The Canadian Investor - Looking at an Under The Radar Company & How to use Stock Screeners

Episode Date: January 16, 2023

In this episode, we look at home country bias data across the world and how Canada compares to it. Simon discusses a recent stock he bought and Braden talks about an under the radar company that you may already be familiar with without knowing it. Tickers of stocks discussed: AP-UN.TO, WINA 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 Belanger. The Canadian Investor Podcast. How are we doing? I'm so happy you are listening. Welcome into the show. My name is Brayden Dennis, as always joined by the extremely handsome Mr. Simon Belanger with his extremely nice new microphone and cool setup.

Dude, I am such a peasant compared to you. You just look legit. And I am like, there's like a lizard behind me. Yeah, I mean, it's getting there. I just need to finish a couple panels that I use with one of our real estate sponsors, Sonopan. And the audio is going to be even better, but definitely improved. And I don't have to worry about either a barking dog or crying baby. Yeah, we both have our own challenges, right?

But you've mostly solved that. There is a gigantic lizard outside of my door that I'm like, I'm like a bit afraid to leave the Airbnb. I'm exaggerating for sure, but we're talking about like half the size of a Komodo dragon, like no joke. That's how big the lizards are here. And I'm sure they're chill, but I don't know that man. Like what? It just stares at me. on we go the show goes on folks and uh this is one of our monday releases the show comes out mondays and thursdays if you're new here in 2023 today we're going to talk about history we're going to talk about home bias you're going to talk about starting positions and then i'm going to do a very shallow dive

on a very interesting company that uh we've never ever talked about on the history of the podcast so you'll have to stay tuned for that i'm going to start with a quote that i saw from this, I guess, Instagram account called Inside History. And it's about history, but it's context for the stock market. And the reason for that is, Simon, how often do you hear like, oh man, I can't be in the market. The market's too crazy right now. Like, do you hear that from like the Uber driver, right? Yeah. Yeah. I mean, people, I think there's a lot of people that have that trader mentality and of course without getting too much in the psychology of investing the the loss aversion or like when you lose money on investment it hurts way more than making the same

amount of money right so i think that probably that instinct probably kicks in for a lot of people yeah and it's it's a parallel for history, like the markets. It's always like things are so crazy right now. Like what's happening to the world? Like what's with the market lately? All this stuff. And if you zoom out and get some context of history, we live in a pretty good time. All right, here's the quote from Inside History.

we live in a pretty good time. All right, here's the quote from Inside History. For a small amount of perspective at this moment, imagine you were born in 1900. When you are 14, World War I starts and ends on your 18th birthday with 22 million people killed. Later in the year, a Spanish flu epidemic hits the planet and runs until you are 20. 50 million people die in those two years. Yes, 50 million. When you're 29, the Great Depression hits. Unemployment hits 25%. Global GDP drops 27%. And that runs until you are age 33. The country nearly collapses along with the world economy. When you turn 39, World War II starts. You aren't even over the hill yet. When you're 41, the U.S. is fully pulled into World War II. Between your 39th and 45th birthday, 75 million people perish in the war

and the Holocaust kills 12 million. At 52, the holocaust kills 12 million at 52 the korean war starts and 5 million killed at 64 vietnam war begins and it doesn't end for many years 4 million people die approaching your 62nd birthday you have the cuban missile crisis a tipping point in the cold war life on our planet as we know it could have ended. Great leaders prevented that from happening. As you turn 75, the Vietnam War finally ends. Think of everyone on the planet born in 1900. How do you survive all of that? A kid in 1985 didn't think their 85-year-old grandparent understood how hard their school was, yet those grandparents and now great-grandparents survived through everything

listed above. Perspective is an amazing art. I love this because, I mean, look at everything that we've endured and look at everything businesses have endured. And it's important to zoom out and get some context when you think things are a little crazy or this is the worst thing that could ever face the market, high inflation, recession fears, COVID hangover, like the list goes on and on and on. And none of it is a new concept. We are used to adversity. I just thought that this was a great little passage. Yeah. And I mean, look, there's always going to be something going on that, you know, the reality is there is war pretty much going on all the time. I know that kind of focuses on this a bit more. pretty much going on all the time. I know that kind of focuses on this a bit more. And you have to be able to not, you know, put too much stock into it in terms of getting the fear taking over

your emotions and then potentially not investing. You have to keep in mind that, you know, for the long run, yes, there might be some turbulence in the short, medium term. But for the long run, if you have invested in either an index ETF or a broad base ETF, I mean, or even some really good companies like we do or mix of both like I do, you'll be fine in the long run. You just have to remember that and not get too caught up in what may be going on in the news, for example. Very well said. All right, let's hit your first topic of the day. Yeah, no, my first topic here. So I started a position recently. I don't know if I talked about it on the podcast. I don't think so. So this would be the first time. So I recently started a position in Allied Property REIT. It was a company I talked about.

