon, kick us off here with the

first segment of the day, talking ETFs. Yeah. So the reason I decided to do this is just because I wanted to provide some ETFs for people because we talk a lot about index, broad-based index funds, obviously in the ETF form. And I think a lot of people, I think they end up choosing that. I have some myself. I think it's a great option. But one of the issues that I think we haven't talked enough about these kind of ETFs is that they tend to be heavily weighted in certain sectors. And that will vary, right? If you look at the S&P 500 sector breakdown or the S&P TSX, you actually have very different concentrations. So we've talked about that a little bit in the past. But if you have the S&P 500, you're looking at information technology, 29%, financial, 13%, healthcare, 12%, consumer discretionary, 10% in communication services, 9%.

And you can even make the case that, you know, if you start looking at communication information technology, I mean, a lot of companies in the communications, which I think Google falls into, you could make a case they're actually more of a tech company. But you have these, you know, either high single digits or double digit sectors. And then you go to the bottom and you have materials, which includes minor, which is 2.4 percent, utilities, 2.3 percent, real estate, 2.2 percent. So you can really see that, you know, it's not, you know, it's market cap weighted, which creates this when there is some massive company in specific sectors, you end up having a lot more concentration. And no matter how careful you are,

you can really neither predict nor control the futures, right? So you must diversify. And that's something that John Templeton said. John Templeton was a pioneer in investing, especially when it came to emerging markets. I encourage people to read up more on him very fascinating and one of his kind of claim to fame was the Templeton Growth Fund average over 15% annual returns from its inception in 1954 and going back though to the S&P 500 sector weighting again you're clearly underweight and overweight sectors. And that's where the

diversification takes a bit of a hit, at least when you look at it on a sector basis. And then if we compare, you know, the kidney, our good old TSX, I mean, it's a similar situation, but with different sectors. And of course, you know, Braden, we've been pretty vocal about that. Financials and energy, the top two sectors, 30% for financials and 19% for energy. And then you go right to the bottom and you have, again, real estate quite small at 2.2%. And then healthcare, which is essentially inexistent. I think Bosch is probably the only company that comes to mind in healthcare listed on the TSX. Yeah, it's very small. And you know what also gets thrown in there with pharmaceuticals is all the cannabis companies as well. So there's issues with just sector having to put square pegs in round holes generally anyways

is one of the issues you run into. But yeah, those get lumped in there, by the way, on the TSX. the issues you run into. But yeah, those get lumped in there, by the way, on the TSX. Yeah, exactly. And I think it's very common for investor to know also certain sectors of companies well over other sectors, right? Like, I mean, Buffett has been pretty clear that technology, I mean, he does have some exposure, but he tends to have very, you know, just a few bets. Obviously, Apple turned out pretty well for him, but he's had some misses with IBM in the past. And I think there's a lot of investors that just feel that certain sectors are beyond their circle of competence, or they just don't have the time to learn about it, to be able to pick the individual companies that would make sense. So I think it's where

sector ETFs start making a whole lot of sense. And I mean, I'll be very honest myself, like when it comes to pharmaceutical, I mean, I'm way outside of my circle of competence. And I'll be honest, I just don't have the time to invest to actually, you know, learn about the sector because it's quite complicated. I don't know about you, Braden. You have certain sectors that you have, they're kind of beyond your circle of competence. Yeah. There's a couple of businesses that I love in the life sciences space, the kind of like the picks and shovels of science, if you will. Edwards Life Sciences, Boston Life Sciences, Thermo Fisher. Those three names together are probably worth like $400 billion in market cap. So they're some of the largest companies in the world, but I basically don't understand them enough to own them individually. I think that's probably the most prime example of how I'd play it is in those types of businesses where you know there's a secular trend behind them.

