The Canadian Investor - Beer Sales Up and Bitcoin Takes a Dive

Episode Date: July 11, 2024

  In this episode of The Canadian Investor Podcast, we compare the earnings of Molson-Coors and Constellation Brands. We look at how their earnings have been trending and what type of beverages have been driving sales.  Shifting gears, we address the recent layoffs at OpenText, a mid-cap Canadian software company. Despite laying off 1,200 workers, OpenText is adding 800 positions to bolster its cloud, security, and AI segments. Lastly, we discuss the recent sharp decline in Bitcoin prices. We explore the key factors contributing to the drop, including global financial market liquidity, the impact of Mt. Gox and government Bitcoin sales, and the role of leverage in amplifying price movements.  Tickers of Stocks & ETF discussed: TPX-B.TO, OTEX.TO, STZ, GSY.TO 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. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent. We are back for earnings and news and was definitely a bit of a slower week, I would say, but we still managed to get some good content for everyone listening. Dan, how's it going? are things in uh calgary are you have you been to the stampede

no i haven't been to the stampede in years i mean i think it's like okay okay a lot of calgarians love it but i think it's mostly like a outside thing a lot of calgarians don't like it either because it's just it's expensive it's crowded it's gonna be like it it was what was it 31 degrees here yesterday it's supposed to be like 34 wednesday so i would imagine the uh the stampede grounds are gonna be like 40 yeah yeah i i hear it's a dry heat in alberta so uh it's been very hot here too but it is on my to-do list to get done to at least um i go there so maybe when i go uh visit you and one of my buddies that lives there i'll try to to time it with the summer yeah we can uh we can go down to the grounds and get a 27 lemonade there you go sounds pretty enticing but we'll get started

because we do have a decent amount on the slate so we decided to look at different companies different news some of the a bit like we decided to look at different companies, different news, some of the, a bit like we've done recently, the last recording where companies where we kind of just didn't have the time to look at, they may have reported a few weeks or a month ago or so. So we'll do that. There are some earnings news as well, items that came up in the last week that we'll touch on. So to start off here, I'll start off with Molson Coors. So Molson Coors, not a company that we've talked a whole lot on the podcast, but I still think it's interesting. And I'll be also touching on Constellation Brands, not to be confused with Constellation Software,

two very different businesses here. So Constellation Brands is a company that also does a lot of, you know, does beer sales with brands like people will be familiar with Corona, for example. So they own that. But Molson Coors, of course, they own a variety of brand like all the Molson beers. They also own Miller's, Coors Light. So interesting to look at just to see where these kind of companies are going forward. And especially these two companies are pretty much not identical, but in the same kind of business. So it'll be interesting just to look at how the numbers look for both of them. Now, revenues for Molson Coors were up 11% to $2.6 billion on a year-over-year basis. Now, just to keep in mind here,

these are for earnings that were reported on April 30th, so they're coming out with their next earnings in three, four weeks, I think. So it's the latest one, but a bit delayed, like I said before. They saw strong volume growth in North America, driven by more demand for Coors Light and their Miller's brand.

They saw cost-cutting measures help profitability, which can be reflected in their operating margins. That almost doubled the over year from 6.75% to 12.18%. Net income was up 184% to $208 million. 184% to $208 million. Interestingly enough, though, their interest expense peaked in 2017 at $350 million a year and has been going down ever since. So with the trailing 12 months being $223 million. So when you look at their long term debt, you actually have a better picture. It's not surprising because it peaked in 2016 at $11.3 billion and is now down more than half at $5.2 billion. I thought it was an interesting note because that's not a conversation that we have been having a lot, right, Dan? So for the most

part here, you're seeing companies that are looking at the opposite, right? Interest expense is going way, way up. So this was definitely a bit of a surprise, not a company that I kind of follow all that much. And I thought it was just an interesting point to note. Yeah, it's definitely like the debt reduction right now is kind of the opposite of a lot of companies right now, especially like when we'll go over OpenText next, they've ballooned their debt just because of acquisitions but it is interesting with these companies because supposedly historically i think as the economy has gotten weaker their results have gotten a bit better beer sales things like that i know like molson coors does sell like more i guess you could say like discounted beers like i

know miller is not a very expensive beer. I don't think Coors Light is either. I don't follow this company at all. I know they haven't done very well over the last, well, I don't think they did very well ever over the last decade, but it doesn't seem like all that bad of results. No, you're totally right.