You mentioned that. Did I? I think you talked about it. I don't know. I can't remember. Yeah. Well, you talked about Allied a bunch, and then in one of the episodes, you did mention that you did start a position. I do remember that. Yeah. I'm just getting old be when it's fully completed. I most likely would have added between the time I started the position in early December and now.

I kind of waited and I want to see what exactly happens is because the news came out that Shopify was backing out or did not want to lease the property. One of the properties that they had signed up to lease with Allied Property REIT along with RioCan. So that's at the well. So they do not want that space anymore. And, you know, that's a bit concerning. there just wasn't a whole lot of information behind it so I wanted to take a step back I didn't want to sell my position because it doesn't really change the whole premise per se because keep in mind this is about 1.5 percent of the overall leaseable area that allied has so it is a relatively small percent percentage but it is something to also keep in mind because it's a pretty significant tenant for them they do

at least some other space from allied property reit and i just want to understand what management is saying for the most part recently management has from Allied, and I've listened to recent calls, is that even though there is some turbulence in the tech space, they haven't seen that really impact the demand for their real estate. From the talks they had had, they didn't see it as a major headwind going forward. Of course, we talked recently about some tech layoffs. And, you know, there might be some kind of validity in terms of tech space facing some headwinds going forward. But all I wanted to say is, look, sometimes you may start a position, your thesis might be very good. And then something kind of happens a curveball. This is not necessarily thesis changing for me, but I just

want to wait until they come out with their next earnings calls to just have a better sense of what's happening. And, you know, personally, I still think that business or office real estate will, you know, get back to not necessarily where it was in 2019. Before the pandemic, I think we'll get back to something fairly close to it. But like I've said before, I think this will probably take at least a couple years, if not up to five years as businesses kind of shift to a remote model to a more kind of hybrid model where you're required to be in the office for a couple days or three days a week. So you'll see more and more of that less and less fully remote. And what's what's happened, what happens usually, if you're in a

hybrid model is, you know, you, even if you're asking people to come in the office 50% of their time, it's not like you'll necessarily need 50% less office real estate, right? Because a lot of people will probably come in from Tuesday to Thursday, a lot of people not wanting to come in on the Friday, for example. So you may downsize a little bit, but maybe maybe not to the extent of your hybrid work model. So that's, that's the approach I'm taking from now. There are some risk in allied property read it's it's, you know, it's, there's a reason why it's yielding so much is because there are some big uncertainties when it comes to office real estate going forward. But I'm of the opinion that it should pick back up in the long term.

But of course, I could be wrong here. And I think short term, there could be some headwinds. But given the Shopify news that came out and how significant it could be for them going forward, I just want to have a bit more information from management here. This was the question mark that I had when you first said it was an interesting idea on your radar was all eyes on the well, that development and the tenants going in there and if if shopify was going to fully there was some questions around shopify for sure and then after that recording the news broke so um yeah yeah i think i think the important takeaway of your segment here is like what do you what do you do in that situation and for you it is not breaking the thesis it's just it's just you're closely looking at it and

this is nothing that was outside of the realms of possibilities when you started the position like you you fully knew that going in. It didn't blindside you. No, exactly. And I suspect that management will say that Shopify signed a lease and they are expected to pay that lease, the rent that comes with that lease. That's what I've seen. I've seen some information come out, not officially from Allied or RioCan, but I suspect this is the case. And apparently Shopify is trying to sublease it so it sounds like Shopify probably doesn't have much leeway but again it'll be interesting even

if that's the case I just want to hear what they have to say in terms of the outlook right because the Shopify backing out is that a symptom of potentially what's going to be happening in the tech space, which is a very large portion of their tenant base. So I think there's a whole lot of things to consider here. But at the same time, right, there is some safety here in the dividend being paid. It's not a huge payout ratio for REIT. So there is some flexibility there. They recently hiked their dividend a little bit. So I think there's definitely some positives as well for Allied. I am personally very bullish on the hybrid model. I think it's brilliant.