Cyber security has been another one that I've thought of as well. So those two come to mind. Yeah. And even some, like one that I've been learning more and more about is the semiconductor space. And even though I think I've learned a whole lot and I'm more comfortable in this space, I mean, I've only scratched the surface, but I am interested in that and I am putting the time, but I'm just trying to extrapolate right to other sectors where I'm like, wow where would I find that time literally I would have to not sleep for you know months on end to be able to research that so I'll start off with the top sectors from the S&P 500 here and I'll give mostly Canadian options but a few US ones just because sometimes I found that the Canadian options fell a little bit short. I'll

do half of the sectors today, because if not, I would go on for too long. And Brayden has a really interesting segment on some smaller companies as well. And then next week, I'll finish up with the smaller, let's say less represented sector of the S&P 500. I just went with the S&P 500, but they're the same sectors for the S&P TSX. So keep that in mind. It's just in which order I wanted to do them. That's how I decided to do it. So if I start off here, I'll have the information technology, obviously the largest sector,

like I mentioned earlier. There's three options here. The first one, the US one is VGT, the Vanguard Information Technology ETF. The reason why I like this one it's 100 tech and why i'm mentioning that is a lot of people tend to think that uh nasdaq is 100 tech i was just about to say this yes exactly i mean so typically it is very dominant tech for sure exactly but it's not 100 tech i think usually i mean in the past yeah i think it's kind of hovered around like 50 to 60 tech that's kind of um i think the the ratio and just for people to understand like lululemon is listed on the nasdaq yep starbucks starbucks so

you have a ton of companies that are not tech so it does provide good exposure but that's why the vanguard here you know is a good option. And I decided just to also give people the top five holdings. So you'll know the names, Apple, Microsoft, Nvidia, Broadcom, SelfForce, and those five holdings are 51% of the ETF. And I want to mention this because some of these ETFs are very concentrated. And it's something to keep in mind because oftentimes you'll have to decide whether you want a bit higher fees, less concentration, or lower fees, more concentration.

The second one is TEC, the TD Global Technology Leaders Index ETF, 0.39% fees. Again, similar name, Microsoft, Apple, Nvidia, Apple, Amazon. And this one, it's 49 49 of the holding for the top five and zed and q is the bmo nasdaq 100 equity index ctf 0.39 and again microsoft apple nvidia amazon broadcon this one the top five is 33 so this is the nasda one, but the one thing I do like is it's a bit less top-heavy, but less tech, where the TEC is around 75% tech. So you get a bit more exposure to that if that's what you're looking to get for your diversification. Anything you want to add before I go to financials?

really important for people to, when they use ETFs, which by the way, are fantastic instruments for most self-directed investors. I think you and I have been very vocal about that, but to look beyond the title of the ETF, because the title of the ETF and its description are basically marketing talk. That is, how can we get the most amount of assets under management so we can make the most amount of money? And doing research on them is so easy. It's super simple. You go on the fund old, you go on the prospectus, and you'll see what's in it, what the fees are, and what it's actually tracking. It's not always what the title says it's tracking. tracking, is not always what the title says it's tracking. And it's so easy to do the research. It's so simple. So that's just one quick caveat. I see a lot of people own ETFs because of the title of it, thinking that they're covering some sort of thematic idea. And they own basically the

S&P 500 in disguise. Yeah, no, I think that's a great point. I mean, even the NASDAQ, right? If a lot of people think it's just tech, it's not. And you'll see this. Some of the names are going to justify what you just said word for word, basically. So you have the financials here. The vegan ETF didn't make it into your list. No, sorry, it did not. So the financial IYF, it's the iShares US financial ETF.

So 0.40% management fee, so 40 basis point. So the top names here are Berkshire, J.P. Morgan, Bank of America, Wells Fargo, Goldman Sachs. And the top five names are at percent 34%. It's an interesting name here. It's well diversified. It covers a lot of name in the. banking sector, over 150 holdings. In Canada, it's a bit more limited. So I do like the ZEB, which is the BMO Equal Weighted Bank, CTF.