And for Join TCI subscribers, they'll be able to see what I'm talking about so that you really see the debt that has steadily been going down. Again, it's not a company that I followed all that closely. I held it briefly in 2020, late 2019 as well. But again, I'm going up for a lot of things. I'm going more on memory and obviously what I read doing my research here. And then the interest expense, same thing. You can see it steadily going down. So I think, you know, I think it's for a lot of especially Canadian companies that are debt heavy. I think this is probably a good lesson or a good model to follow, at least on the debt reduction

kind of side to just show that, yeah, like, I mean, it does give you a whole lot more flexibility by reducing that debt. Well, yeah. And they're like, if you were to look at the chart, you would see it, you know, it's kind of leveled off and that it peaks in 2016. And that's when they actually bought Miller. So they bought Miller for 12 billion in 2016. So the debt skyrocketed and they've spent the last, well, I don't know, what would that be? Eight years paying it down. So it's all, it's just an acquisition related debt, obviously. And it seems to be working quite well for them. I mean, they're reducing the debt quite

a bit. I don't know how, like I said, I don't follow the company enough to know how well the acquisition of Miller has done, but they paid quite a bit for it when you think about it because they're a $14 billion company and they paid $12 billion for Miller. No, exactly. I think it's just a good point. I think that's what companies should be doing if they take on a lot of debt to make an acquisition or for whatever reason. I think this is a good model. I think companies, what we've seen in the past decade is companies, lack of better words, have gotten high on cheap debt because, you know, it's not really hitting their bottom line because the interest is so low. So companies just piled on more and more debt, a lot like consumers, right? Consumers have done the same thing because

the payments are manageable. You're not paying a whole lot of interest. But now what we're seeing is the bill is coming due. And a lot of companies that did not properly manage their debt are starting to struggle financially because they have to refinance at higher rates. And when they had the chance to lower that debt, they did not. They did, whether it's pay a high dividend or did share buy bags, they decided to do that instead of using the prudent, more conservative approach. So I thought it was just interesting to mention that. Now, the last couple of things here, EPS tripled to just shy

of a dollar per share. Free cash flow was negative to the 290 million, slightly worse than last year, but nothing crazy. And that was primarily due to higher capital expenditure compared to last year but you know nothing crazy and that was primarily due to higher capital expenditure compared to last year and to keep in mind that's typically the slowest quarter for these kind of companies the first like you know the first three four months of the actual calendar year that's when they'll you know they'll see the sales being the slowest and then it picks back up for the summer months and then stays relatively high for the kind of fall christmas holiday areas and then in terms of guidance they are guiding for net sales to increase in the low single digits for 2024 yeah i wonder if that's like a resolution thing too you know new year no more booze. Could be, yeah. Maybe, could be an element. And then by March,

they've given up. Yeah, our people are, no pun intended, tapped out financially after the holidays. And for those who don't know, their ticker on the US listed exchange is TAP, T-A-P. So it's a good ticker. Oh, really? That is a good ticker. Yeah. Yeah. But that's it for it. AP. So it's a good ticker. Oh, really? That is a good ticker. Yeah. Yeah. But that's it for it. 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. 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, 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.

I think we'll switch over here to some news from OpenTex. Not great news for those affected, but still a Canadian company. So do you want to go over that? Yeah, so I was looking into these layoffs and there actually ended up being quite a bit of good information here. So OpenText is a mid-cap software company here in Canada. I think their market cap is around 11 billion, somewhere around there. So original headlines were saying that they were laying off 1,200 workers. But when you dig into the press report, they're laying off 1,200 and adding

800 positions to its sales and engineering departments in different segments of the business. So it works out to be only around a 1.7% reduction in total staffing levels. So if you look at their initial staff, they have around 23,000 staff. So I mean, they're cutting by 12 in particular departments and adding by eight in others. There isn't very much commentary on the laid off positions, but the new positions will go towards growing its cloud security and artificial intelligence segments. This is kind of an effort they're calling Open Text 3.0. So I would imagine the transition is just from some legacy business segments the company has.

Directly from the company themselves, they say the shift is more about placing the right talent in the right locations of the business. I followed OpenTex for quite a while. Layoffs are not exactly a new thing. The company dumped 8% of its workforce in early 2023 after it made a huge 5.8 billion dollar acquisition of one of its main European competitors, Microfocus. So the layoffs will initially cost the company around 60 million dollars, but they expect that it will save the company more than 150 million in annual expenses moving forward. And again, there isn't much commentary as to what departments are getting cut. This would have been interesting to know, and I imagine it'll come out eventually, but they don't have any information on it right now.

So OpenTex typically makes, you know, they do make big acquisitions, but they also make quite a bit of smaller acquisitions that, you know, they're not notable to overall, you know, its overall financial results. So they aren't really all that public. And there's a good chance that, you know, they're just kind of trimming some of the fat here of maybe some positions they didn't really need post integration. And the interesting thing is in researching these layoffs, I came across like kind of those employment sites where you can kind of review your employer and, you know, how it is to work there. And OpenText does, yeah it Glassdoor? Yeah, something like that. It wasn't... There was Glassdoor and there was another one. And I mean, OpenText does have a couple ugly ones.

