The Canadian Investor - Best & Worst Performing Sectors of 2022

Episode Date: December 8, 2022

It’s the end of the year and we look at the best and worst performing stock market sectors in 2022. We look at the earnings from 3 of Canada’s largest banks and if a large increase in consumer debt is alarming for Canada’s economy going forward. Tickers of stocks discussed: RY.TO, NA.TO, CM.TO, CRWD, ALGN, SIVB, ZM, META, NFLX, TSLA, MRNA, AVTR, RKT, AMZN, LBRDA, PINS, VEEV, NOW, KKR, NTR.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 Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Register for ShakepaySee 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 Bélanger. The Canadian Investor Podcast. How are we doing? Welcome into the show. My name is Brayden Dennis. As always, joined by the fearless Simon Bélanger. How are you doing, my buddy? Have you played around with OpenAI's chat GPT thing? I messed around

with it all weekend. Yeah. I could tell that you messed around with it, but I sent you so many screenshots. I was so annoying. Yeah. Like at first I'm like, what the hell am I looking at? And then I kind of understood and I saw other people that played with it. I've not had the chance just yet, but definitely will at some point this week. So to start today's show, I asked the AI program this prompt, and then I will say word for word what it is here. I said, I host the Canadian Investor Podcast. Can you write me a call to action to my listeners to rate the show five stars? Open AI said, hey there, Canadian investors. If you've been enjoying the latest episode of the Canadian Investor Podcast, we would

greatly appreciate it if you took a few minutes to leave us a five-star rating on your preferred podcast platform. This will not only help us reach more investors like yourself, but it will also provide valuable feedback and we can use to continue improving the show. Your support means the world to us. We are forever grateful for every single rating and review. Thank you for being a loyal listener and helping us grow. At one point point this entire podcast is just going to be ai and no one's going to know even our voices yeah exactly i mean i heard that um there are some limitations i heard another show where apparently some coders or programmers were trying to use it to write code. Yeah, it's doing that.

Yeah, but the code looked right at first glance, but once they went into it, there was like a bunch of errors with it. So I think it's still a word in progress, but definitely what you wrote is pretty impressive. It is. And what you can do is like, because this is what GitHub Copilot is,

which is GitHub is a, you know, GitHub is a Microsoft asset and they have invested a ton of money in OpenAI's project. And they're tapping into that with GitHub. And if you use GitHub Copilot, so you have like a bug in your code, you can just copy and paste it and just be like, Hey, can you tell me like why this isn't working? And it will literally point it out and rewrite like, Hey, can you tell me like why this isn't working? And it will literally point it out and rewrite like something that'll work instead. It like knows what you're it's dude. I've had a couple moments just using it over the past, like 48 hours where I'm just like, Oh my God, I don't even know how like school teachers are going to deal with this.

You can write to it and be like, can you prepare a 2000 word essay on the founding of Canada? And it'll do it in like 30 seconds. It's so scary, man. And it sounds good. And then you can be like, but also that's too smart. Can you write it like I'm 12 years old so my teacher doesn't notice? And he'll go, sure. And then he'll rewrite it like a 12-year-old. Yeah, I think they're going to have to go back. Probably you and I, right, when we went to school, it was just all handwritten. So you had to write it. It was you. You couldn't really, I mean, obviously, there were still ways to cheat if you really wanted to cheat, but it was definitely harder than it is today, I'm sure. Yep. All right, let's get into it. You're kicking us off with some performance on Year to Date. It inspired me to do the second segment.

Then you're going to get into Canadian banks, which is good stuff. And then I will round us off with CrowdStrike Live here, just winging it because I didn't write any notes for that because I'm not very smart. Let's get into the S&P 500's best and performing sectors year to date. Yeah, so I pulled some data. So I thought it was a good idea to look at what the best performing sectors were because obviously, you know, I can't believe it. You probably can't either. 2022 is almost done. And I figured, you know, it's December. Pretty good idea just to see how it like the

various sectors have performed year to date. So I pulled two sets of data, the one year to date and the other one to compare it five years because it's very different. Spoiler alert, the five years is actually all green, regardless of the sector, right? Well, there's one that's kind of flat, but let's just say it's all green. Now the year to date, the index, and this was pilled a couple of days ago, so it's probably a bit worse than that

