The Canadian Investor - Meal Kits and Chip Demand Slowing

Episode Date: July 27, 2023

In this episode of the Canadian Investor Podcast talk about Elon’s weird branding decision to change twitter to X. We then discuss earnings from Goodfoods, TSMC, ASML and Intuitive Surgical. Symbols of stocks discussed: ISRG, ASML, TSM, FOOD.TO, TRP.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.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Today is July 25th, 2023. My name is Brayden Dennis, as always joined by the exceptional Simon Belanger. Today we're talking news and earnings. It's a dude, it is fully back in earnings season.

We have a bunch of companies we're talking about that we typically talk about. And then if there's time at the close here, we got live, maybe potential live reactions to Google, Microsoft, a couple of large cap names. But we are so back. Yes, we are. It's going to be a fun one. Lots of earnings to talk about. A little less on the news department, which is kind of nice, switching things over. Less macro, although macro came up in some of the earnings calls that I'll go over. But overall, little break from the big macro stuff. Before we do that, our buddy Elon sneaks his way into

the news as per usual. Twitter is now X, X, just the letter X. And I pulled a tweet here because in July 10th, 2017, so yeah, five years ago, Elon Musk tweeted out, thanks PayPal for allowing me to buy x.com. No plans right now, but it has great sentimental value to me. And so here he is using it. x.com now redirects to Twitter and the branding is now Twitter.com, but X is the logo. It looks exactly the same so far, but the logo is a little different different this is among one of the most questionable rebrands i have ever seen but uh i i don't want to doubt the guy just yet yeah i think he just like he likes the letter x in general but i remember eggs.com i used to use that to access paypal for the longest time because when i started using PayPal in its infancy, because I think I've

talked about it before, when I was a teenager, I was basically selling stuff on eBay. And back then for younger listeners, you would actually sell something, the buyer would send you a money order, you would get it, then you'd send over the item. And then when PayPal came up, obviously, a couple years after I started, it made things so much easier. And x.com was always kind of a reflex for me to use until, of course, about what, five, six years ago, when it was sold to Elon. That's right. And PayPal and x.com merged. Elon became the CEO of PayPal for a bit there. And their product market fit originally, as you just mentioned, was solving that huge pain point for the eBay marketplace.

That is where their product market fit came from. They ended up acquiring PayPal, spinning it off. It ended up being the really valuable asset in there. And, you know, we don't have to go through that whole story. Should I even explain what a money order is? Yeah, explain a money order. Yeah. So, money order basically... Because they still have them technically. Yeah, yeah. You can still get them. A good way to put it is that it's almost as like it's as good as cash, essentially. So a check, it's basically someone writes you a check and then you deposit and you hope the person has enough fund in their bank for you.

And you don't really know that until you go cash it. No, exactly. Whereas a money order, it's almost like the money is like tied to the actual money order. to the actual money order. So once you have the money order, whether it's $50, $100, $20, whatever it is, you're good to go to deposit it and there's no worries of it not being good. It's similar to like, I guess, a bank draft or cashier's check in that kind of fashion.

Right, yeah, like a bank draft. Yeah, very similar, right? Yeah. Money order. It just sounds- Yeah. Like a bank draft. Yeah. Very similar, right? Yeah. Money order. It just sounds like VHS now. I think Western Union was one of the spot where you could go and get them pretty easily. There was obviously a fee associated with that. But anyways, younger listeners, you probably learned something other than investing. That's right. Yeah. All right. Let's get to some earnings. This first one, I forgot this was a public company. Here we go.

Well, I wanted to add in a little bit of, obviously, it's the Canadian investor, and I wanted to add some Canadian content. And I know we've talked about them before, maybe once or twice. It's Good Food. They released their Q3 2023 earnings. And for those not familiar, which I feel like pretty much every Canadian would have received some kind of promotion to subscribe to Good Foods, which is just a meal kit type of subscription where you get these meals every week you can order as many as you'd like and then obviously there's a cost associated with it and then you essentially have the dinner with the recipe everything the produce

is essentially ready to start cooking there's a lot of competition in that space, but Good Food is one of the names that's in Canada. And I've used it before. I mean, for me, I think the real issue with these kinds of businesses is I don't have any, let's say, allegiance or I'm not loyal at all. So I will literally switch over