I think that's exactly what most people want. And maybe that's just my opinion, but I think it's brilliant. Because I'll give you an example like right now our team works remote fully but we do have an office space in Toronto where we can go we can meet there you know once a week once every two weeks like not a lot like it's not like we have to be there one day a week or anything like that, two days a week, nothing like that. But when there is something that we need to fix, we need to work on, we need to hash out a plan, we need to do training, or we just want to meet face to face and kind of build culture. I think it's brilliant because then when you're working remotely, you're kind of more effective

after having some of those face toto-face conversations. But people and high-skilled workers in this economy want the flexibility of remote. And I fully understand that. I'm a big believer in that. So I'm bullish on the hybrid model. I guess these office REITs just have to navigate something that is different. It is not like their business is dead. It's just very different. And as you know, the market is different. It is not like their business is dead. It's just very different.

And as you know, the market hates different, right? Like they hate uncertainty. Yeah, exactly. And I think right now, a lot of them are almost being priced as if like, you know, everyone's going remote. Like I mentioned, I think it's probably it's definitely somewhere in between where we were before and fully remote. And I think the market is scared because I think overall in the office real estate space, I think vacancy as a whole is around 15%, which is very high. And I'm just going on memory here. But I know that allied their vacancy is around 8%. So they are doing much better than the their competitors in general. So something to keep in mind, obviously, if you want to start positioning them, don't start one just because I started one. Do your due diligence here. Don't get hypnotized by the yield. It is a nice yield.

I concede that, that's for sure. But you have to have conviction in it if you're going to put some money in. 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 talk about home bias. I pulled up some data, and it is sourced from Charles Schwab, Macro Bond, World Federation of Exchanges, IMF, and World Bank as of, what is that, October of 2022. And it stats out every country's home bias, which is basically the percentage of domestic equity allocation of their home country.

So here we have, statted out along this line and this bar chart is every single country in this data set. And so I'm pretty hard on the Canadians and the listeners of the podcast about being extremely home biased. And I've come to realize that we're actually not that bad because home bias is a problem that exists almost everywhere. Like if you look here, India, for instance, has over 95% allocation to domestic equities. That is gigantic. Egypt over 90%. Kuwait, China, Brazil, Saudi Arabia, all over 90 kuwait china brazil saudi arabia all over 90 it goes the middle section there the united states is at like 75 which makes complete sense to me i mean these are that this is the home of global large cap businesses so you're getting global exposure by just owning U.S. securities. So I'm not so worried about that. And then way down here, actually, Canada slots in at just below 50%,

which matches the data that we saw yesterday when we were recording about the TD Bank thing. They had about 45% of allocation to domestic equities in Canada. So this is saying, huh, we're actually not that bad on the world scale of home bias. So that message has come through that we probably shouldn't just be all allocated to Canadian securities, but that's still too high, in my opinion.

Basically, what I'm saying is everyone has home bias that is way too high, and I'll exclude the U. US from from that data set. Yeah, yeah, the US, the US obviously element is interesting for Canada, I think that's probably one of the reason why we're not so bad compared to other countries. And I would go ahead and I don't know all of these countries all that well but i will assume that the ones that are in like close you know be upwards of 90 there's most likely restrictions on investing in foreign in those countries i know china has some uh so yeah good point yeah very good point there so i think you have to take that into account and canada i mean i think the fact that we're so

close to the u, they're neighbors, right? And it's so easy on your broker to buy US stocks for us. I don't know how easy or hard it is for other countries. I think that probably helps lower that for Canadian. But again, you have to keep in mind that, you know, even at 50%, it's still alarmingly high, in my opinion, but it's a good data set it's interesting but definitely you know i have to keep in mind that some countries just impose restrictions and as uh your father said uh shout out to brad yeah he's gonna love that shout out by the way i know he's gonna love that when did he text us about the the rsp restrictions back in the day yeah i think there was like uh 15 20 years ago there

were restrictions as to uh uh the amount of the percentage of equities i think that you could have in canadian stocks in your rsp so uh that probably skewed that uh you know prior to recently for canadians definitely i mean i'd have to go back. I don't, I'm just going on memory, but you remember what I was, I'm talking about, right? Yeah. And, and it's a good point too, right? Cause even if you look at withholding tax implications, there's just a lot of benefit taxation wise, even here in certain accounts to own domestic stocks. So I get it. I fully get it. I still think this is too high across the board, but that is the data. No, definitely interesting. And then the next segment here, I wanted to talk about this for a little bit of time because I was playing with the screener on stratosphere.io and I thought it would be a good topic to discuss because we've had questions over