because the markets have been down yesterday and today, but the S&P 500 was down 14.6% at the time. The worst performing sectors in order from the worst to the least worst, let's just say the top three worst, were communication services, consumer discretionary, real estate, and I guess I'll add in technology. So they were from 33% in the negative to 22% for technology. And then the rest, I would say, considering how the index has performed, let's just say they were kind of flat. Not quite, but they're all kind of in the down in the one digits or so. And then you have the highest performing sector, which is energy, and then consumer stable,

which is the only other one that's slightly ahead, like 0.1, 10 basis points. That's it. So pretty much all the sectors are down except energy. Some are pretty close to being flat, but the worst performing ones are the ones that have actually done pretty well in recent years. So it was interesting to look at that. And then when you look at the five years, the best performing is technology, which is amongst the worst performing this year. So that's always interesting.

And the second best performing is the health care sector. So that's pretty good because it is pretty much flat this year. And in the past five years, it's actually performed quite well too. Yeah, that's an interesting one too, right? Because it's kind of a bit of a recovery play, like many of the things that have done well. Like I'm thinking of a striker or intuitive surgical, for instance, volumes heavily picking up from elective surgeries coming back for those those health care names. No, I love this data because you'll notice so much bullish sentiment here on what has worked lately. Right. And the reality is,, you just pointed that out. They actually don't have a huge correlation on the returns,

even just zooming out five years. Because technology, one of the worst performing sectors of 2022, is by far and away the best performing sector in the last five years, right? If I'm reading this data correctly? Yeah, yeah, yeah, you're Yeah, exactly. I'm not sure if the data I'm gonna assume that the data probably does not include dividends, because most of the time, that's the kind of data I didn't have to, like, I don't remember by heart whether it does or not. But yeah, technology is by far the best performing for the past five years. And it's in the top four of the worst performing this year. I would 20, let's just say 23% probably with yesterday or today into negative.

Yeah. And it makes me so, it makes me chuckle when you see victory laps or long-term conclusions being drawn, dunking on certain investors in the short term for performance. Never get too high or too low on short-term performance because it's like you see human recency bias just in full effect. Let's look at ExxonMobil, for instance. It is up 70% year to date. What a great stock. And sure, maybe it was probably too cheap. It was too unloved. And here it's having a monster year in 2022. While the stock market has largely been painful for many,

you have this thing up 70%. But even from today's huge run-up, the stock outside of that dividend has virtually been dead money. It's vastly underperformed on a total market return, even if you include the nice juicy dividend that you were getting back then. So it's just a reminder to zoom out and one year, one quarter, two years, even five years just might not be a good timeframe for the game that you're playing. And if you're playing a short-term game, then yeah, this is relevant. But I know many of us listening aren't. Yeah. No, exactly. And I like to use this data personally, the shorter-term data, because I like to find

good value. And I find that's really useful for that. So if you look at the sectors that are the hardest hit, that's usually where you'll be able to find some pretty good value. But with the caveat that, you know, oftentimes there are reasons why it's severely down, right? It could be an unsustainable sector and whatnot, or there could be some really poor performing companies way worse than others in that sector. But I do like that because, you know, if you like tech and you didn't like the valuation

last year, well, this clearly shows that there might be some interesting tech plays that you might want to look at because clearly tech has suffered quite a bit this year. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees.

They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you.

It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the

community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. Yeah. Your segment inspired me to run a little screener from Stratosphere because I was looking at it. I was like, I would love to just be able to properly backtest. It would take so long, but to properly backtest just really how disconnected short-term returns and business performance in those sectors can be in the short term, both onto the upside and to

the downside, just how disconnected those two metrics can be of the share performance and actual fundamentals of the business. So I just ran a sorted by 10 billion market cap in North America. I did growing revenue by more than 10% per share to throw out some heavily diluted growth. I think that that makes sense given what's happened with heavy dilution on some of these names in the past two-ish years. And down more than 30% from the high, you get the following businesses, Align Technology, SVB Financial. And so these are all greater than 10 billion in market cap, by the way. Some of them I don't know, but they're not small businesses at all. Zoom Video, Meta, Evergreen Marine Corp, Netflix. I don't know how to say it. It's a cow cow. I believe