until they give us a reduced cost to hop back on for, let's say, like two, three weeks or a month. You are not alone in the way that this market is played by consumers. It is who's running a promotion right now to slightly undercut good food, HelloFresh, Chef's Plate. Chef's Table, yeah. Yeah, yeah. Which one is going to give me two dollars less a plate right now or you know and sometimes they have some really good yeah and especially if you had them before if they see have an order in a while they'll kind of send you a pretty like you know a deal that's quite yeah

cheaper than groceries yeah yeah exactly yeah, exactly. And then when we don't good, I like the product, but you're right, like you've outlined the number one bear case, which is differentiation and competition. Yeah, exactly. So now looking at Q3 2023 versus Q3 2022. So revenues were significantly down, down 37% to $42 million. For the first three quarters of 2023, revenues were $131 million. That's down 40% compared to the same period in 2022. And if you compare Q3 2023 to Q3 of 2021, revenues are down 61%, which is not really a surprise because we were still in the pandemic at that point. And I feel like a lot of people went on the bandwagon of hoarding these milk

kits just because, you know, all the lockdowns and the stuff going on, I think it's a convenience, made a whole lot of sense. But it's not all bad news. Their gross margins actually jumped up from 26% to 41%. For comparison, they were 35% in 2021. So the 41% is pretty impressive here. They lost $0.02 per share versus $0.28 last year. And for the first three quarters of 2023, they lost $9 million on a free cash flow basis versus $80 million during the same period. So clearly they're focusing on profitability here over actual revenue.

And they actually produced $4 million in free cash flow for Q3 alone. So it's not a lot, but I mean, there are some good and bads here. And they said that they've been focusing on attracting and retaining higher gross margin customers, which has led to a reduction in its overall customer base, but improved profitability, which is pretty clear with these results. One thing is they saw some significant decreases in SG&A and the cost of goods sold. So it kind of aligns with that. They also reduced their interest cost because of lower debt level. And when I was looking at their financial outlook, I would love to get your opinion on this. And I won't read the whole thing because it would be boring for people. But essentially, the whole premise of the actual outlook is that they start talking about the global total addressable market of

these meal kits that could reach 51.2 billion by 2030. They're quoting Vantage Research. But to me, those are big alarm bells because if in your financial outlook, you're a Canadian company that primarily does business in Canada. And before you provide your financial outlook, you say, oh, well, look at what the potential TAM could be by 2030. It just shows that they are, I don't know. To me, that's very worrying. If I were ever to consider investing in business like that, this would be basically the reason I don't invest on its own. I wouldn't even need to look at anything else. that the market continues to grow rapidly and milk kits are now an estimated 1 billion in Canada, part of the $144 billion Canadian grocery industry. So they do say that before the Canadian TAM.

Yes. Yes. They do. They do before they go on to talk about the, uh, 51.2 billion in 2030 number. Yeah. I don't love a company that would put,

even if it's Canada or global and both, honestly, I don't love a company that in put, even if it's Canada or global and both, honestly, I don't love a company that in its outlook, they are putting that. It's also like, so then why are you losing so much market share? Yeah. Yeah, exactly. I want to know about that. There's a lot of growth potential.

Well, okay, but clearly you're not doing a great job and you're essentially trying to, in my opinion, diverge people from looking at your financial result and just, you know, raising their expectation in terms of what it could potentially be. I posted just below a quarterly revenue growth of HelloFresh, which is, you know, listed in Europe. I think in Germany, right? Yeah, I think it's in Germany. Germany. And yes, it trades on the London Stock Exchange. Oh, never mind. No, but it also trades. Oh, it is?

Okay. I thought for whatever reason it was a German company. It is. It is. Okay. I'm not crazy yet. No, it trades in Germany and in London. Oh, wait.

No, it just trades in Germany. Okay. So there you go. My memory is still good. HFG. I got confused because HFG.DE is HelloFresh. HFG on the London Stock Exchange is Hilton Food Group. Those are not the...

I just saw food and I was like, oh, they're the same company. They're not the same company. So there we go. I was like, oh, they're the same company. They're not the same company. So there we go. So what you can see here from this graph globally is that some of these meal kit companies are actually crushing it, a.k.a. a la HelloFresh and some of the other ones. This is probably the largest publicly traded one. But it is very clear to me good food is losing market share in a growing market.