One of them was even saying that it's a continual slaughterhouse of layoffs just due to their acquisition strategy. So they bring new companies in and effectively eliminate a lot of the redundant positions. OpenText has struggled quite a bit since its acquisition of Micro Focus. So you could say this was a pretty strong acquisition at a pretty horrible time. As the company effectively doubled its overall debt load, so they went from $5.2 billion to $12.25 billion, like right when interest rates started going up. It's managed to pay off about a billion dollars of that debt over the last year, but they still remain quite a bit, you know, they still remain high at 11.31 billion. And

like I said, this is a company with a market cap of around there. So that's a pretty big debt load for them. And as a result, financing expenses are through the roof for OpenText. They've went from around 151 million in fiscal 2022 to around 575 million over the last 12 months. And I mean, it's not, like I said, it's not exactly surprising. This company does make quite a few acquisitions. So typically they'll make smaller ones, bigger ones. They don't need the staff levels, so they'll end up cutting them. But yeah, it's, it's a pretty interesting time for OpenText. Like they've had to, you know, transition to, you know, taking advantage of the AI boom. You know, they have a lot of cloud software, they have a lot of subscription services. It's the, the bulk of the business. But for right now,

it's just been financing costs that are weighing quite a bit on the company. And it's down quite a bit from the highs over the last few years. Okay, that's a great overview. And got a little distracted there by my dog barking. But I pulled up Glassdoor here for OpenTex. And you're right, 3.6 out of 5 star. Not that great in terms of reviews. And I was just looking at it quickly. 3.6 out of 7 out of 5 star. Not that great in terms of reviews.

And I was just looking at it quickly. And, you know, so yeah, a lot of mentions about the layoff. So it's not, you know, probably not the best environment for some employees. But clearly, I think it's just part of the deal when you join them. Yeah, they have. I looked up a few. They a few reddit threads as well and it's it's kind of apparently a going trend if you get acquired by go easy you're uh or sorry not go easy open text you're uh you're in the crosshairs for sure you don't want to be acquired by them because they're probably trimming a bunch of company a bunch of

employees from the acquired company but um they didn't really like, yeah, like I said, the headline is not as bad as it seems because like they're laying off 1200 and putting 800 somewhere else. So yeah, exactly. So no, I think that was a good overview, not a company I follow that often, but I think still, you know, some Canadian news. So definitely have to talk about that. Now, next on the slate here, we have consolation brands like I alluded to. So the ticker for that, for those not familiar with it, is STZ or STZ, however you want to pronounce the Z or Z. I feel like I hop around depending on, you know, what my mood is again a given day but since it's quite slow I thought it was like I mentioned before just interesting to see what the differences would be

between Constellation Brands and Molson Coors like I mentioned before they own like especially they own other like kind of wine and spirits as well but they're not as well known. The big brands are Corona and Medela. And in terms of sales, they were up 6% to 2.7 billion. Beer sales were up 8% to 2.3 billion. With operating margins for beer sales up double digits. Beer volume was up 7.6%. Wine and spirit revenues are definitely struggling. So those they were down 6% to $389 million, and volume was down 5.1%. It's an interesting divergence here between both of them. Because you can clearly see that when looking at the last 10 years that the wine and spirit sales have been on the declining scale, And then you have the beer sales that have been doing quite well. So I'm not quite sure if it's just necessarily the, you know, just the brands

that they own don't necessarily resonate with with their customers. I'm not quite sure. Another company that would be interested to look at in terms of zoning in a bit more on spirits is a da diagio you're are you familiar with that one yeah i've never heard of them no yeah no so they own like some very well-known brands so um i'm gonna look up the uh so d-i-a-g-e-o and the ticker for them I think it's something pretty simple here. So it's D-O-O. Yeah. D-O-O? D-E-O.

Yeah. Oh, D-E-O. So that's the ticker. Yeah. So that would be the one. Yeah, I've never heard of them. Yeah. Yeah, so they focus definitely more on the actual spirit side.

But having said that, it's just interesting to see kind of the divergence between the two where the beer revenue has been doing quite well, and it's the opposite for the wine and spirit. Now, operating income as a whole was up 23% to $942 million. Operating margins were up 440 basis points to 35.45%. Interest expense has been relatively stable. So different story here compared to Molson. So it's been relatively stable over the last five years. If there is a company, if this is something that interests our listeners, make sure you dig into

on how that debt is structured here because it is kind of up and down a little bit. Net income was 545% higher to $877 million. EPS was up in the same range to $4.78. Free cash flow was down 19% versus last year to $315 million. And for those not aware, so they have made a, let's just call it a terrible investment at this point in Canopy. So they made that investment, I think it was back in 2018. They had invested $4 billion and essentially they've been writing down that investment for the last couple of years here. They've written off over $1.2 billion in that investment.