it's a Korean name. Tesla, Moderna, Avantor, Rocket Companies, Amazon, Liberty, Pinterest, Viva, ServiceNow, KKR, and Nutrien. And so a lot of these are big names that you will know and have still grown well in excess of the market average on the top line per share. And you're seeing huge, heavy drawdowns. So do your own due diligence, of course, but this is the time to start thinking about which... Well, all the time is the time to think about it, but more than ever now is just which companies are doing extremely well from a fundamentals perspective, continuing to get it done. The story has not changed. I'm thinking of an Amazon as a perfect example of this. And you're getting much better value on shares today than you were

one year ago, year and a half ago. So this should make people excited, especially when you see large market drawdowns. This is what should make investors extremely optimistic in terms of a forward return opportunity. Yeah, no, I definitely agree there. And I'll just add my two cents here, not specific to these companies, but even personally, I've been buying a lot of technology and real estate stocks and some communication stocks in the past six months. And those are three of the worst hit sectors so far this year. Obviously, I'm picky in the companies that I'm choosing. And I know they could very well be bumpy for the next year or two for those sectors. I'm well aware, especially real estate with interest rates being high. But because I have a long term horizon, I think there are some great opportunities in those sectors personally, but other sectors as well.

All right, let's get into the Mr. Bélanger Canadian Banks Roundup. What do we got on the slate here? Yes, let's do it. The Canadian banks are saving the days in terms of earning because there's not much else going on unless you like those venture TSX mining stocks. I feel like they're reporting all the time, but I won't do all the banks here.

I triple levered my entire portfolio into those names you're talking about, by the way. Yeah. So, I mean, I decided to do a mix here. So I decided to do the largest Canadian banks of the big banks, obviously the bank with the most exposure to mortgages as a percentage of its loan portfolio and the smallest of the Canadian banks. So I wanted to do kind of a mix here just because I think it'll provide a pretty good picture. So the largest, obviously, I alluded to its Royal Bank, ticker IRY, dual listed. So their Q4 and full year results. I list dual listed. So they're Q4 and full year results. But I'll really focus on Q4 because, you know, the environment for banks has changed dramatically from the start of the year from Q1 to Q4. And I think that's really important when people are looking at year over year numbers,

just to keep that in mind, because I think what the interest rates have gone up 350 basis points since the start of the year and probably going to get another 25 to 50 tomorrow. So keep that in mind because when you're comparing year to year number. Now, first thing, good news, Royal Bank announced a 3% increase to their dividend. Revenues were up 1.5% year over year and 3.5% on a sequential basis. I'll do both for Royal Bank here. Net income was essentially flat and up 8.5% on a sequential basis, flat year over year. They added $381 million to provision for credit losses versus $340 million last quarter. Now, as a side note, last year they they had released 227 million worth of provision for credit losses that they had put prior to the pandemic. So that's a swing of $600

million. So that's very telling. The amounts are reasonable considering the size of Royal Bank, but it definitely shows a shift here in their planning for the worst. In terms of segments, what generated net income, personal and commercial banking was up 5% year over year to $2.1 billion. I think I forgot a word here. I think it's wealth management. So I put wealth. I'm reading my notes. I'm like, oh, boy, it doesn't make sense. So wealth management was up 47% to $822 million year over year. Again, insurance was flat at $268 million. Investor and treasury services were flat at $110 million year over year. And capital market segment was down 33% to $617 million year over year, but it was up on a sequential basis. Clearly, obviously, there has been a lot less action on the capital market, so that's normal to see that downward trend year over year. Now, what's interesting here is the

net interest margin was 1.56%, which is a key metric for the banks. Essentially, it's the difference between what they pay you if you deposit money and what they loan out at a higher rate. So that's spread in between. That's how they make a lot of their money. Obviously, there are fees as well. But when you're talking about savings and loans, that's something you want to look at. And it was up 13 basis points year over year and four basis points on a sequential basis. So higher interest rates will do that for the most part. They will allow banks to have a higher interest net interest margin. The important thing is you want to make sure that it is higher, but also you're not losing too much money on bad loans.