It's as simple as that. And so the financial outlook needs to talk about regaining market share in your core market. That's what I need to see in the outlook. And so from that perspective, I agree with you. Yeah, and exactly. And I mean, it's just disappointing. If I would see that shareholder, it would be like, okay, you're trying, you're not,

you know, just tell us what you think your outlook will be. And also explain why you're losing market share. Not like trying to make these, you know, people believe they could be bigger. We need to see results. You've been publicly listed long enough. This business peaked in the second quarter of 2021 at 107.8 million CAD. I believe that's CAD. Yes, 107.8 million CAD for the quarter.

And grew tremendously up until that point. They saw a dramatic drop off in the following quarter and have been a bit of a melting revenue base run rate, if you will, if we can call this a recurring revenue business. I don't think it really is. But if we can, if we can give a yoga stretch and call it that, the run rate peaked at around 440-ish million CAD. And today is around 120. So, no, 160 million CAD. And that trend doesn't look like the trend seems to be bucking. So yeah, the question for me is, there's all this competition, all these new upstarts competing in the exact same product. How do you differentiate? And I don't think they know, and I don't think customers know either. And it's a bit of a tricky problem.

I mean, it's cheap though. I didn't even look at what the share price was when I was doing my notes. I was actually in the financial statement, and it's down without doing math or anything. Just looking at it, it's probably down, what, like 95% since the peak? It's trading for pennies, market cap of $ 38 million, which is pretty wild. But I mean, I think it clearly shows why they're almost forgetting about revenue growth and focusing on profitability without having really done any deep research here. It was probably existential for them to make sure they were starting to turn a profit. That would be my guess. Yeah. Yeah. We'll see some shakeouts of consolidation, I assume. And so, I bet they're just trying to hold on. Hold on for that just a little bit longer. I've had a bunch of the meal kits. I

think good food is maybe the best, but the problem is I don't know. I can't say for sure and I've tried all of them. So So that gives you enough to know about this market because I have no idea really in my mind which one I like the most because it's hard to differentiate quite a bit. 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 winningwinning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and

vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. All right, let's move on to something hot off the press. This was yesterday at TC Energy. The old TransCanada has agreed to sell 40% of its stake in two pipelines,

the Columbia Gas Transmission and the Columbia Gulf Transmission, for a whopping $5.2 billion. So I didn't listen to it at the time of this earnings call, but I was digging in yesterday to the why. And I found on the Q3 2022 conference call, Francois Poirier said they were looking to divest non-core assets and majority stakes in the magnitude of billions of dollars. I think the number was around three and a half to de-lever the balance sheet, the core strategic priority of decarbonize and de-lever. strategic priority of decarbonize and delever. The double Ds. And so this is a fairly lofty transaction here, 5.2 billion. From BNN, this sale is being made to private equity firm Global Infrastructure Partners in a deal that is valued to bring in 10.5 times TC Energy's earnings before

interest taxes EBITDA. And that's it in the press release. The two pipelines are responsible for supplying 20% of US LNG, aka liquefied natural gas, exports in the US and cover 24,000 kilometers of the North American natural gas network. Very cool. Back in 2020, when I was in the industry, they sold their natural gas power plants to Ontario Power Generation, the crown corporation for 2.8 billion. This is back in my day when I was working in this business. I remember this acquisition happening. So they've been divesting and reallocating assets, de-levering the balance sheet under this kind of long-term strategic goal for many years now. Yeah, I mean, I must have missed that one because I didn't see it when it came out.

But I think it may sound, I think you just misspoke. I think it's minority interest, right? They divested, you had said majority interest. Yes. Did I say minority? Yes. Yeah, I think so. Core assets and minority stakes. If I said majority, I meant minority. No. And I mean, I think it's prudent for the most part. You're looking at these kind of companies, you're looking at companies that are heavily levered. I think it's really important. We've talked about that time and time again, making sure companies, you know, it's one thing to add debt, but making sure that the debt is manageable, whether it's the level of debt or the level versus, you know,

the interest rate they're at, how it's staggered. These are all things people should be looking at when they review financial statements, whether it's fixed debt, whether it's variable debt. And, you know, I think it's smart for companies, especially, you know, right now, I think pipelines probably they're not at their peak, but I think overall they're definitely, you know, they're in better shape, at least in terms of what the market is willing to pay for them now than they were probably what, middle of 2021, for example. Look, TC is a tremendously well-run company, like many of the infrastructure businesses in this country are. And I don't know it well enough to know, talk big picture on the strategy. What is interesting is how many minority stakes of stuff that they do own. If you look at their