2 billion in that investment. And they even mentioned on their 10Q, which is the quarterly report in the US, that there are significant concerns about the ability of Canopy Growth to continue as a going concern. You know, in terms of accounting speak, when you have something that can continue on a going concern basis, just mean that the company, you know, there's no imminent risk to the company and reasonably it can continue operations for, you know, the next year and years to come. You know, that's usually how to look at that. But if there is a concern about the going concern is that there is some significant risk and the accountants and the auditors are basically highlighting that to tell you that, look, there's a lot of issues here and we don't know how long this can continue. They may survive, they may not, but it's definitely not in good financial health.

Yeah, I'm actually surprised that they've only written off 1.2 billion of it because I'm pretty sure they invested in Canopy like near, not near peaks, but I remember it was pretty big news back in the day. Pretty close. But yeah, it was close. So 1.2 billion and right off site. I mean, I'm actually surprised it's that low. I mean, this is kind of like Constellation Brands is just kind of like the Mexican beers, whereas Molson Coors is like the American beers. North American, yeah. Constellation is like Modelo, Victoria, Corona, whereas molson coors is like your like

your coors banquet uh coors light molson canadian things like that so two like different areas of beers i mean i would say constellation brands is a lot more expensive except in mexico actually corona is cheap in mexico yeah very like i'm not a big beer drinker but i do like me a corona with the line i do like it yeah yeah especially on you know in the summer on vacation it is quite refreshing well you got to go down to mexico because they're only like probably like a dollar us maybe a buck 25 us a beer they're cheap cheap oh wow well if you go, usually it would be like all inclusives that we go. Yeah. Get like a Corona there or something like that. Or, you know, if you really wanted to have a good buzz going for the day, my trick was

in my younger days, I don't do that anymore because I'm a father, of course. But Long Island Iced Tea does the trick. Yeah, those all inclusives, they're great. You kind of get tired of the beer after seven straight days. But yeah, I don't know. Constellation's kind of a mess. I think they'll be paying for that Canopy acquisition or the Canopy investment for quite a while, even moving forward. No, I think you're right. And total revenues, I mean, Dave, revenues have been steadily increasing over the last 10 years. So it's not looking all that bad.

But I guess, again, that investment was just a poor idea. And I'm not sure. It's so funny the amount of money that was, well, funny. I mean, I don't mean to. I know some people lost a lot of money with investing in marijuana stock, especially in 2018 when the hype was there. And legalization happened in October of 2018 but I mean it was just all the signs were there Brayden and I would be talking about it when we started the podcast in 2019 and we're just saying like these valuations are crazy and it's also like just the estimation of the market and just companies

dishing out like hundreds of millions of dollars to make acquisitions in the space when they had no idea of what the demand would be. Just some really poor capital allocation. And, you know, I'm not saying that just in hindsight. Clearly, in hindsight, it's obvious that it was terrible decisions that were made. But I'm saying that because we were saying it at the time that, look, this looks overvalued. Why are these companies like getting so much production when we really don't know what the market will look like? And obviously, there was a lot of hype around it. And now people are seeing or investors are probably paying the price. Hopefully, most

people that invested at that time got in in got out like a year or two after and the loss wasn't too bad but you know i guess as long as if that's one of you listening as long as you learn from that i think that's the most important thing look i've made mistakes investing and i think everyone has made mistakes if people say they haven't made any mistakes they're lying to you so i think that's just an important thing to remember is just make sure you learn from them and you don't repeat those mistakes over and over. And now in terms of the guidance, sales to be up between 6% and 7%. Beer sales to be strong between 7% and 9%.

And wine and spirit sales essentially flat compared to last year. Yeah, I mean, just on the canopy growth end, I mean, a lot of people just think it's retail investors that make big mistakes like this, but here's a huge publicly traded corporation that made a horrible investment at peak prices. So it happens everywhere. And you think they would have known better, but clearly they bought into the hype clearly so uh i don't think there's much more to add there so you want to move on to uh maple leaf foods uh which i i tend to forget about that uh this company is not that it exists i know it exists because i see their traded products but yeah publicly traded yeah so we were like we said we were pretty slow on the

news so i was looking up news and this just came out this morning that they are announcing a spin off so maple leaf foods is looking like it's trying to lap to snap its long long slumping stock price by spinning off the pork segment of its business into a separate company so spinning off the pork segment of the business will allow Maple Leaf Foods, according to the company, which trades under the ticker MFI, to focus more on the consumer packaged goods end of the business. So what that will do ultimately in their eyes is reduce the company's exposure to commodity prices, which would primarily be the price of pork. So I mean, this volatility

is pretty obvious in Maple Leaf's margins at this point. So if you look at a gross margin chart for the company, it kind of looks like a roller coaster. They had two situations since the financial crisis where margins have effectively cratered. So they peaked at 16% in 2011 before falling to just 6% in 2013. And then they peaked again during the COVID-19 pandemic at 18% before falling back to around 7% right now, I believe at the lows. So the company hit all-time highs in 2017 at around $37 per share, but it's failed to even come close to those highs. Again, stocks down around 30% since 2017 2017 including reinvested dividends so you would have had to take your dividends and rebuy the stock this works out to be about a negative five