the time where people using screeners. I know we had someone recently on Twitter reach out to us asking, well, you know, this company keeps coming up like the P is super low. They're growing quickly. Profits are growing. Like, am I missing something? And I think it's important to remember that screeners are useful for discovering companies that may not be on your radar and meet a set of requirement that you're looking for in a business. So when you have a good screener, you can really set it to, you know, meet what you're looking for. And that's why I like stratosphere is that there's a lot of different metrics that you

can use here. So some of the things you can screen in. Dude, there's like hundreds of metrics. Exactly. And I'm just going to shoot like about seven or eight here, but there is way, way more you can do. So for example, are you looking for value or growth stocks? So you can kind of tweak it to tailor to what you're looking for a bit more. Are you looking for a specific valuation, for example, like a price to earnings ratio or price to free cash flow?

valuation, for example, like a price to earnings ratio or price to free cash flow? Are you looking for companies that are a certain size? Maybe you're looking for a small cap company that's under a billion in market cap. Maybe you're looking for a more stable, more mature company that is over 10, 15, 20 billion market cap. You can screen on that. Are you looking for companies that are buying back stocks so their shares actually decline over time? You can screen on that. Are you looking for companies that are buying back stocks so their shares actually decline over time? You can screen on that as well. Are you looking for profitable companies? Are you looking for companies that pay a dividend? You can even specify a certain yield if you're looking for above or a range above 2% or between 2% and 4%. You could do that as well. Or are you looking for businesses in a specific sectors? So those are just some examples that you can screen on. And the point I wanted to make here

is that you can really tailor a screener to what you're looking for in a business. So I just did one recently. So I just took a few elements and it wasn't, it should have been a little more targeted because I ended up with too many results and I'll talk about that in a second. Now I use less than $100 billion in market cap. I use 5% revenue growth year over year, 5% free cash flow growth year over year. And for both of these, I also put positive growth over the past three years. I put negative growth over the past three years I put negative growth for shares outstanding so I'm looking for a company that's doing some buybacks here

return on invested capital over 10 percent and the price to free cash flow under 20. Now the issue with that screen is like I said gave me a whole lot of name because it doesn't have the most kind of stringent requirements. So an easy solution you can do for that is just either you add more data points or you tighten certain criterias to lower the total amount of companies. For example, you could put in a return on invested capital of 15% instead of 10 or a higher growth rate or kind of a narrower market cap for example so these are all things you can do personally I like it to be under 20 businesses as a result because then it just becomes too many businesses to start you know having a look into them but once

I've got that good started point then I can start my research on those companies. And I think that's really important. And I, I'm sure you'll, you'll say the same thing here. Like screeners is a starting point for research. You shouldn't 100%. Exactly. So you should not buy a company just because it meets your screen or your screening criteria, because it's, you know, you could be missing a whole lot of things. Like I didn't talk about debt here, but you can screen on that as well. But just, you know, get those companies that meet those criterias and then start looking at their financials,

start listening to some calls if everything you're starting to read on makes sense. And it's just an extra tool in your toolbox, basically. It is a wonderful tool in the start of the ideation phase or just trying to build out like an investable universe of companies to do more research on. And that includes like, okay, what does the company actually do? Because that's not in a screener. Exactly. It doesn't help you explain what the company does to a five-year-old by using a screener. But it does help you get an investable universe like the characteristics that you were talking about.

up, you're like, okay, I don't want it to be a mega cap company. So it's got to be less than a hundred billion. So that's screening for size. You're saying, okay, I want it to at least be growing a little bit, at least a little bit on both the top line and profits they've had. They've demonstrated they do buybacks. There's a certain valuation cap on here and they've demonstrated a decent double digit ROIC. Those are all like pretty basic criteria. So you're going to get lots of results. But those are great characteristics you want to see in businesses. Like size aside, that's subjective. But the other ones, like those are awesome criteria to see. And it helps you bring to a universe of companies that are all of a sudden manageable to do some research on. That's the point, right? Yeah, exactly.