portfolio, the Bruce Power Plant is another example, the huge nuclear power plant in Ontario. They own a gigantic stake in that. It looks like part of this bigger mission to decarbonize, de-lever, and focus on the core assets and core pipelines that are majority owned or entirely owned seems to be the main driver here. All right, semiconductors, Simon. You're going to talk about asml and tsmc i'm going to sprinkle in one company in between them but uh take it away here oh you are okay i was going to do those back to back but uh oh well how about this how about this then i'll take that out i'll i'll save this for later i'll save this for later okay okay sounds good yeah just because i was trying to do one big segment on. Perfect. Perfect. Yeah, exactly. So that makes more sense here. Okay. So semiconductor earnings,

I'm going to look here at TSMC. So Taiwan Semiconductor and then ASML. So I wanted to do these two together because I think it actually provides a really good perspective on how the overall semiconductor industry is doing. Now TSMC for context for new listeners or people that may have forgotten us talking about these. So TSMC produces around 90% of the most advanced chips in the world and around 50% of all chips in terms of revenues. It gives us a much better idea of the overall demand for computer chips versus looking at a company just like intel or nvidia which will offer very different outlooks on how it's doing and clearly as i'll talk about there are some positives and less positive in terms of the chips that are being manufactured right now. And ASML is the only

company that builds EUV, so extreme ultraviolet system, and one of the only few that build DUV systems. So these systems are used to make chips. DUV is deep ultraviolet. And ASML, on the other hand, can be a good parameter in terms of how much money is being invested by the industry in terms of modernization, but also future production, maybe more medium or long term. Now, TSMC, I'll just start off with a quote. I think it sums up pretty well. So they quoted here, our second quarter business was impacted by the overall global economic condition, which dampened the end market demand. It led to customers ongoing inventory adjustments. So end market demand is more like consumer electronics as a very broad category.

And that quote was from Wendell Huang, VP and chief financial officer of TSMC. Huang, VP and Chief Financial Officer of TSMC. And moving into the third quarter of 2023, we expect our business to be supported by the strong ramp of our three nanometer technology, partially offset by customers continue inventory adjustments. So the three nanometer technology, you know, it's fine if you're not well versed into this, but that's extremely small. This is the really high end type of chips. And this is where, you know, for example, the AI chips, like they're going to be using that platform, I'm sure going forward. And this is what, you know, the high end stuff. So that's when they refer to three nanometer, the higher the nanometer, typically the less performing, or the less advanced the chips

are. I think that's a good way to put it. Yep. No, that sounds right. Okay. And now in terms of numbers, so year over year revenues were down 10% to $15.7 billion USD because they do report in new Taiwanese dollars. It was impacted by macroeconomic headwinds led by lower consumer electronic demand, like

I said. And obviously they have strong demand for the most advanced chip but those consumer electronics don't necessarily demand or necessarily require the most advanced chips. Gross margins were 54.1% that was down about 500 basis points from last year's and operating margins were 52% down from 49.1% last year. So pretty significant drop off in terms of margins, the EPS was 23 cents. And their most advanced technology, which is seven nanometer or lower, like I kind of mentioned earlier, accounted for 53% of revenue. So it's really interesting where they're seeing some

really strong demand for the most advanced stuff. Any comments on that before I go to ASML? Yeah, I think this is part of a growing trend and speaks to also how useful and how entrenched, how innovative and how wide the moat these businesses have is they are the leaders in these most advanced chips. What does ASML spend each year? What do these companies both spend on CapEx and R&D each year? Billions, I mean. In the tens of billions. And the R&D spend is worthwhile in how they've solidified themselves as the leader in these hyper tiny chips. Putting advanced circuitry on a three nanometer piece of silicon is insane. Like the tech behind this is bonkers.

One YouTube video way for your brain to melt just researching this stuff. It's really, really fascinating. Yeah. And the people working, so the employees, how qualified and like train and specialize they have to be. I mean, you're talking with people with masters and PhDs that like specify in this kind of stuff. And one thing that I saw when I was looking at TSMC is I'm just going on memory here, but they are looking to, they'll be delaying the opening of, I believe the Arizona that they had. Yeah, exactly. Just because I think that's one of the things they mentioned is they are having trouble getting the right talent for that fab. So that's just another example. But I think also by what that tells us is there's still some cyclicality to chips, maybe not as much as before. But one of the things that people have to remember is there was huge demand for computer chips or semiconductors when the pandemic started.