percent annualized return while the tsx has put up 8.2 percent annualized returns and the sap 13.5 so maple leaf plans to keep just shy of a 20% position in the new spinoff, and existing shareholders will receive shares of the new company. The deal was approved by the McCain family, who owns McCain Foods and is a controlling shareholder of Maple Leaf. I believe the main guy from the McCain family has a pretty big position at Maple Leaf. I can't remember exactly what it is. Although this will no doubt help reduce the overall margin volatility, the company is 70% packaged foods and only around 30% revenues from

the pork segment. That's just according to their most recent quarterly report. So they're effectively spinning off around a quarter of the business, maybe a little bit more. Since 2016, the price of pork, according to Y charts, has increased by over 35%. So I imagine this is what is having such a big impact on the business. Since 2016, earnings per share and free cash flow have declined by 110% and 36% respectively. Stock is up around 5% on the news. So with the business being, you know, three quarters of the business staying intact, it's kind of hard to see how this all of a sudden turns Maple Leaf Foods around. I mean, I guess the one thing would be if you, if you somehow like Maple Leaf, you can now isolate yourself from that pork end of the business. And if for some reason you want to buy a company that

solely relies on pork product sales, You could buy the spinoff. It's expected to close next year. It's kind of, it's a bit weird. I think like you'd have to think that that spinoff, like is there another company that just solely relies on selling pork and relying on a public- It's a very weird reason to spinoff. Yeah.

Yeah. I mean, a lot of companies do this just to kind of try to turn things around. And a lot of the commentary is always about unlocking value. They're going to unlock value from spinning off the weaker side of the business and keeping the stronger one intact. So what are they going to do then? Spin off their beef, their turkey, and then the chicken? Well, I don't think they have very much. So their packaging includes, you know, I don't think they sell like, I know they do sell, you know, like poultry and all that kind of stuff, but that's included in the packaging.

But I think because they sell so much pork that it's a completely separate entity of the business. pork that it's a completely separate entity of the business but i just don't i don't see a lot of demand for a pure play pork producer i don't know they could do yeah like if i were them i'd do beef and then pork yeah then you know birds yeah include all the birds together. No, it's just very strange. Like, yeah. Yeah. I mean, if it was like, yeah, completely different company, like it would make a little bit of sense, but I don't know. I mean, I don't know. I, I guess maybe I got distracted when you said it's owned by McCain because, uh, you know, I was thinking of their deep and delicious cakes. But, you know. Good fries, too.

Yeah, it's good fries. Yeah. Yeah. I don't know. It's weird to me. It was it's a weird enough spinoff that I felt it was worthy to talk about because it's got to be. I don't know. Maybe there's another traded a publicly traded company that focuses exclusively on pork production. But I don't know, maybe there's another publicly traded company that focuses exclusively on pork production, but I don't think so. If you look at a chart of the price of pork, it's pretty much

done nothing but go straight up over the last 10 years. So I mean, that segment of the business is going to be massively volatile to fluctuating prices. so maybe they do get you know a little better results from just the packaged goods like the sandwich meats all that kind of stuff but uh it hasn't performed well the last while at all yeah and that's i guess i'll finish on this it's always a good reason asking why they're spinning it off and if it makes sense i can think of one and i haven't like dove deeply into that spinoff, but you know, when J&J, so Johnson and Johnson kind of separated its pharmaceutical business to the kind of consumer business where it's more like, you know, whatever toothpaste,

Tylenol and all that stuff when they separated that to me, you know, that made logically that made some sense because these are very different type of business. When you get into pharmaceutical, you can think about like developing new drugs that takes like can take years or decades until they're approved by the FDA in the US and the different regulatory bodies around the world. So that that can make more sense. But here, I guess we'll have to see. Maybe there's going to be some happy shareholders, but it's just a bit of a head scratcher, I'll be honest.

Yeah, it looks like they're taking the poor segment of the business and just trying to spin it off so that the main packaging business kind of gets some better numbers. But realistically, I mean, they're going to own 20% of that pork business anyway. So I don't know. It's weird. It kind of just looks like a spinoff to try and turn a pretty bad,

like decade-long performance around. We'll see what it does. Yeah, no, that's good. 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. 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. 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. Now we'll move on to GoEasy. So some news there. Do you want the CEO leaving? So I guess there's some issues with the subprime market or it's doing well i'm not quite sure yeah yeah this one was a bit weird to me so like i found i talk about the ceo but then just

over all the results and it's just kind of weird for a ceo to leave at this point when they're they're just absolutely killing it so go easy which is a subprime lender here in Canada, announced their CEO, Jason Mullins, will transition out of the job at the end of the year. So he will still remain on the board with the company, but he won't be CEO. So he served 14 years with the company, including six as a CEO. So I cover this company quite a bit, and there was really no news of this happening. The market didn't really seem to expect it either, and it kind of spooked him. So the stock is down 13% since the news. I don't know if it's down or not today, continuing to slide, but over the course of his tenure, GoEasy stock price has gone up by