The fees are 28 basis points, so 0.28%. It's really just a big six equal weighted. The one thing, though, I think it would be great to see from BMO, for example, if they had another one or modified this one. It would just be to include other banks in Canada, some of the smaller banks, even if you decide to do a slightly less weighting. It's just like the big six. OK, I mean, you can all just go out right and purchase them. But I guess the advantage here is, you know, auto balances. So you don't have to

constantly you know trade if you want to keep them equal weighted so those are the two options anything you want to add here no nothing to add there i think canadians are already usually just typically so overweight these these names that it's i caution people to not everyone of course if you're listening or not like of course but typically canadians are so i mean look at the sector breakdown on tsx we have 30 percent financials and roughly 20 energy so you're but you get halfway exactly exactly, basically with just oil, gas, and banks. So it's really important to look beyond those sectors if you do have the Canadian home bias. And when I say Canadian home bias, I don't mean they're listed on the TSX. I mean, where they actually do business as well. I think that both of those things matter. And Canadian banks are, you can tell me TD,

you can tell me RBC, all you want. But the reality is they all have at least 50% of their revenues coming from Canada and some of them it's closer to 100%. So just keep that in mind for sure. 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,

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of today's episode for full disclaimers and more information. So for healthcare, this one I find pretty interesting interesting so there's two of them that i was able to find that i found interesting the first one is ixj the i shares global healthcare etf you'd probably be able to find some lower fees one this one is 0.65 percent mainly because this one is a global one i thought this was interesting because it gives you even more coverage because there are some big massive massive companies in Europe, for example, that you wouldn't get if you focus on the US healthcare market. So the top five holdings here, Eli Lilly, UnitedHealth, Novo Nordisk, Johnson & Johnson, and Merck. And the top five holding are 24.73%.

So actually pretty, you know, not too top heavy compared to what we've seen so far. The second one is ZUH listed in Toronto on the Canadian Stock Exchange, BMO equal weighted US healthcare hedge ETF. So it's hedged to Canadian dollar. And that's the case, you'll see the hedge version quite a bit available. Personally, I try to stay away from the hedge version because you'll pay some fees for that and it tends to underperform. But sometimes it's the only option. So keep that in mind. And the top five names for this one is Moderna, Natera, Mettler, Toledo, Rasmend, and Amgen. And the top five names are actually 8.7% because it's equal weighted.

It's not exactly equal weighted, but it's very close. It's in the 1.5 to 2% range for each of the names. So something to look at for people, but this is still pretty broad in terms of exposure for healthcare. Yeah, this is where these get interesting for me is it's not realistic really for me

to be an expert in this field. I mean, I certainly can't, sorry, let me rephrase. It's not realistic for me to have the willingness to want to learn. Yeah. Because I've been saying that I've been wanting to for 10 years, right? Like it's not that I don't think I ever could get to a position where I want to.

It's just I have to be honest with myself on my willingness to learn and to dive in. Like, back to your Buffett point there. He's like, he talked about this on the Sherald meeting two weeks ago. He goes, I know the iPhone is probably the greatest product ever made. And I'm paraphrasing here. And I don't know what the heck is going on inside of it. I don't understand any of the tech. I'm in my 90s, there's no chance for me. But I know how it affects... He's really good at knowing consumer staples and consumer behavior. And he knows how the iPhone affects consumer behavior.

And so there's your circle of competence. And then there's also like your circle of willingness to learn. And I think that those are, you know, go hand in hand. Yeah, the best test for the iPhone is you just walk on the sidewalk in a big city. And, you know, you'll probably just look and you'll probably have to dodge a few people because they're like completely spaced out typing on their phone and walking every time I I'm not usually that guy but you know something's pressing you know you're sending a fire off a text I like that is one of the most embarrassing things because I've rocks people who do that and then I caught myself almost walking

into someone there the other day with my phone. I'm like, damn, that's... I've actually had to tell people, like, stop at intersections because they were going and there was an incoming car and they thought it was their time to go. You know, I'd like to think I saved their lives. Probably not. I'm assuming they would have realized last minute. But I've had... It's happened to me more than once.