And there's so many criterias, right? So you can really tailor it to what you're looking for. I mean, you know, you could do the kind of same type of screener I use and just throw in a dividend in there as well, right? It'll narrow the companies down. And actually, I wanted to mention that this we haven't prepared in terms of note, but you know, the company that kept coming up, which one it's, it's AutoZone. Oh yeah. AutoZone. Yeah. Yeah. It's been like, I was familiar with it, but my God, it's been, uh, quite the compounder, huh? It's been one of the best compounders. Um, dude, there's a bunch of those automotive, uh, businesses that have enrolled like O'Reilly,

Copart, AutoZone. They've all been some of the best compounders literally in the entire S&P 500. they've all been some of the best compounders literally in the entire S&P 500 it's incredible I couldn't believe it when I saw it and I just kind of quickly look at AutoZone because I was just curious here to to see what it looked like and I realized that they own also most of their real estate and they don't do franchises so these are all company-owned stores just that's like five minutes looking at the investor relations side. But just that's just an example of the type of companies like without this, I would never thought of even looking at AutoZone. Yeah, good point. Another one for you to look up if you think that that's an interesting idea is Copart, ticker CPRT.

Another very interesting and mega winner, compounder that uh keeps getting it done do you want to do a do you should you and i build a screen for the next show will i kind of build maybe like five to ten things we like seeing in each company and just go over the results yeah yeah we could do a show on that uh Basically just build, we could each build kind of a screen and maybe talk about like what the top five results are or something like that. Yeah. Spit, see what it spits out and see how we would interpret it. All right. Let's put that in the doc for, for the next episode. We'll run a screen. Very fun. That's a fun episode idea. 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. All right, last part of today's show, I'm going to do a shallow dive on an interesting idea, a name we've never discussed on the podcast, and a name that is less than 1 billion in market cap. So not very often we talk about these smaller names. And let me bring this

idea to you, my man. It is called Winmark, okay? It is a beautifully profitable franchise model. And these are brands you will surely know, but you may not know they are all tucked into a holding company called Winmark that has been a ultra winner. The stock has been a 20 bagger, 20xing its value since 2009. The last year in 2022, the market sucked. The stock market equities were down 19% and Winmark was up 5%. So huge outperformance, very resilient. And here's the kicker. It's only 800 million in market cap, yet the stock IPO'd 30 years ago in 1993. Okay. So the business, have you ever bought anything from Play It Again Sports? Have you ever bought anything from Play It Again Sports?

Not that one specifically, but I've bought like a local shop on the Quebec side that does similar things. So I'm familiar with them at least, yeah. Like reselling of sports equipment. Sporting goods, yeah. Yeah, I think I've bought a pair of skates there. I needed some for shinny one day, like outdoor hockey, and I didn't have any. I went to play against sports. I bought these awesome old tax skates for like $30. At the time, they were probably the best skates you could buy, but that's the whole idea.

They're resellers. Winmark calls themselves the resale company. They own five franchises that operate on a resale model, and many of them will be brands y'all already know, maybe even shop at, but at least seen in some strip malls driving down the road. Plato's Closet, that's one I'm sure you know, buys and sells clothing and accessories for the teenager and young adult market. Once Upon a Child buys and sells clothing and accessories for the teenager and young adult market once upon a child buys and sells used new children has has your daughter got anything from once upon a child or are you you getting all that new new ferrari of baby stuff uh we're getting i mean we got most

of it new mostly because we've had so many gifts from people. True. So, you know, having only, we're both only children. So, you know, it's the first granddaughter. So clearly she's pretty spoiled. So we've been pretty lucky for that. And when we went to the States, we got some really good deals at Target, like really cheap, like five bucks each, new stuff. So we've been not getting used for the most part but getting some really

good deals on the new stuff yeah got it okay well once upon a child stop in there do a channel check for me because uh i'm not the target demographic at the moment play it again sports which we just talked about buys sells trades consigns use the new sporting goods, equipment, sports, fitness, ski, snowboard, golf, everything. I actually think I bought an old driver from Play It Again, like an old tailor-made driver from there one time for a pretty good deal. Style Encore. Now, I don't know this one. Women's apparel, shoes, and accessory. Never seen that.