Because, you know, if you didn't have a laptop or maybe you just had one, you needed a couple more so your kids could do virtual learning and so on. So there was a big uptake in demand. And now they're seeing that slow down a little bit. And I think we're probably going to see at least a couple of quarters of a bit of a slowdown because of that consumer electronics segment. I think that's right, where it is certainly cyclical. And that's been the common knowledge or the narrative around semis for so long is how cyclical it is. And that still holds true in the like personal computing division.

That being said, it's just different. It's still cyclical, but it's different and it's not as cyclical. And that demand for core infrastructure and data center chips, that's a completely different market. That's not subject to the cyclicality of, you know, a student buying an expensive laptop, right? Or consumers upgrading their at home

gadgets. Yeah, no, totally. And ASML, it was also very interesting. So one interesting quote they gave, so our customers across different market segments are currently more cautious due to continued macroeconomic uncertainties and therefore expect a later recovery of their markets. And keep in mind that the customers here are not the end users. These are companies like TSMC that are the customers from ASML. And also the shape of the recovery slope is still unclear. from ASML. And also the shape of the recovery slope is still unclear. However, our strong backlog of around 38 billion euros provides us with a good basis to navigate the short-term uncertainty. And the short-term uncertainties, like I said, global macroeconomic concern, but more specifically inflation, rising interest rates, recession, geopolitical environment,

including export controls. But customers, like I said, they're just a bit cautious because of the slow recovery. But interestingly enough, DUV demand remains strong and still exceeds supply, especially in China. And for those not aware, so there's been a lot of import controls implemented by the US for chips going to China. And obviously, the Netherlands, which ASML is based in, they have close ties with the US. So ASML cannot sell EUV, so their most advanced system to Chinese clients. However, they can sell the DUV systems to the Chinese clients. So they're seeing definitely pretty significant demand, which is interesting because it's not a monopoly for them, the DUV space.

Right. Yeah. There's like Nikon. Yeah. It's not like there's that many. It's more like, I guess, a oligopoly at that point. Yeah. It's basically like the camera companies that do DUV as well.

Yeah. So there's not that many. And clearly, ASML does something well because they've seen some pretty strong demand there. And I'll go over that. Dude, to create extreme ultraviolet light required for lithography, you have to fire lasers, freaking laser beams, like from Austin Bowers, to microscopic pieces of droplets of tin, the element pure tin, to refract it to actually create the extreme ultraviolet light required for lithography inside of these machines. And do I know what I'm talking about here? Absolutely not.

That's how confusing this stuff is. Like it's unbelievably fascinating. I encourage people to look up extreme ultraviolet lithography and the foundry technology inside of Taiwan Semiconductor. Yeah, exactly. And I mean, it's very fascinating. But like i said unless you got a phd uh somewhat related to this you can at least generate a respect for how insane it is

though yeah exactly you'll probably get a general understanding but you won't fully understand it i know i don't like the how complex it can actually be i, you'll understand because you don't understand it, but I understand that I know nothing. Yeah, exactly. And so net sales were 6.9 billion and I'll be talking here. It's always in euros for SML, which was up 27% year over year. The gross margins were 51.3%, which was at the high end of their guidance led by that DUV segment I talked about, which is an increase of 180 basis points year over year. Operating income margin has been holding steady for their last four quarters at around 33%. They have, like I mentioned in the quote, a current backlog of $38 billion. Net income was up 38% to $1.9 billion. Freecastle was slightly negative for

the quarter due to higher capex spending, but is positive for the first half of the year. They added $4.5 billion in book system orders during the quarter. And this is interesting because that's down 46% compared to last year. So that's, I think, is where you start seeing demand slow down a little bit. What they were talking about, their customer is actually not exactly sure if they should place the order right now or wait a little bit. I think that that's a number to keep an eye on. They bought by 500 million euros in shares during the quarter. They bought by 500 million euros in shares during the quarter. Their guidance for Q3 is that sales will be between 6.5 and 7 billion and gross margins around 50%. And although there are uncertainties, they are expecting net sales to increase around 30% for 2023 as a whole.