Yeah. Yeah. Crossing the street. That's no good. Yeah. And so the next sector here is consumer discretionary. This one interesting one, especially one that we have some exposure in Canada, but I think it's still quite limited. The first one is VCR. For those of you who are a bit older like me, you'll know what the VCR is, but I don't think it has anything to

do with that. It the vanguard consumer discretionary indexing tf 10 basis point fees extremely low the problem here is some of the names so you have amazon tesla home depot mcdonald lowe's you know i think you can make a case especially in amazon tesla that you know they could be in other categories but But, you know, I think you can also make a case for consumer discretionary. The total for these five holding is 47%. So again, it's quite heavy, especially on Amazon here. Amazon is 24% alone. So yes, the fees are low. And Braden and I were talking about that before we started recording. A lot of these names you'll notice it's almost a trade off sometimes between the low fees and paying slightly higher fees but having something a little less concentrated. So

that's something you'll have to figure it out if you're interested in some of these ETFs. The second one, the Canadian listed one, is XCD. It's the iShares S&P Global Consumer Discretionary Index. It's hedged as well. This one is higher in fees at 66 basis points. There's Amazon, Tesla, Home Depot, Toyota, LVMH. I actually like the mix a bit more of the top names here. And the top names are 31%. So more diversification and just things that you wouldn't necessarily get access to if you have or as much access to if you had something like the s&p 500 index fund yeah there's so much overlap i find the the heavy weighting in amazon's interesting the lvmh that's where i'm like yeah that's that's that makes sense that's to me where this makes a lot of sense

yeah and these name are also a lot of these names will also be in the s&p 500 but they'll be way a very much smaller weighting because the bigger caps are so dominant. And then the last category that I have on for today is communication services, which this one tends to overlap a lot with tech. So keep that in mind. The first one is U.S. listed Vox Vanguard Communication Services ETF, 10 basis points again. Vox, Vanguard Communication Services ETF, 10 basis points again. So it's Google, it's Meta, it's Verizon, Disney, Comcast, and Google, obviously, it's Alphabet, their name. And the top, the waiting for these top five names is 54%. So it's pretty massive. Obviously, the big issue with this one is that you have Meta and Alphabet that are 45% of the fun altogether,

which kind of, I mean, first you can kind of make the case that they could also fit in tech, these two names. I think there's a case to be made. And 45%, I mean, it is pretty heavy just for these names. The second one is a bit more diversified. It's a Canadian-listed one, so it's ComCOMM, and that's the bmo global communications index ctf 40 basis points and you have here meta alphabet apple netflix and disney

i actually like this one a bit more aside from the fees because the top five names are 37 so a bit better diversified and i like to see in those top five names, names like Netflix and Disney, because I think that fits a little better in the communication theme. But there's also some of the big telecos in the US are a bit further down the list. I think that these have had kind of less and less importance in my mind as the large caps, these trillion dollar gorillas get larger and larger and more diversified within themselves. Like trying to put Amazon into a bucket, which is like a lot of their operating income is cloud computing. And then the other half of the business is e-commerce, right?

Like it's really hard to put them in a bucket and they're so big. And so it becomes a bit of a gray area on how you actually bucket these things together. Whereas really clear like healthcare or cyber security, I'm just trying to think of some that are like really more kind of narrow that you can't. There's really not as much controversy around what can be in it. Like Eli Lilly is a healthcare company Novo Nordisk is a healthcare company it's not also a communications also a tech also consumer discussion also broken even Amazon right you can make a case that they also sell a good portion of non discretionary items as well right it's you know it's not to the same extent, but I think you're

absolutely right. And next week when I do the last sectors, those will make a lot more sense, especially to that they're the big underweights of the S&P 500. And I think those will typically be where most people will be underweight. So I think that will be really interesting to look at. But it was a fun exercise to do for sure. More into industrials and stuff as well. Yeah. Yeah. Industrial materials, energy, real estate, literally like they've been smashed.