And the last thing I'll mention for Royal Bank is their CT1 ratio has been trending down to 12.6%. It's actually down 110 basis points from last year and down 50 basis points from the previous quarter. And it's a little something I found on their earnings release. So in Q2 of this year, they had these, you know, on the press release, they have these squares that talk about like the highlights, right? So the CT1 ratio was 13.2% in Q2. And what they wrote was robust capital levels of 40 basis point year over year. Now this quarter, CET1 ratio 12.6%, well above regulatory requirements. So it's just kind of funny the language they're using. It's almost like they're trying to make sure that investors don't panic by seeing a much lower CET1 ratio. And the CET1 ratio is just basically, it's a way to assess how well

capitalized a bank is in relation to how their assets in terms of the risk associated with their assets. This is a good little roundup, touch on the CET1, the net interest margins. Those are the ones that typically I'm looking at. It's funny because you have sequential growth on the CET1, the net interest margins. Those are the ones that typically I'm looking at. It's funny because you have sequential growth on the cap markets, which is exactly what we would expect because it bounced a little bit. Overall, what do you think? I think it's okay. I think the next one is much better.

The next bank I'll talk about, Royal Bank, I would say it's okay. I mean, it's definitely not great. It's not bad. There's some good and bad there. A solid B. Yeah, I would say like a C plus, B minus around there. Okay. All right.

Just a quick vibe check. b minus around there okay all right just get just quick vibe check um i mean it's funny because the canadian banks like we historically they catch so much attention uh from canadian news outlets as they should right they're the the backbone of this economy, pretty much. We got financials and materials and Shopify. And it catches so much attention. And so the news cycle will always perennially overshoot and undershoot the perceived results from any of these Canadian big banks, and especially a behemoth like RBC. And so the whole time, Canadian bank investors who have literally blocked out all the news, never cared, have made stupid sums of money compounded and received a four plus juicy percent dividend deal the whole time. And so I tend to just, when they're coming out with maybe only a C plus,

I'm like, okay, that's fine. It's going to continue to be just fine. Yeah. Yeah, yeah. And I mean, the banks are not going under anytime soon, right? But considering to what we saw in the last couple of years, I think it's, you know, it's okay. But you'll understand why I'm saying that, because National Bank, I think they had a much better quarter here. And just like Royal Bank, they increased their dividend, but they increased theirs by 5%.

Revenues were up. Yeah, revenues were up 7% year over year. And for those not aware, National Bank is the smallest of the big banks in Canada. Net income was up 11% year over year, which is impressive. Royal Bank, if we remember, I just talked about it was flat. They added $32 million to provisions for credit losses, but again, it's a much smaller bank than Royal Bank, so let's take that into account here. The net interest margin was 2.09%, which was up eight basis point year over year and much higher

than Royal Bank, might I add. Segments net income looked like this. this wealth management was up 10% to 181 million financial markets was up 12% to 280 million US specialty finance and international was down 22% to 125 million. Don't ask me what it is. But that's one of their segment. Their other their other segment and air quotes had a net loss of 95 million versus a net loss of $38 million last year. So these are just probably smaller segments that they're not too noteworthy. And their CT1 ratio was 12.8%, a 40 basis point increase compared to last year. So that's why I'm saying like Royal Bank was kind of lukewarm. I think National Bank, especially given the current macroeconomic climate, I think it's a pretty impressive quarter for them without being a bank expert, just comparing to a Royal Bank here.

This is the one that continues to kind of impress. And there's been a couple of banks, National definitely comes to mind, where it's like, not only do they impress, at a discount on an earnings multiple to the other ones. It's never really made a lot of sense to me. Now, am I going to act on that? No, I historically don't own banks, but I feel like it's finally getting its moment, at least in the circles I hang around. finally getting its moment, at least in the circles I hang around. Yeah, yeah, it seems to be trading to at a definitely higher multiple than some of the other banks. I think it's trading similar. I don't have the multiples in front of me, but I think it's pretty similar to Royal Bank. And clearly their dividend yield is way, way less than CIBC or Bank of Nova Scotia. So usually, you have those

higher yields are interesting, sure, but oftentimes it's a symptom of something that's not going well with the company itself. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way.

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

their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you, go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead,

blossom social in the app store and I'll see you there. Let's take a quick moment to break up the earnings reports on banks before you continue and talk about something that's kind of related in this front. And that is the fact that Equifax Canada said that there's an increase in borrowers, which has pushed total consumer debt to 2.36 trillion in Q3, which is up 7.3% from last year, which is interesting because you had mortgage volumes actually decline. And so you had a big increase of non-mortgage debt mortgage debt rising to $21,183 per person, which is the highest level since the second quarter of 2020. And seeing lots of strain on auto loans, and particularly credit cards, which is not overly surprising, especially when we saw no wonder Visa MasterCard coming with their Q3 and all the Qs lately.