480%. Revenue grown by 211%. Earnings per share have gone up by 470%. He pretty consistently maintained returns on equity in excess of 25%. And the company has grown their dividend by 420% over that timeframe with some gigantic increases coming during the COVID-19 pandemic. GoEasy wasn't exposed to the regulatory impacts of the big banks, like when regulators said they can't grow the dividends. I believe Equitable Bank was, so they couldn't raise the dividend, but go easy because they don't really fit into that market. They're not a mortgage lender. They're not a deposit-based bank or anything. They could go ahead and raise the dividend, and they ended up doing so over that timeframe. And again, I have a feeling the stock might be taking a bit of a dive recently because

a replacement hasn't been announced. They pretty much said they're going to work with the old CEO and the board over the next bit to come up with a worthy successor by the end of the year. So GoEasy has been one of the best managed and highest performing stocks on the TSX over the last bit. And I mean, his performance is no doubt been impressive, which is kind of why it's strange to me that there's just an all of a sudden resignation and he's leaving. But overall, I think a lot of it has to do with- Or he's smart. Yeah. Or he's leaving on top and maybe he sees kind of the writing on the wall where the business could take a turn for the wars because these business tend to do well until the economy

starts taking a turn for the wars exactly which is what like i got a bunch of uh kind of a bunch of commentary on that as well because yeah this the subprime market is just crazy in Canada right now. So I think it's like with most financial institutions we're seeing right now, the weakening economy is actually a headwind. Whereas with GoEasy, because they're a subprime lender, the weaker the economy, the better the stock is actually doing. But it's actually, it's a fine line between, you know, a lot of people are heading to the subprime market, it's a fine line between, you know, a lot of people are heading to the subprime market. There's a fine line between, you know, issuing these loans and keeping charge off rates, you know, relatively steady. The economy is weak enough that a lot

of people are heading to this. But if the economy gets too weak to the point where, you know, people can't pay these loans, then, you know, it starts to become a bit of an issue. So I grabbed some data on the subprime market from TransUnion. So this is dated to last year, but I'm almost positive it's still pretty relevant. So they said the number of subprime borrowers jumped by 9% last year. So this would have been 2023, hitting 2.64 million Canadians. So subprime borrowers grew at nearly double the rate as near prime borrowers and prime borrowers, which grew at 5% and over four times the rate of above prime borrowers, which grew at 2%. So this would typically be just credit, like credit rating. So pretty much what

they're saying is consumers with weak credit are financing a lot more stuff than those with higher credit. So these companies offer financing those with bad credit or just the inability to get a loan from a prime level bank for some reason. They charge ridiculous APRs on their loans to offset the risk of higher risk lenders. And as a result, can still turn out pretty crazy earnings growth despite charge off rates being north of 9%. So you're not going to see that type of charge off rate with a major bank. GoEasy actually targets a 9% charge off rate. And the rate now is actually lower than it was pre-pandemic, which is pretty interesting. So they recorded

record levels of applications last quarter. So 69% of those are coming from brand new clients. And they have a weighted average interest rate on their consumer loans of 30%. New customer volume also ticked up by 17% on a year over year basis. And again, I don't really want to get into the quarterly earnings too much because they're probably going to report in the next while here. But I mean, I think it just paints kind of a bleak picture of the Canadian consumer. And from that, you had sent me that study this morning, which is a little more relevant, but 27% of Canadians plan to apply for new credit

or refinance existing credit in the next year. So it's up 4% from the previous year. And just like the subprime lenders, so over the last year, I kind of dug up the results on the TSX and two of the top four companies on the TSX. I think the other one was Hammond Power. And I can't actually remember the fourth, but Goezy Limited and Propel Holdings are two out of the top four performing TSX stocks. So they're each up over 90% over the last year. I think Propel is 98%.

And Propel is more US-based. So I don't really know much about the US subprime market. So I've never really looked into them too, too much. But they're a Canadian traded company. But the bulk of their operations are in the US. I mean, again, I think it's just like, it's a fine line to where you know the economy is weak enough where you know consumers need this financing but it almost can't get too weak to the point where they can't pay it exactly usually the tipping point is when job losses start happening yeah on a pretty you know pretty wide basis because typically people who access this credit you know they either you know they'll typically not be able to qualify with banks and regular financial institutions so

that's why they go for the subprime and that tends to be either people that don't you know are on the lower income spectrum or people on the other end that may have a bit too much debt but you know you a company that subprime lender will be like okay well we'll still lend to you but you're going to pay a lot more interest rate way higher interest so it is something it's a very fine line i mean you know people if they haven't seen it highly recommend it you know watch the big short and that's pretty much what happened in the u.s it's a subprime mortgage. So you had people that shouldn't have been qualifying for these loans that were getting mortgages. And then it was all nice and dandy until, you know, there was a couple of things.