Obviously, they haven't performed as well. But again, I'll go back to that quote, right? I don't know what the future holds. You don't know what the future holds. And that's where I think it does make sense to diversify a bit more to, you know, I'm big about hedging again, because I just don't know what the future will bring. And I think diversification does help that. I got a crystal ball. I'm selling it on Amazon. Yeah. You're shaking it. Yeah yeah yeah if you're interested i'll send you a link all right let's move on to the last segment of the day which was we haven't talked much about berkshire hathaway's annual shareholder meeting other than you know touched on a little bit this episode already there was one question from the audience that i thought

was fantastic of course this was the first meeting that Buffett was up there without Charlie Munger in however many years they've been doing this. And there was a question from a guy from Thailand who came to the meeting down to Omaha, Nebraska. And he asked, I'll summarize it quickly, which was basically, Buffett, you've mentioned that if you had a small sum, you could compound at 50% per year. What would you do today with less than a million dollars? And so I'll read a quote, and then I'll get into some small names that I think are pretty interesting. All right, quote.

And that's actually what impressed Charlie when I met him, because I knew all the details of all these little companies on the West Coast, what he thought I would have never heard of. But I knew about the Los Angeles Athletic Club or whatever it might be. And he thought he was the only one who knew about that. And that became an instant point of connection between us. So to answer your question, I would try and know about everything small and I would find something. And with a million dollars, you could earn 50% a year. But you have to be in love with the subject.

You can't just be in love with money. You really got to find it just like other people in other fields because they love looking for them. A biologist looks for something because they want to find something, and that's built in, end quote. Awesome. Brilliant passage. He has a way with words, as always. I cleaned it up a little bit. because they want to find something and that's built in end quote awesome brilliant passage uh as he has a way with words as always i cleaned it up a little bit move some aminas but that's a long way to say passion basically what he said passion and small and and look for small companies because you're not going to compound 50 a year owning the the the big companies it's just it just doesn't work like the math doesn't work.

And it's not to say that you can't get a really fantastic satisfactory return with large companies. You can, of course. And you have been over the last 15 years. But we're talking about exceptional returns here. We're talking about the Hall of Fame Buffett returns. And he said, to round this out, I've had the look of meeting a lot of unbelievably smart people in the area who have done some unbelievably dumb things in other areas. And so he goes on to basically say, you got to love the game, whether it's bridge, chess, or finding securities that are undervalued. But it sounds to me like you're on the right track. I mean, anyone who will come across the world to this annual meeting has got something on their minds other than bridge or chess, end quote. So on that same note, Simone, I went to the Finchad screener and I tried to find five Canadian names that I've never heard of, ever. And all of them are just basically between 200

million in market cap and around 1 billion on the TSX, on the highest end. So phase drive's not in there. Okay. No. Shoot. Shoot. Okay. Let me rerun the screen. So the highest one is at 1.5 billion in market cap. The rest are around like 800 million in market cap. So disclaimer, none of this is advice. These are companies I found out about 47 minutes ago. I know absolutely zero to be able to be in a position to own them. The point of this segment is to show you how you can turn over rocks fairly quickly. And it's helpful to myself even to remind myself, you can find some of these smaller names fairly quickly using a little bit of digging, a little bit of research,

a lot of bit of reading of their filings and their reports. And using a screener tool that's 100% free on FinChat is a good example of starting your process. It is not the end of the process, it is a good way to start. So these are all trading on the TSX from largest to smallest. And I think size aside, I think I like the ones that are bigger just because as you get smaller, I don't really understand why you'd own them. There's a reason they're not trading at high multiples, to say the least. So from largest to smallest, MDA Space, ticker MDA, it's one and a half billion in market cap. They design, manufacture, and service robotics used in space and satellites.

So the space equipment is very automated, a lot of robotics in there. And then additionally, they provide satellite imagery services. I assume this is like a recurring revenue segment, largely to government agencies. Could be very interesting to look at this name because it's combination of hardware and software together. Growth has been solid, margins are nice, and they are consistently profitable and growing that top and bottom line. There are some analysts that cover the name and revenue moving forward is very, very good. Next, PassOn Systems Ticker PSI. Interesting name here. It's Central Intelligence Platform for Monitoring Drilling Rigs. So if you run like a drilling operation, they're going to record every piece of data in