Just saying, hey, we're not seeing any consumer issues with consumer confidence and spending. Credit card spending was up 17.3% from last year in Canada to an all-time high for the period. So a quick reminder here, though, that Visa and MasterCard do not lend money. The issuing banks do. I always got to throw that in there. But it's fascinating seeing this data, and it's obviously showing some soft spots and maybe some warning signs of what's to come because consumers have been making it. Here's a quote from Equifax. Consumers have been making strong payments, but now we're seeing a shift in behavior, especially for credit card revolvers. and all that means is just people who normally carry a balance on their credit card so they carry credit card debt don't pay it off in full each month um and so that's rapidly increasing um what do you make of this i mean i'm not surprised uh for a variety i think there's many factories at play here. Also, just people just

using plastic more than ever would be one of the catalysts as well. Weaker economy. And then now we're heading into a holiday period where people are going to be tapping that plastic card more than ever too. Yeah. I mean, I think it's personally, I think it's a bit scary because I think it's probably, you know, we saw the economic numbers come out in the past couple months and they've been better than expected, whether it you're seeing these figures come out. It's it feels like some people are spending now and the economy is kind of staying afloat. But, you know, something's gonna give eventually. So I feel like it may be a bit of a rougher 2023 compared to 2022. That's kind of the feeling I get an increase in 7.3% is pretty scary considering the amount of debt we already have in Canada. So that's kind of my reaction. I don't want to sound the alarm like really like too much either. But personally, I think it's inevitable that we'll see very slow growth next year, at least from the consumer part,

because people will have to pay out, pay off that debt, you know, one way or another. And hopefully the banks have good risk management because, you know, it could be a bit tricky for them. Those loan loss provisions, they may have to increase next year if you have consumers that are not paying their debt. And the last thing I'll add is, you know, we don't give financial advice, but I will go ahead and provide one piece of advice to anyone who has money on their credit card and keeps it on month over month. You should not be investing.

You should be paying off your credit card because you're paying, what is it now? Like 20%, 19.9%, whatever it is. At the minimum. At the minimum, exactly. So you can't be risking money in the stock market if you have money that you're paying that kind of interest every month, get that sorted out, and then you can think about investing. Very good call out because yeah, there's virtually no

point of having money in equities if you can pay down debt that's serving that kind of interest rate. We're talking about returns you will not easily find in the market. So yes, do that. And no one, I hope like personal finance wise, the goal should be that no one carries a credit card balance and it can happen. There's an emergency. I get it. And then that will immediately personal finance 101 become the most important thing you can do is make sure that you get that down to zero and not carry a balance every month. For me, I have a thing that I just auto pay the balance on my credit card. And I always use my credit card for as many transactions as I possibly can, because I want to rack up those points, baby. And then I may potential cash back and build credit if you need it. So there's so many pros. I never have once agreed with the thought of, yeah, you shouldn't use a credit card. You don't need it. That's silliness. You should.

It's just, you got to make sure it's paid off or else, yikes. We're talking about supreme interest rates. Yeah. And I think the last thing I'll add here is I heard somewhere else too, that the, those buy now pay laters, they are seeing a lot of growth year over year. Like I think I heard some figures like it's up 60, 70% year over year. Don't quote me exactly on that, but I know it's way, way up. So that's another kind of trend in the same direction here. way, way up. So that's another kind of trend in the same direction here. Again, like you said, hopefully we don't have people that are carrying over balances for a long time. Emergencies do happen, but yeah, something to tackle if you do have a large balance. Now, see, this is what makes economic indicators impossibly perennially difficult because you look at that data point and that sounds like doomsday type metric.

But then you got to wonder, is that just because there's such an increase in distribution and all these e-commerce platforms offering it? How do you extrapolate and make sense of that data? This is the way I think about it. Every time you hear a piece of data, especially in financial news, where they love selling bad news, think about all of the inputs into that number. It's not to say it's not scary. It's just to say that there's so many inputs into all these metrics and most financial news sites don't want to explain why it might not be bad because bad, bad sells clicks in this economy, my man. Yeah, yeah, yeah, no, exactly. And the best macro economists for indicators I've heard, they're not on those main sites. They're usually, yeah, usually, you know, they're very specialized podcasts, or, you know, they'll have some reports that oftentimes you have