And DUV revenues are expected to be around 50% higher this year, which is higher than the 30% they had expected at the beginning of the year. EUV revenues on the other end are now expected to be around 25% higher than last year, which is lower than the 40% they had expected. So primarily due to customer adjustments and demand timing. And I think that makes a lot of sense because these EUV system are extremely expensive in the hundreds of millions of dollars for those not aware. And they, you know, it's a big commitment for customers. And, you know, when you're committing that much money, it makes sense that you want to be 100% sure before you place the order. And even if the system won't come in for a year or two, it's understandable. So I think overall, it was a good quarter. I think it just shows that customers are adjusting, but ASML is still in really good position with that backlog.

And even if they stop getting new orders in, they essentially have a year and a half worth of backlog to equal their sales over the last year and a half. So they're still going to get new orders. They're in a really good position. But I think the market was kind of wishy-washy in terms of what they like and didn't like about it. I was just about to ask you, what is the backlog? And I have here on Stratosphere, we track their net bookings in the quarter too, right? And you're looking at four and a half billion euros of net bookings, so new orders of machines, which is certainly a lot softer, almost half of a year ago. But if you're to just zoom out a little bit, that is way, way elevated off of just two, three years ago, right? And we can get so caught

up on hard comps. You're sharing there, there, there, R&D expense. I posted this on the doc because I think it speaks to this business's moat, right? Is investors, I think, got a little bit too trigger happy with wonderful margin, the thought of infinite operating leverage, low CapEx, low R&D expense, basically 100% free cash flow conversion, essentially, is like the accounting for it. And then you get a business like this that's putting, you know, plowing a billion dollars into R&D a quarter so that they can throw laser beams at pieces of tin. It speaks to how difficult it is to recreate some of these large infrastructure giants and just mad scientist projects that they've become.

And I think that that's worth speaking to of just how difficult it is to recreate when you have something as entrenched as this, spending a billion dollars a quarter in R&D with the smartest people in the world. Yeah. Yeah. It turns out that there are some capital expenditure intensive or R&D intensive companies that are quite good companies. So, and actually stand the test of time. And ASML, obviously, but especially TSMC has been a leader in that space. And that's their mode, essentially. It's such a big barrier to entry because think about it. If you want to start a competitor, think about the amount of money you need just to get at their level. And that's if everything goes

well, because there is a chance that things don't go as planned and you'll have to spend even more money and you might not even end up catching them. And I think that's a non-starter. Yeah, exactly. Because I don't like you, obviously with with stratosphere, you've talked with, you know, venture investors and startup investors. And, you know, at the end of the day, if you're starting to ask investors to put money in when it's like probably in the hundreds of billions of dollars in commitment to even get close to these companies, and all the risk associated with that. It brings perspective as to why these are such great companies, even though, you know, aside from ASML and EUV, they're not the only ones making the product. That's right. Yeah. Incredible. So you talked about their backlog here. Did you have anything else here? I'm looking at, you had some comments on the backlog or did you just say that? No just yeah just basically saying the backlog gives them a good margin of safety here so even if they have less of new bookings coming in not the end of the world

because they have such a heavy backlog and as customers actually have more certainty and those macroeconomic uncertainties kind of start being clearer a bit more. I think you'll just see that those new orders coming in. And, you know, as a shareholder, even if the backlog gets down to like 25 billion or 20 billion, it's not the end of the world because I think it would be, you know, again, would probably just be a black one, black swan event for them to get zero bookings in a quarter. So still love the business. If the market starts being a bit bearish, just because probably just be a black one black swan event for them to get zero bookings in a quarter so still love the business if the market starts being a bit bearish just because it wasn't as good as they expected i'll probably look at adding a few more shares to my position yeah i i really

kicking myself for not uh acting on my conviction on on either of these names when you did yeah and when i kept yeah piping piping, pumping them up, I was on the way home from golf, basically bottom ticked it with my buddy. And he goes, what do you think is really cheap right now? It's classic asking for stock tips. And I'm like, honestly, I think that ASML is the cheapest high quality stock right now. Of course, I don't buy it because I'm an idiot. He bought it and he's like, hey, thanks, man. He's like doubled my money. I'm like, yeah, I'm an idiot. I should have taken my own advice here. Yeah. Can't disagree with that. Yeah. You're right. You are an idiot.