real time across all your drilling operations, across many different locations you might drill as well and centralize it in one place. The reason I brought it up and I think it needs a second look here is there might be an interesting thing here because revenues have been very cyclical. Over the time of a public company, it hasn't been good. It's been basically flat. But around 2020, they started transitioning to what looks like recurring revenue. When I map out the quarterly revenues, Q1 2020, the business changed dramatically in terms of how the financials look. It's a lot more steady. It looks more like a software company. And prior, it looks more like a hardware company. So I think that they've really found something

interesting. Really, yeah, you have it on the screen there, really basically since early 2020. So this is where there's usually things that are misunderstood by the market. And I need to do a lot more digging. But this kind of transition in the business is really one that needs to be taken a look at. Because when companies are small and they're on the TSX, they're not well understood or well discovered by a good portion of the market. Basically, they're unconstrained from large funds. So you're trying to look for some kind of special situation here. Any thoughts on MDA space or pass on systems, MDA and PSI tickers? No, not really. I'm just listening and kind of taking all this in. But

no, definitely agree, right? When you're looking at smaller companies, you're only competing against, you know, individual investors for the most part or small cap funds. And that's it. Other funds, they just can't do it because they literally would, the float of companies just not large enough, right? If you invest 100 million in a company like this, you'll make the stock move way, way up as you purchase your position. And then same thing might happen if you want to exit it as you'll put some downward pressure. So it gets really hard for any type of larger funds or individual investors that would have some substantial amount of money to put some money in here. Yeah. Not to mention a lot of financial planners and small family offices that manage network for high net worth individuals, they'll have arbitrary constraints even for them too,

nothing below 10 billion or something, because that can be correlated to risk. So there are real constraints like you mentioned, and then also arbitrary constraints on why people just don't own any of this stuff. 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

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for full disclaimers and more information. All right. Third on the list, we got five in total. Bird Construction. This is a contractor that's been in Canada for over 100 years. It looks like they started in 1920. They've been winning some big deals as of lately. Backlog has grown extensively and the stock has been a bit of a monster in the last five-ish years. So they're doing something right. The thing I want to look at that needs to be discovered when I see something like this is was there a new management team came in in late... What is that?

Late 2018? Something happened. The business started growing. They got some government stimulus or something they started winning government contracts they got they were on some sort of uh you know list to be able to do this work or or a supremely good manager came in i'm not sure so these are the types of questions that i want to understand. All right, next is Covio, ticker CVO. This is a software company on the TSX.

Provides search for businesses, which AI is really good at. So it says they use AI for that. It's, for instance, so like without the buzzwords. So if you have like a huge library of documents, unstructured data, structured data and tables and table format and stuff like that. You'll have this huge repository of information, but it's really hard to search. And using a combination of AI and Elasticsearch, and that's exactly what FinChat is. You use that in combination. At less than a billion in market cap. It could be interesting for them helping large enterprises do this.

I do wonder if companies will be figuring out how to do this in-house with the new technology available. I don't know. But growth has been fantastic. It's nice and steady. It certainly looks like an enterprise software company. Margins are quite nice. And so maybe something here. company. Margins are quite nice. And so maybe something here. Analysts that do cover the name have basically every metric up and to the right for the foreseeable future, like a nice B2B

enterprise software company does. But I would be curious on if this is going to be a sustainable technology moving forward, or if there's going to be people that can do it in-house. I'm not sure. sustainable technology moving forward or if there's going to be people that can do it in-house. I'm not sure. So these are things I'd want to know. Last up, Kits Eye Care, ticker K-I-T-S. This is just 200 million in market cap, the smallest name on this list. It's been rolling up online e-commerce store for eyeglasses and primarily contact lenses. So they operate kits.com, kits.ca, opti-contacts.com, and contactsexpress.ca. When I used to wear contacts, I used contactsexpress.ca all the time. It's so funny. I'm doing my research this morning. I'm like, oh, that website. It was the cheapest and fastest way I could get contacts. And I looked at all these different

sites. So from my experience, it was really solid. Gross margins have been expanding really, really nicely, which is good to see for these kinds of products. But I don't know what's going to give for the rest of the cost structure for this to look appealing. That's kind of where I left it based on my research today. Top line looks great.