But, you know, they had a trigger rate that would like kind of jump up their payments. And then people would just start defaulting on the loans. Or you had other people that, you know know could barely make the loans work and then lost their jobs and then were not able to pay it and then you saw these subprime lenders get into a whole lot of trouble so that's why for me i tend to stay out of these kind of companies just because like you said there can be when times are good they're real good but when times are bad they can get real real bad and crush and it can happen it's a fine line it can't happen way faster sometimes than investors think

yeah so like with go easy i mean they've been around for quite a while they went through the dot-com bubble they went through the financial crisis they went through the covid pandemic and they survived all of them but it was like if you look at their their stock during those crashes it gets ugly for you know a short duration of time and then they've eventually recovered but uh yeah these I hear it like because of the results that go easy there's a lot of people talking about it right now and it's uh I think a lot of people maybe own this thing without actually understanding the subprime market and just the risks, not even from just a lending perspective, but also from a regulatory perspective. Like they, they came out, I can't remember when it was, it was probably a

year ago, but regulators came out and reduced the amount of APRs these companies can charge. So I think they went down from 35% down to 30%, which didn't end up impacting GoEasy all that much because most of their loans were below that anyway. But if this gets bad enough, regulators step in and they trim it down to 25%. That's something that can hit these companies pretty hard. Yeah. No, I think that's a good overview. We'll move on here to our last segment. It's been a while since I did a segment on Bitcoin. So I decided to do, you know, a modestly long segment, not too long, but for those watching Bitcoin,

obviously the price has been declining pretty rapidly over the last month. So it's down approximately 18%. The price is volatile. So depending on when you hear or listen to this podcast, and when we're recording right now on Tuesday, you know, the price could be down more or less. In the same time period, you saw the S&P 500 being up 4%, gold is up 3%. IET, which is the iShares 7 to 10 year treasury bond ETF, is up more than 1%. So all the major asset classes are doing relatively well, but Bitcoin is down 18%. So what's going on?

There is three primary reasons that, you know, I've identified just reading a whole lot on it and listening to people who are in reading, you know, pieces that are published by people who are a lot smarter than I am and listening to them as well. So there's three main ones that I identify. And so the first one is financial market liquidity. So the more I learn about macro and the more I'm realizing how important global liquidity is in the financial markets. To keep it simple, liquidity means that assets can easily be bought and sold without significantly affecting the price. The more liquid global markets are, the more easily capital is flowing to the financial system and vice versa if they are

less liquid. Liquidity obviously is extremely complex. I mean, I've listened to a whole lot of different people, experts on the subject, and one of the main takeaways is none of them really agree on the ways of measuring liquidity which is always interesting because you have these people that are extremely smart that I've studied the subject a whole lot and they can't really agree I mean typically they'll agree whether there is you know liquidity is drying up or there's ample liquidity in the market. But what they'll look at will be different or it'll be similar, but they'll interpret it differently. It can be influenced by a slew of different things,

some of them. And this is not like an extensive list, but it would be, for example, interest rates, money supply growth, credit spreads. So credit spreads, for those not familiar with it, it's just a difference between what corporate bonds are yielding compared to government bonds. And that's one of the reasons that we constantly harp on the fact that when people say, you know, whether they talk about, you know, companies that are having debt to refinance in the next year or two, and people say, well, the Bank of Canada will lower rates or the Fed will lower rates. People are often just missing the points unless the company is going to have a revolving facility or variable rates on

their debt. It doesn't have necessarily an impact. It's the bond yields that will impact what corporations will be able to get on their debt. Obviously, there's also going to be an impact whether they have a good rating with credit agencies and a whole lot of different things. But I think it's important to remember. Same goes to when people are saying, you know, the housing market is going to reignite because the Bank of Canada lowered rates by 25 basis points or 50 or whatever it is. But they forget that the five-year fixed term that you get on your mortgage that most people will get is not dependent on the variable rate. It is dependent on what bond yields are. And if you've been looking at bond yields since the last Bank of Canada rate cut, they've pretty much been the same, the five-year bond yield for the Bank of Canada. So that's just an example that, you know, it does not necessarily mean that, you know,

this is going to happen. Went a little bit on the tangent here. Anything you wanted to add before I continue? No, that's like a good summary. I mean, the mortgage situation, like just because they're cutting policy rates, it's going to help variable rates, but there's no guarantee that fixed rate mortgages will follow that. There's a lot of other things at play for sure. Yeah, exactly. And I guess another thing that can influence liquidity is commercial bank lending. But like I said, these are just like just some example. There's a slew of other ones and I am not an expert in this. So take this with a grain of salt. The second factor. So well, actually, just to close up on the liquidity portion. The reason I'm mentioning this is because Bitcoin does appear to be very affected by global