to pay for. But what I found interesting is oftentimes what they'll do is they'll take a huge basket of indicators. And what they'll try to do is try to forecast where it's going, and try to see if there's a large amount of those indicators that are, you know, suggesting one thesis or another, but there'll be oftentimes straightforward saying, okay, they'll go in probabilities, but they will never for sure say it will happen. So those are the ones that I think are worth listening to, not the headline grabbers. Yeah, exactly. All right, let's move on to the last bank. Yeah, CIBC. So I did say I wanted to talk about the largest, well, the bank has the most exposure in terms of their total loan portfolio to mortgages. And that bank is CIBC. I think it's

been like that for quite some time too. So revenues were up 6% to $5.4 billion. Net income was down 18% to $1.2 billion. Net interest margin was down 8 basis point to 1.33%. So if you were remembering when I talked about Royal and National Bank, their net interest margin was actually up, which you tend to see in a rising rate environment. So that's a big warning sign for anyone who wants to invest in CIBC here. That's a key metric that's not great for them. Provision for credit losses were $436 million, up 4.5 times since last year, and 80% versus the previous quarter. And keep an eye on CIBC is a smaller bank

than Royal Bank and they add more provision for credit losses here. CET1 ratio was down 70 basis point to 11.7% year over year. And now their segments in terms of net income Canadian personal banking and business banking was down 21% to 471 million Canadian commercial bank and wealth management up 6% to 469 million US commercial bank and wealth management down 37% to 161 million and capital markets were flat at $378 million. CIBC now has 57% of its total loan portfolio and mortgages, which it's just insane if you ask me. I would not touch CIBC with a 10-foot pole. And they announced a 2.5% dividend increase, which, again, it's beyond me. I don't know why they're announcing a dividend increase when they should focus on you know getting everything under control i'm not trying to sound the alarm here but cibc has so much exposure to mortgages that i think you know that should be their priority to

really mitigate that over you know giving a token increase of 2.5%. Yeah. This is one of those things where the motivations for capital allocations for, say, a decision maker at CIBC to hike the dividend is just not aligned with long-term success. I've been very consistent about warning dividend investors of that exact thing, where they're going to get removed from some list if they don't hike it. They're going to be out of some index if they don't. And so those things bother me as a prospective shareholder. Well, those things bother me as a prospective shareholder. Well, not of CIBC, I'm not, but those things would bother me given the fact that those incentives don't align with long-term results, especially in just good capital allocation decisions. It's only 2.5%, whatever. And like you said, there's no reason to sound the alarm bell, but we're talking about serious exposure to Canadian housing.

Yeah, exactly. And I'm not, look, it could very well be that, you know, things, the real estate market doesn't impact their mortgage loan portfolio too badly, you know, three, four years down the line. Hindsight is 20-20. But at the same time, once you want to be on the side of caution, just plan for the worst case scenario. Like, look, they still have a good CT1 ratio, and I'm sure they're still well capitalized. But given the exposure, I don't know. To me, it would just be plan for the worst. And if the worst doesn't come true a few years down the line,

then you reward shareholders then with a huge dividend increase if you need to. So that's, I don't know, that's the way I would approach it. I tend to agree. No, that's good stuff. Should we move on to CrowdStrike? Yeah. Yeah. The opposite of banking. Yeah. The opposite of banking. Yeah. You wouldn't see it. Put it this way. If any of the stocks you just mentioned dropped 18% after hours on an earnings report, that would be very concerning. That's Kid Z. Smith style. Yeah. Yeah. Exactly. Yeah. Bear Stearns vibes. 2008 all over again, if those names were falling as much as CrowdStrike did on their earnings report late last week. Now, this is funny, right? And before I get into the

results, I just want to talk about this because I was just on a podcast, like I was being interviewed and they're like, what, like, why did tech stocks get hammered so much? And what is the risk of overpaying? And I, I put it this way, which was the risk of overpaying and the risk for paying extremely high multiples is that the margin for error from the management team or the business to execute just gets thinner and thinner and thinner and thinner. Even if the business is executing extremely well in a very attractive sector like cybersecurity, building, I think, what is a very important network effect, category leader, them and Microsoft and cyber, in my opinion, I think what is a very important network effect, category leader, them and Microsoft and cyber, in my opinion. I think those are the two category leaders. There's SentinelOne and Zscaler as well,

and the whole whack load of other cybersecurity platforms as well. But we're talking about category leaders here. And you see something drop almost 20% of its value after hours after the earnings release, because we have like week-ish guidance and an environment that punishes companies that are not gap profitable. It is just like a really easy way to think about the current environment on how these software names can get absolutely walloped just in a very short period of time. And so that's the risk of overpaying is that you will get these reports come out and the stock is trading at a multiple that is priced for perfection. And you get, Simone, here's perfect on the right side. Here's good on the left side. And then beyond good is just a bunch of junk companies. If you're priced for perfection and you are not over here, you're even slightly in the great category, you're going to get smoked in the short term.