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or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think

it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. All right, let's talk about Intuitive Surgical, ticker ISRG, which is the robotic assisted surgery medical device business. And they reported earnings. Pretty solid results. This stock is back into full-on momentum territory. You know, everything growthy has gone full reversal of 2022 into full momentum. I'm glad I bought shares when

the market hated it or hated it.'s a probably a bit of a stretch because it was frothy back then but it's even frothier now so uh they have now performed over two million surgeries on a trailing 12 month basis so they've now broken through that uh that threshold got some screenshots here from finchat.io that tracks their quarterly da Vinci surgeries performed. They placed 331 da Vinci robotic assisted surgery systems in the quarter. And they did pass another kind of threshold of over 8,000 systems are in their installed base. systems are in their installed base. Now, if you track their installed base and their instruments and accessories revenue, they go hand in hand. Instruments and accessories revenue basically is a sine wave that goes around the very solid line of DaVinci systems installed base.

Because this is a true picks and shovels, razor and blades type business where once you've completed that sale, that million and a half dollar sale of a robotic system to a hospital, now you have these wonderful high margin recurring cash flows of instruments and accessory revenues. So very solid that they're continuing to achieve a 20% growth rate on that recurring base. The Ion system, their newest development is seeing some early nice results. I asked Finchat to explain that segment of the business because I'm hoping AI will do better than me here it says here that intuitive surgical ion system is a flexible robotic assisted catheter based platform holy buzzwords developed by intuitive surgical it's here's the important part it's used for minimally invasive biopsies

of the lung what's a biopsy you go and take a sample it says a biopsy yeah you're going to take a tiny sample so it's basically i'm pretty sure that's what it is a biopsy is a procedure to remove a piece of tissue or sample of cells from your body okay yeah you're right on you're spot on i know a lot of people i know a few things are yeah you're not just a pretty face there, Simon. So this is not a cheap stock for a company growing revenue at what I'll say is only 15% a year because it trades at hyper growth multiples, nosebleed multiples. But the market recognizes something that I've recognized for many, many years as a shareholder of the business is they are throttled by the amount of installed base that they can actually build out in terms of the robots. way is gigantic. And so you can probably see a high teens, top line growth for a long, long time. I haven't really modeled out what that looks like, but significantly longer than, you know, just a business growing at mid teens on the top line and trading at gosh knows nosebleed multiples so i think that that's where the valuation comes in is like the quality of the business is incredible the tech and the moat is incredible and far far above a lot of competitors although i think medtronics made a lot of gains in the area but you can model out like a few decades

of double digit growth and you can't do that for many businesses right i think that that's probably pretty dangerous game to play uh modeling out more than 10 years but you can see a path to where that is a true statement and you can't say that about a lot of businesses. And I think that that's what's so appetizing about it. Yeah. No, I mean, I think a company that has reasonable growth for years to come, let's say five to 10 years, that there's a reasonable chance that'll happen.

There's not that many businesses that can say that. So it's definitely something attractive. Of course, you know, there's always potential outcomes that you don't foresee, right? That that can always happen. So whenever you make an investment thesis, anyone listening to this might be kind of excited by intuitive surgical, right? You have to still make your projection based on, you know, maybe there's something you're not seeing a five. And I, we've talked about that recently, maybe a sign of five to 10% chance where something happens and it really puts a damper on the actual economics of the business and the investment thesis changes. So I think that's just a good,

whenever I start an investment, I think you're the same too. I always try to come up with a bear case as much as I can, but I also try to think that even if I come up with a bear case or a couple of bear cases, there might be a third, fourth, fifth one that I haven't thought about and always assign some chance of that happening as well i think that that's right and there's you know top of the bear case is they start to falter as they're like monopoly on many of these surgeries now they're not all competing for the same surgery because there's a lot of room for them to grow into other surgeries as well. Like people are going pretty

verticalized on like this system is for knees, this one's for hips, this one's for this. And that's, you know, that's specialized like how they're approaching this market in terms of robotic assisted surgery. If Medtronic or Stryker, these a hundred billion dollar plus medical devices companies who are already building robotic assisted surgery and taking this market very seriously build something better. I'm not, I'm betting that intuitive surgical has the best tech here and and that they continue to lead their market position but if that happens stocks trading at like 85 times ebita you know like you know like there's a path to not making a lot of money here right right? There is. There's a pretty clear path to both sides. And I think that I'm trying to say both sides of that argument, right? And what most people might want to do is that medical devices ETF,

to just own the whole basket. What is that one called? It's not a bad idea. Well, especially, yeah, when you get into. IHI. IHI. Yeah. For me, it's always when I get into certain sectors that are really hard to understand or like I can't understand at a high glance.