Gross profits growing with growing margins. But the operating costs do not seem to be getting better over time. So I don't know what's got to give for a company like this for there to be some sort of catalyst on that. That would be one of the things I'd like to understand. Yeah, exactly. And I think it's just, I don't know how easy it is to get in that mark in terms of competition, but the other one that comes to mind is clearly.ca.

And I did a quick Google search and from what I could find, because they're a private company, it's like around 47 US in online sales they've done. So they're not small. So I just don't see if there's like a big moat there to be had so that would be my my biggest concern with this kind of company yeah yeah there there's not really a moat with a lot of these e-commerce companies what you're hoping to do is you have basically high cac high cost of acquiring a customer so you have like large marketing spend. And then with these types of recurring purchases, then you cashflow each customer after that. So that's basically the,

it's the same business model as pet online, pet supply stuff. High, very, very high cost to acquire the customer online, whether that's through digital advertising channels or offline marketing. But the hope is that you have a good experience when you buy your dog food and keep buying your dog food online, and then you enter on a subscription. Contact lenses are the exact same thing, right? Whether you're on dailies, monthlies, or whatever, you need to keep buying them unless you have corrective surgery. You are basically a buyer for life. So that's the business model. Yeah, I mean, I use a competitor.

So maybe I'll compare prices because I'm not loyal when it comes to this kind of stuff. So I would basically, the way I'd see it is I probably have two accounts. And then whenever I'm ready to purchase, I'll just compare the price because I wear daily contacts and you know they're very common brand I know they're they're available everywhere so for me it just comes down to price at that point it's like AccuView that's the one I used to wear yeah yeah that's our Aqua Daily I think something like that is yeah some like it's is that it's what I wear basically so I wear dailies because anything else i just find

they're they're not comfortable and i'm not lucky in terms of eye surgery my vision has not been stable so i can't really be eligible for that anyways so i just googled accuview dailies just to see what comes up first on the serp on the search engine results page for google the top sponsored one is clearly that company you mentioned. Yeah. They're bidding the highest amount to be at the top there. And then a company called Vision Pros, which is second. And then the last, kits.ca does come up as the first search result.

So that asset comes up as the first search result of non-sponsored. And then the actual brand is next. And third is ContextExpress.ca. Fourth is Costco. Yeah. So they have two of the four highest on the search engine after the sponsored. Give me the best price and I'll use you. That's all I have to say.

That's the problem with these businesses, right? Well, especially right now, right? A lot of people are getting squeezed. And maybe three, four, five years ago, people like just, you know, whatever is most convenient. You've used the service before. You reorder your last order. It's super quick.

That's fine. But now that people are trying to save money, I think a lot of people will take the extra, you know, 15, 20 minutes to load in the prescription and, you know, try a new site, you know, provided I'm sure the site uses like PayPal or something like that. So it's not that painful to create a new account. I just feel like there's more of a motivation right now for people to definitely be more conscious of the price when they order these kinds of things. To round this out, my most interesting idea, my takeaway from

this is I want to learn more about this space company, ticker MDA. They're out of Brampton, Ontario. They have a backlog currently of $3.3 billion worth of work because they just won a huge contract so their their their backlog grew 170 quarter over quarter with this new contract that they won very profitable and i'm gonna listen to the call here but it looks like they won a contract from the canadian space agency uh until 2030 and the sky guardian remotely piloted aircraft systems for the Canadian armed forces, whatever that means. So really interesting name here. This is one that I'm going to be looking at more.

And I think you could be looking at big tailwinds for that without knowing the company too all. Just, you know, you just think about what's happening with the geopolitical space, anything related to military or space defense, anything like that. I think there's going to be increased spending. I think even the Canadian government announced they were increasing spending into the military as a percentage of GDP. Even the U.S., I think, has been pressuring allies in NATO to spend a higher percentage. So these kind of companies are the one that would be likely benefactors.