it smoked in the short term. But does that matter? I guess is the question if you're holding CrowdStrike. I don't think you're holding it for three months to try to flip it for something later. You're hoping that CrowdStrike turns into a gigantic category leader in cybersecurity. a gigantic category leader in cybersecurity. And so I've been waiting for this name to get a little cheaper. And it has now flown up to a segment on stocks on our watch list because it's still not cheap, but it's getting further away from price to perfection. Do you agree with that kind of narrative and the way I answered that question? Yeah, no, I think that's a great point. And look, I mean, sometimes even like last year, even if management executes flawlessly and expectations come in, some stocks last year, some companies were just, the valuations were just insane right so even if management executed it's basically impossible to grow in that valuation at least you know not for the next few

years but CrowdStrike was one of them that seemed to you know be bucking the trend it was still down but not as down as other highly valued growth stocks and And I guess, yeah, like you just said, that margin, you know, when you're paying a pretty high multiple, it's just not, there's not much of a margin. And even though CrowdStrike is still, you know, executing very well, it's not executing perfectly. So the market, you know, does what it does and punished it in the current environment. market does what it does and punished it in the current environment. Yeah, that's right. And especially if you're not gap profitable, right? Yeah. Do you know if they're free cash flow positive?

They are. Okay. Yeah. Yes, they are. They must do a lot of stock-based compensation. That's right. That's right. And so another theme of something that the market has turned on is a lot of dilution, and rightfully so. You know what I mean? So yeah, there's multiple ways to go about it.

But if I look at the results here on their filings, how much free cash flow did they produce in the quarter? And of course, this is not a gap metric, but we are talking about 243 million in cash flow from operations and 174 million of free cash flow. Now, yeah. How much of it is SBC? I'd have to look more into that. And so I think those are valid questions, right. This is what I was talking about before. It's like companies are actually growing revenue per share or free cash flow per share. Because at the end of the day, what drives shareholder returns? It's free cash

flow per share in a long view. So let's get to the earnings. The top line sales was up 53% year over year, annual recurring revenue up on that same metric, but 54%, so slightly higher. But that gives you an idea of ARR is equal to revenue. This is recurring revenue business to 2.34 billion in annual recurring run rate. So we're talking about very significant scale here, gross margins near 80% at 78 now. They added 1,460 net new subscribers in the quarter, which brings them to over 21,000 large customer accounts. So we're talking about big enterprises. We're not talking about like, you know, you and I need cybersecurity for the pod here. CrowdStrike subscription customers now, they pulled this out, which I think is interesting. Each quarter, since it's

modular, you can like tack on more and more services, which is great because then you're going to find actual net expansion in the revenue from existing customers. But they have now gone from averaging three services to people are typically getting five, six, or seven subscriptions, part of the CrowdStrike product offering. So they're tagging on adjacent services within CrowdStrike because it's already in that ecosystem. If you have that type of cyber and you want something else, you want to enhance your protection, it just makes sense to go to an adjacent product within CrowdStrike. So we're seeing a lot of net expansion of the existing customer set. Now, looking forward, I mean, the guidance was weak-ish. It's so stupid. The guidance is pretty solid, I think, in a vacuum. And then it's like, you know, a few million less on the top line than analysts had pegged. Like who cares,

right? Like long-term shareholders shouldn't care when we're talking about the scale of a two and a half billion dollar run rate, right? Like it's, it's not significant, but that is extrapolated or multiplied when you're trading at a nosebleed multiple and you're just priced to perfection. You get any little budge in expectations or guidance

and the stock goes spiraling down. Now, in a vacuum, thinking like a business owner, if I could not mark to mark the value of this stock on a daily basis and see how the market react, I look at this and I go execution as per usual. And so I'm going to continue to think like that when I'm analyzing these businesses, is what are the things that matter? What makes it tick? What are the margin profiles like? What is ARR ticking up?