Might be in the U.S. only only or i just haven't been paying attention and music go round which is resale of musical instruments speakers amps that kind of whole thing also don't know that one but uh maybe they're in the u.s is this the best business model ever people give you free shit and you sell it like the margins are insane from Winmark. And of course, it's a franchise model, so you're going to see some nutty margins. But even on the operator of the franchisee, the margins are ridiculous. When you look at Winmark at the holdco, 94% gross margins, 66% operating margins, and above 50% net margins. And they have ticked up steadily since 1993 on the data goes all the way back on stratosphere.io. You can see I graphed them all out there

with the nice little data labels. Very sexy. On a franchise model, like people sell you this stuff for pennies and you turn around and sell it for dollars and you set your own prices on the franchise level so the margins can be amazing let me let me get anecdotal here for you for a second my girlfriend brings bags on bags of very nice clothes that are like hardly really worn and she brings them to play-doh'set regularly because she gets sent stuff on the daily because she's sponsored by all these clothing brands to model them. And this is my way of flexing everyone on the podcast that I have a hot girlfriend and she's way out of my league.

But you cannot possibly keep it all. Like it's highly wasteful, but hey, at least resale is an ESG-friendly option, right? They got to put that in the investor presentation. Very ES, at least resale is an ESG-friendly option, right? They got to put that in the investor presentation. Very ESG on this resale. Yeah. I mean, it's a good business model and I think it should do well, especially, you know, we keep hearing the R award, right? Recession, that and the I award. So I think a lot of people will probably turn to these kind of stores if they're in a pinch right or their kids need to they're trying a new sport i i know i would for example if sofia wants

to try like you know skating or hockey or whatever it is i am not buying new equipment i'm gonna buy stuff used and maybe at some point if you know for sure that it's going to be a long-term thing, you can buy newer stuff. But no, I think it's very recession-proof too. It is. I wholly agree on that. And pretty nice ticket size as well on the stuff they sell. So that's basically how the model works, right? You take stuff for pennies and you sell it for dollars. Can I interest you in the ROICs on this business?

I had to triple check, do multiple calculations. I looked on Stratosphere and I'm like, whoa, make sure these are all right. ROICs are over 100% consistently, which is frame breaking numbers. That's not normal. And that's because it's so capital light with the franchise model that they're able to achieve those returns. Renewal rates are so low. Sorry, turnover is so low, renewal rates are super high. Like, the percent that churns is very, very low with the franchisees. And I grabbed this from a friend of mine who wrote an article on it.

I'd shut him out, but he'd probably get in trouble with his compliance team. So I wouldn't do that to the guys. And it's internal proprietary stuff. But he says here, Winmark's renewal rates, even more incredible, is that their contracts are based on 10-year contracts with 5% royalty rates. They have elite renewal rates despite having the same length contracts as other industries. To play this out on a human level, business owners are choosing to spend 20, 30, and 40-plus years of working with Winmark. Pretty cool.

with Winmark. Pretty cool. And the CEO of Taking the Helm, Brett Hefes, has seemed to have that dog in him, dude. This guy has that dog in him. He has massively boost margins, divested the leasing business, and very disciplined capital allocation. And so I was looking into the leasing business, and they divested the leasing business for the reasons of it's much more capital intensive. It's non-core and has greater competition. So I think all of those make sense. And the resale business has way higher margins to begin with. So what was the leasing business exactly? I believe what it was was leasing to the franchisees and other people in the strip mall

i do not know for sure okay okay no i was just curious and if people are wondering if there's a little bit of delay here is because we had to shut down the video because uh the internet is so good in costa rica yeah probably should have said that at the beginning yeah the internet here is uh you know they're doing their best all right it just randomly it randomly just goes away but hey um beautiful nature who needs the internet when you got beautiful nature it's better in some place than other so yes they divested that and uh it it represented before about 14 of the total revs and uh yeah so not bad now there's obviously lots more to uncover it's a small cap there's brands people know or but maybe you have never connected the

dots how much bigger can it get i don don't know. And store openings are percentage, probably single digits year over year. Growing organically a few percentage points a year. So nothing frame breaking here on the growth. People who have been investors prior have gotten huge margin expansion. But this thing trades so cheap. Pays a nice dividend. They can keep growing the dividend prints cash the management team seems to be really solid i think it continues to do pretty well from here i i don't think you can expect another 20 bagger but uh it's it's an interesting business

that many of you probably have seen but never connected the dots. Yeah, and don't forget, it pays a dividend for those interested. It's actually a growing dividend too. I was looking that up while you were talking. It's a very growing dividend. Yeah, they kind of splash with a special dividend every now and then, it looks like. Yep, they do. Every once in a while, they throw a pretty hefty special div. Yeah.