And then obviously when you think of Canada, people tend to realize, but we have a large neighbor kind of to the north, right? In terms of the Arctic, I mean, it's essentially, you know, not shared, but very close to Russia. So that's always been something that I know is top of mind for the Canadian military. So these kind of companies could have some huge tailwinds for this kind of spending.

Well, clearly they're winning a bunch of defense contracts here, which is one thing. But when it comes to the monitoring tech from space, defensively, this is going to be huge, especially with the future of like these stealth drones that can do massive damage on a battlefield. There needs to be some sort of defense around monitoring that is just next level from what we have right now. And I think that that's kind of well understood by governments. So if these types of companies can figure that out, they will be monster winners. And I don't like investing in defense. I don't like investing in war, but these I can get a little bit behind if they are around monitoring defense. That saves lives at the end of the day. And so I'd be interested in learning more.

No, I think that one is definitely very interesting. Probably the top one as well for me. Yeah, it's about $1.5 billion in market cap. And these things that trade on the TSX, they're not small companies. They're billion-dollar companies. You don't say to your buddy, like, oh, you only run a billion-dollar company. That's a small business. It's just on the grand scheme of things of public companies.

These are not on radars. I mean, also, I think it's just a good reminder that a billion, even though it's still a whole lot of money, is not what it used to be right even 10 15 years ago i feel like back then you know when i was in my early 20s late teens you'd hear like a billion here or there like i'd be like wow that's a massive amount of money now it's almost being programmed as to like oh you know it's not that much money it's just like a billion here and there like i definitely see that like i even the way i react to announce to various

announcement to the size of companies has changed over the last decade so that that inflation baby and now we're talking people are interacting with companies worth trillions of dollars now well that's that's the reason right you hear the t word a lot more yeah what's a billion what's a billion when you have a couple trillions here and there? Exactly. Thanks for listening to the pod, folks. We hope you appreciate that, enjoy that. Someone's going to finish the rest of his sector breakdowns of ETFs.

So you did five, right? Yeah, so the last six sectors. Okay, cool. And then, yeah, I hope you looked at that the point of this segment is not for me to be like go go look at these five stocks the point of me of it is it's actually really easy to use tools that are out there to find things that just like professionals just aren't really looking at and i'm a little bit more motivated now because i think i've been looking at. And I'm a little bit more motivated now because I think I've been looking at big companies so much lately because you screen for these small companies. And to be fair,

you have to screen for huge growth rates because Microsoft just grew 15% year over year with margin profile that none of these small companies can compete with. You're competing with the bluest chip of all blue chips growing high to mid-double-digit growth rates. The bar for excellence with these smaller companies just has to be so much higher and growthier. I think growthier is for sure. Yeah, they just have so much more upside, though, than a Microsoftrosoft or big tech

not that they can't keep growing the big companies but the problem is also you compare the growth with the valuation right and that's where yeah i think the risk level kind of i i would make the case that in some you could probably make an argument that microsoft is riskier than some of these companies for that same reason that the valuation is so high and still implies a whole lot of growth where these small companies, you can probably get them at a much more of discount. Clearly, they may not have the same moat. That's a trade off here. But I think you can probably make that argument for these smaller companies that they may actually be less risky in certain aspects yeah in terms of just like forward our irr yeah exactly but not not business not no no and you know what i'm saying right just

certain we just got to caveat that because structurally i mean there's yeah microsoft's utility now microsoft going bankrupt let's be honest, is very unlikely to happen anytime soon. Whereas a small cap, there is definitely a higher risk of that for sure. For sure. But yeah, I see what you're saying, like around implied IRR moving forward with the valuation. Yeah. Gotcha. Thanks for listening, folks. We really appreciate you. Hopefully this was super helpful. We are here every single week. Next week, I'm going to recap lessons learned from a bunch of talks. I'm just going to be a sponge this coming week. Lots of really cool people I'm meeting. And I'm going to have to put in a shift on Mr. Chris

Pronger to come on the show because he's got his second career now, it looks like, with investing. So I'm excited to learn more. Maybe recap that or get them here on the show. We'll see you in a few days. Take care. Bye-bye.