liquidity. I've listened to a lot of experts on this subject, and it's very seems like it seems like there's a strong correlation between liquidity and what Bitcoin will do. So essentially, the more liquidity there is in the global market, the more Bitcoin price will tend to run up. And if liquidity starts drying up, then the opposite happens. And Bitcoin tends to be the first one to move. And then other asset classes tend to be impacted by that liquidity to varying degrees afterwards. So just something I wanted to mention, because you may have seen in the news that a lot of people are blaming the price drop by the second factor here that I have, which is the Mt. Gox selling. So Mt. Gox was a Japanese exchange.

It was one of the largest crypto exchanges, but went into bankruptcy following a hack in 2014. They're starting to repay Bitcoin to their customers, some that are corporations. But it's unclear if they will be actually selling those Bitcoin or just transferring them to their customers. That's important to note because if they're just transferring the Bitcoin and the customers decide to not sell, then it's not putting sell pressure. But regardless, the fact that it's happening has at least kind of impacted the sentiment around Bitcoin and some people fearing that it will trigger kind of more price pressure on it because of some selling that could happen related to that there's also been some government specifically the German government that has been selling off

some Bitcoin typically governments will gain custody of Bitcoin when they are seized through law enforcement so I know the US government has a decent amount of it I'm sure the Canadian government has some as well although I'm just you know just is just guessing at this point, but I'm sure they do. So this would be the second reason. And the last reason that always happens with price movements one way or another for Bitcoin is leverage. So whenever you have a strong price movement for Bitcoin downwards or upwards, you will see some corresponding liquidations for people who are

levered. So in this case, strong movement downwards. So people that were levered long, so we're betting on the price of Bitcoin going up on leverage, they get liquidated if they can't add in more money to their margin accounts. And then the price of Bitcoin goes down even further because it puts some more price pressure on it. The opposite can be true if people are shorting Bitcoin and then the price runs up really quickly. It can even be like essentially it's a short squeeze, so they're forced to sell the position and then it runs up the price. So that's typically that will happen quite a bit with Bitcoin. If there's a strong price movement one way or another, leverage impacts the movement even more. Yeah. I don't follow the actual price of Bitcoin very much. I just log into Twitter.

And if there's a lot of tweets on Bitcoin, I know the price is going down. Yeah. I know the price is going down because nobody, a lot of people don't talk about it when it's going up, but then when it's going down, they like to talk about uh you know how it was probably a bad buy at the peaks i mean i i kind of sold it i got a little bit lucky and sold a big chunk of my bitcoin position at the peaks at least i got lucky looking at it right now it could end up being a bad thing in a year or two if it's much higher but um i mean i well you trimmed right you trimmed to an allocation that you're more comfortable with. Same as what I would carry with an individual stock.

And I think that's pretty important too, because a lot of people might be, they might have chased the returns to the upside and now over-allocate themselves. And now they're sitting here on staring at 20% losses in a month, which which i mean it's pretty minor when it comes to bitcoin for bitcoin oh yeah yeah i mean it's oh i know trust me well and you gotta think like everybody's talking uh about bitcoin falling 19 in a month whereas company like nike fell 21 a single day so i mean there's there's volatility everywhere i mean bitcoin's a little more volatile but uh it's not just bitcoin that sees you know wild swings like this but it's just going to be prone to more of them yeah especially the way markets are right now where it's so skewed

when we if we get back to equities here right to uh so skewed towards the largest cap and you know regardless of the company that you're looking at, whether it's an NVIDIA or a company like Nike, more and more what we've been noticing, I think you have been noticing as well, is if they don't at least meet, if not exceed guidance, especially those that are trading at a premium, you're going to see a big price movement downwards. That's just the market expectations right now. Yeah. I remember in 2022, Amazon was terrible for that. It would report earnings and dive 15%, 16% aftermarket, just huge volatility. And that was back when valuations were relatively high. Probably, actually, like

2021, you'll see a lot of these companies are more expensive than they were in late 2021, 2022 on a valuation basis. So it'll be interesting if they don't meet expectations, you could see that type of volatility again. Yeah. Well, I guess I'll close on, you you know strap on your seat belts and enjoy the ride that's it exactly well we appreciate everyone listening i think it was still a fun episode despite uh things being a bit slower it's going to start picking up in the next few weeks now so it'll there's going to be more canadian content to talk about mornings and use and. And it was still a great episode to do. And yeah, I appreciate everyone listening and make sure you follow us on Twitter. I'm at fiat underscore iceberg. Dan is at stocktrades underscore CA. Perfect. And we'll end it on this. Thanks for listening.

The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.