Is it still jumping by like 50% year over year? Yes. Is it still a structurally incredibly important business that they're building in cybersecurity? Yes. business that they're building in cybersecurity. Yes. And so I don't own a position, but maybe I'm going to get a chance at some point to own, I think, a category leader. Yeah. Yeah. I mean, you know, this name better than I do. But from what I've heard for a lot of, you know, smarter people that mean the space, it tends to be the name that comes over and over in terms of the best kind of service over there when it comes to cybersecurity.

So I think it's an interesting name. And I was just looking it up. They generated a bit less than half a billion in free cash flow last year. And it looks like they're probably on track to do something similar this year. So what that tells me, yes, they're not profitable on a gap basis, but that the business is sustainable, assuming that they can continue that growth rate and that kind of leadership spot in the cybersecurity space. We are just a few days away, Simon, from Brookfield's spinoff of the asset management business. We are just a few days away. I think it's December 9th. Oh yeah. It's probably too late to buy this stock now for sure. Cause you know,

by the time it gets settled. Right. Yeah. Yeah. I added to my position in time and quite happy about it because I think that there's some short-term unlocking. So for those who don't know, and this is coming out, when will this episode drop, Simone? It's on the 8th? Yeah. Yeah. In a day.

So on the 9th of December at market close, which is a Friday, they will spin out Brookfield Asset Management, which will trade under BAM. So BAM will trade as the asset management spinoff. The parent company will get a new ticker, ticker BN. And so ticker BN will keep a 75% interest in Brookfield Asset Management, the spinoff corp. Am I explaining that clearly enough for the people? Yeah, I think so. We've talked about it before too. So yeah. Yeah. So the Cole's notes are, if you haven't heard the segment of where we talked about this, Brookfield Asset Management, the business BAM, is spinning out the asset management part of the business because they also own renewable energy infrastructure and real estate

underneath the umbrella. That umbrella will become ticker BN. And I've been asked a couple of times now what I'm going to do when the split happens. And the answer I have is absolutely nothing for at least several quarters. I don't think you need to make any decisions on this kind of stuff right away. Yeah. No, same for me. I don't own a lot of BAM, but I'm not planning to touch the new entity and the mothership either. I have a feeling like a couple of quarters are going to go by and Bruce is going to get what he was looking for, which is people realizing that that's a hell of a business. As we're talking about how much in fee-bearing capital, let me look on Stratosphere. We are talking about $407

billion in fee-bearing capital at the end of Q3 and $762 billion in assets under management in renewables, infrastructure, real estate, and others. So tremendous scale and operating them. I don't know why I don't own more, honestly. I ask myself that too often. Yeah. No, I don't have much to say. Sorry. I have a crying baby in the background. So bless your soul. How's she doing? She doing good? Doing good. For a baby that's a bit more than three months, she's doing pretty good. But she always gets a bit fussy around this time of day. So a couple more weeks and I'll be good to go probably in the new year for sure. At the latest, I'll have my

my new uh recording studio so i will not have to worry about the the baby crying or the dog barking yeah you're gonna get some cool like uh you know neon lights we need like uh you know like the joe rogan experience neon light behind you we need like a big tci podcast maybe if i can it, it's not a big room. I'll just say that. Is it a glorified podcast closet in the basement? Pretty much. No, no. I mean, it's bigger than closet. It would be a walking closet, I would say. Okay. Okay. Fancy, fancy walk-in closet. Okay. Cool. Cool. Thanks so much for listening to the pod everyone we really appreciate you um as as mentioned by the top of the show here the ai is telling you to rate the show five stars i'm not saying that i'm talking about smart artificial intelligence telling y'all to rate the show five

stars and uh that helps us grow so So I appreciate everyone who does that. And if you have not yet, I don't know why, but if you have not yet checked out the new Stratosphere, it is electric and very easy to use. It's fast. It's clean. It looks amazing. And I was just talking about these companies. And when I'm typed in CRWD for CrowdStrike, I can actually pull the press release right from the filings so that I can see exactly the metrics that you need right up there. So you don't have to dig around on multiple investor relations site. It stays right inside the app. It is a beautiful thing. We will see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. thing. We will see you in a few days. Take care. Bye-bye.