I'm looking here on Stratosphere. On the dividend section now, I don't know if you've seen, but you can see the dividend graphed out over time as well. Yeah, I've seen. Yeah, it's pretty cool. And the special dividends, like every once in a while, it looks like the graph's broken, but it's just a company like this throwing out a huge chunk of change every couple of years. Yeah. And just for people, maybe that's something interesting to talk about. I know we have before, but when you look at dividend yield for a company you might be investing in, just be careful if there's been some special dividends,

because oftentimes, depending on where you're looking at the data, it may actually skew the dividend yield because they'll include that special dividend. And the special dividend, it is in the name, does not always happen. Whereas you really want to look at the quarterly dividend. If they're paying it regularly, that'll give you a better idea of what kind of income you can get from it. Yeah, I wholeheartedly agree. Usually the best way to do it is to just look at regular dividend per share.

Yeah. And then against the share price. Because if you look at dividends paid on the cash flow statement um and there's the the special div yeah you're gonna get a different number but again special divs are not that common that's why it's nice to see it kind of visually to see if this is a company that pays them and it's very obvious when there's the big spikes yeah exactly and you know what this is definitely requires more research on my part. But at first glance, it looks like a really interesting play.

If you need a company in your portfolio that will weather kind of all different kind of economic environment, that is probably it. It probably obviously won't grow as quickly when times are good, but it'll probably perform way better than other stocks when times are not as good and you're in a recession and things like that. This is a great alternative for people versus buying new things.

They can go and buy the used one and just stretch their money a bit longer. Yeah, I tend to agree. I mean, it's pretty resilient from that perspective. And again, this is just a shallow dive into the business. I have a lot more to learn, but there is obviously something interesting here to look at. And I'm trying this year to bring some new ideas to the pod that are completely undiscovered,

not by just like us, but undiscovered just across the board. Anything under a billion in market cap, like for a US listing, just not that many people are looking at it. Like a very small select people, a number of investors are actually regularly looking for things under a billion in market cap, especially when it comes to smart money and big funds. Like they're just completely constrained out of it. And so that could be probably the advantage of smaller investors and why so many smaller investors love looking and hunting in micro-cap land because we're talking about companies that no one's looking at. Like hardly any large fund managers looking at doesn't come across their screens.

Their analyst doesn't bring it to them. They're never going to be looking at it. Yeah, and it goes back to the screener, right? You can screen based on that. Maybe you just want a company that's between 200 million market cap to 1 billion. That's going to fly under the radar, like you said, for most funds, unless there's a fund that specifically invests in small cap. Aside from that, I mean, they just can't own it because there would be some disclosure problems or regulatory issues. They would own too much of the company to make the needle move under funds.

So that's why we talk about Buffett all the time, right? That's why Buffett, when he makes a move, it looks like a massive move to most people. But it actually, for the most part, it's like barely needle moving, even if it's like $10 billion invested, It's like barely needle moving, even if it's like 10 billion invested because they have so much, you know, they have so much ownership in different company. And I kind of want to say asset under management, but it's a different model. But you know what I mean, right? So they have so much where. And it's a small fraction of their cash pile.

Exactly. So they have to make investments that are several billion dollars to move the needle. Like Buffett, if he invested $100 million in a company with Berkshire, I mean, okay, 10x it would not move the needle for them. So that like, oh man, if I could, if only I could go back to the days where I could compound, you know, 30% plus when I was managing a small amount of money. He's like, I bet you any, he's like, he said with confidence that he could hit those numbers again with smaller amounts of money. And I, I mean, who's, who's to bet against that? I mean, he's, he's Buffett, right? So that's pretty cool. Let's leave it at that. Great episode. I like this one a lot, actually.

Let's do some more screens because I think doing some more idea generation is good content for the pod. It helps expand our minds, our universe, and then gives people lots of good ideas for the pod too. And just to double click on like this thing being an 800 million in market cap, that's not a small business, right? Like it's small in the realm of the universe of publicly traded securities, right?

Or like things that people are looking at regularly. right or like things that people are are looking at regularly but if you have a friend that had owned a wholeheartedly an 800 million dollar business they're like they're like god in terms of wealth like this is a gigantic business right huge huge business but when it's up against you know apple microsoft a couple trillion in market cap, it looks like a little baby. And that sounds inherently risky, but that might not be true. Yeah, if you have a friend that owns like a business this large and they're inviting you to Vegas, they better be paying for your trip. I'll just say that. Yeah, good point.

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