But there's a bunch of good companies. I think that's usually a criteria. If I know there's a bunch of good companies, it's a bunch, bunch of good companies. I think that's usually a criteria. If I know there's a bunch of good companies, it's super technical. I can still understand it, but I don't necessarily want to spend like tens or hundreds of hours, like fully understanding the thing. Then the ETF route is, is oftentimes a good option. We are here just before the close here. we are here just before the close here and i would love to i would love to sit here and chat with uh with you about these big tech companies but i think everyone will have to wait until

next week yeah we'd have to ramble for a good 15 20 minutes i'd have to tell some really bad jokes for a good amount of time uh no we we really appreciate you tuning in and earnings season is here. So make sure you're turning into the Thursday releases for the next few weeks here on out, because everyone's, it's a big day reporting today. It's a big day reporting tomorrow, big day reporting on Thursday. And so we'll be here and whoever comes to take my seat for these episodes will be here after me as well. So it's a fun time to be an investor. And we've seen so much change in sentiment in the past whirlwind of three years. It's been crazy change of sentiment, gigantic shift to retail flows. It's been wild how much has changed since

you and I started this podcast. Yeah. And right now, it's very weird right now, I find, because there's a lot of hype in certain tech areas, especially anything related obviously to AI. But I find the valuations a little bit confusing, right? Because you have on the one hand, the macroeconomic concerns, and we're starting to see data coming out where it's like, okay, there could be some softness there. And then you have the high interest rates, which typically should lead to more people putting money in safer assets that are yielding, you know, cash. It's just, I don't know, I'm not, I'm a little, I don't fully know what to make of the current market. I'll be very honest. Like there are things I'm like, okay, this makes sense that things are bullish that way. But then I'll look at other indicators and like, oh, it's a bit

of a head scratcher. So I think, I don't know't know i feel like it's more i don't know in the past four years five years that i felt exactly like this i'll be honest you're right because there's some some corners of the market that feel awfully bubbly and and that goes without saying and then i will find incredible deals as well and so it's a it's a real stock picker's market in my view in the way that there is tons of quality trading at really reasonable prices and tons of stuff that's just ridiculous as well. And it felt like in 2021, everything was ridiculous. Yeah. In 22, a lot of stuff started to look really cheap and now it's truly, I don't, I can't make that blanket statement because there are corners of, of the NASDAQ that are extremely bubbly. Uh, and, and some stuff that is just so beaten down and no one wants to touch.

And maybe that's where, you know, opportunities exist. And the market can change its mind so fast. Mr. Market is bipolar, as we all know. So this is your opportunity, right? Yeah. No, exactly. I think there is definitely, there is some value to be found and there is some expensive stuff out there too. And at the end of the day, that's why we like investing is because it's very subjective and, you know, you make an assessment and someone else may have the completely different assessment. And one of you two will probably end up being right five years from now and that's what it is right i saw someone tweet today that was interesting a guy i met earlier today

ken ken was his name and he said something interesting to me today he said the s&p 500 is the most successful trend following strategy and i thought that was an interesting take because it really is uh it's a trend following strategy it it adds and keeps adding to positions that keep getting larger and larger dictated and better by size so it is a unbiased unemotional diversified basket of high quality businesses that the weighting is decided by trend following essentially and yeah yeah i think that's only true for the snp 500 because it's diversified enough to be able to you know pick up any sector that would be doing well. And then that's pulling the S&P 500, where in Canada, you can't really say that. I mean, it's trend following if it's- With oil and banking.

Yeah, exactly. Financials and gas and oil is ripping, then they'll do well. But no, that's a good way to put it. Never thought about it that way. Right. Because usually when I think of like, you know, trend following or momentum strategies, I'm like, I feel a little dirty. I feel a little gross. But that's kind of what the S&P is. Yeah. People can make money trading. It's just very difficult and you can get burned pretty badly too. So, that's not what we do, but I'm sure there are some people that have crushed trading, but it also, those hedge funds do, some of them do quite well and some of them get completely wrecked. So, I think that's a good

indicator there. Yeah. That's the beauty of a market. All right, thanks for listening, guys. We'll see you in a few days. If you have not checked out FinChat recently, FinChat.io is our AI tool that you can look up every single publicly listed company in the world. It uses institutional data quality,

the stratosphere data. You can ask it to pull transcripts, filings, KPIs, financials, discounted cash flows, graphs, tables, screening. It basically is your assistant for all things investing in individual stocks. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.