The Canadian Investor - Ten TSX Stocks Under 20B & High Quality Businesses

Episode Date: April 3, 2022

In this episode of the Canadian Investor Podcast we take a look at some smaller interesting Canadian stock ideas.And then we dive into our research process at Stratosphere and what makes a high quality durable business for long-term investors. Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research.  To join paid Membership, use promo code TCI25 for 25% off. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Check out the Yes We are Open Podcast from sponsor MonerisSee omnystudio.com/listener for privacy information.

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We have a fun episode for y'all today because we are first going to go through 10 interesting, undercovered, maybe never heard of TSX stock ideas under $20 billion in market cap. That's our threshold. And then I will interview one of the main analysts at Stratosphere, and we're going to just chat're going to chat shop and go through our investing process simone did you find anything i mean we're going to go through them but anything

that came to mind with these under 20 billion in market cap on the tsx names uh no i mean i some of the names i was already familiar with uh and one name i actually just discovered because i was struggling to find another one and i i had a feeling some of the ones you'd choose so i didn't want to steal any of the ones that you'd most likely be picking for this i'm so predictable like i've already talked about these many yeah so um i i had to think outside the box for a couple and may have cheated a little bit for one, but I'll elaborate on that. In terms of market cap?

A little bit. Okay, that's fine. It was dual listed and we did not specify the currency. I'll just say that. Okay, yeah. See, you know what? We're okay with getting by on technicalities. That is fine.

General theme, just a comment from me. General theme is that there are some gems on the TSX that are completely undercovered, only listed on the TSX that are worthwhile. I'll say that. They're worthwhile. There's this kind of sweet spot for that. Reminder, reminder, as we always do, don't just hunt on the TSX. A lot of it, there's a lot of garbage, there's a lot of trash. There's literally a lot of terrible companies

on the TSX and the ventures. So you got to look south of the border of the US. However, this list of these like good companies undercovered have global scale, potentially, or at least scale outside of just Canada, and are wildly undercovered. Those are interesting and make the TSX worthwhile just from those alone. Do you agree with that? Yeah, I think so. Yeah. So I think there's definitely some good value to be found for some businesses and some gems in canada but uh you know it's not always easy so uh but like you said there's definitely some some not so good businesses a lot of junior mining companies that people will sometimes get excited about gamble your whole life savings yeah i mean it's like a lottery

ticket right you might get lucky with a few but uh you might also lose everything with the rest so yeah let's get you to kick it off with a name that we just covered in detail uh on this show and um i mean it is in size definitely qualifies for it so yeah yeah so uh by the time this podcast comes out, you guys will have listened to our discussion on Aritzia, and that's my first name here. It was hard not to mention this one because it has a market cap of just above $5 billion. Like we mentioned, it's growing at a pretty good clip here. A lot of it is because of their growth prospects in the US. If you want to learn more about Aritzia, go back to our episode that we discussed. We did a pretty learn more about Aritzia, go back to our episode that we discussed. We did a pretty deep dive, I would say, on it. And I wouldn't be surprised,

honestly, if this year their US sales exceed their Canadian sales. And by this year, I mean fiscal year 2023. Their fiscal year is a bit wonky here. Not as strong on the margin side as a lululemon for example but still a pretty good numbers overall they're also profitable and pumping a lot of free cash flow here something i love to see especially when a company is growing pretty rapidly like they are i think it's pretty reasonable to expect a mid-teen to high-teen growth clip for their revenue growth, maybe even higher as the U.S. expansion accelerates. The last thing I would mention here, it is a fashion play. Fashion clothing can go out of style fairly quickly. So that's the biggest question mark here is do they have staying power or not? I don't know. That's my biggest question mark here is, do they have staying power or not?

I don't know. That's my biggest question mark here. If you want more detail on this one, go back on your podcast player if you haven't listened to it already. And it is in the title. We did a deep dive on the name. All right. First for me on the slate is TFI International at $12 billion, $12.5 billion roughly in market cap on the TSX.

They are dual listed, by the way, this one is dual listed on the New York Stock Exchange as well. Now, TFI shares have shot up like to the moon since of March 2020, but I still think the shares have a lot of room to run. Wow, that was a mouthful. TFI's robust acquisition strategy in the highly fragmented trucking industry. The company spent over $1 billion on acquisitions in 2021, about as much as the previous three years combined. In 2021, they acquired 10 trucking businesses into tucking into their fleet. Strong e-commerce volume has driven a lot of the organic growth as of late. Still, e-commerce growth is in

its infancy and TFI should be able to benefit for a long time to come from that. The business is led by none other than the legendary Alaine bedard a lot of respect for him he's demonstrated the discipline to be able to buy distressed trucking assets at attractive prices improve their operations integrate them into the system do it really well they've tucked in small acquisitions but they've also flexed their ability to make large deals like buying UPS Freight. They carved out UPS Freight for a price that like they literally stole it from UPS. It was incredible. They're able to deploy capital at really good returns long term, looking at really long term.

term two of their big input costs can greatly be benefited from the long-term effect of fleet fleet electrification and self-driving vehicles moving on to number three on the list the chibo ticker dcbo it's a dual listed in canada and the u.s market cap of1.62 billion. That's in USD because they do report in USD. So I'll stay with that currency. They, like I mentioned, they are dual listed. The Chibo is a AI-powered learning suite of software for enterprises. This is a fast-growing SaaS company, so SaaS is software as a service. We do talk a lot about SaaS, but just in case we have some new listeners. With most of their revenues coming from reoccurring in nature, revenue in fiscal year 2021 increased 66% to $104 million. 92% of their revenues were subscription revenues, which is very attractive here because they are reoccurring. Like I mentioned, the company still trades at about 15 times sales

despite the recent drawdown. They are not profitable and not free cash flow positive. They're not cheap by any stretch of the imagination. It is a very interesting company. I think it has a decent amount of runway here. And we talked about them, I think, a year and a half ago. And I know a lot of people do have it on the radar as well. Next up is Topicus. This up and coming serial acquirer of vertical market software in Europe is still undiscovered by much of the investing public. However, it seems to be following in the beautiful footsteps of its older brother, Constellation Software, by consolidating this super highly fragmented vertical market software ecosystem. Today, as of recording, Topicus announced their bid to buy a Polish public company called

Signity, I hope I'm saying that right, which provides VMS software for banking, insurance, energy, utilities, industrial, and more. They have 850 employees. This is a big acquisition and I do not see a world where Constellation and Topicus do not continue to eat up the thousands of vertical market software businesses around the world. Still a huge addressable market. No one does it better. Both it and its parent, older bro, Constellation Software, run by the same guys pretty much. And look at some of those charts on performance.

Holy crap. The foundation and the playbook has already been discovered, and it's already been done by none other than the people running this company as well. So a lot to like for Topicus moving forward. I think it's going to be a lot bigger business in the future than it is today. Number five on the list, Nueve, ticker NVE.TO. Market cap of $9.4 billion. The numbers, again, here are in USD. It's another one that's dual listed in Canada and in the US.

I was hesitating between Neuve and Lightspeed. We did talk a lot about Lightspeed recently, so I figured I'd talk about another payments company. So Neuve is that. So it's a rapidly growing payments company. They focus primarily on payments processing for gambling sites. So do be aware if you're not into investing into companies that are related to gambling, this is probably not a company for you. Their revenues almost doubled from 2020 to 2021 and are up 68% on an annual basis over the past three years. They had 725 million sales in 2021. So they are not cheap when you compare that

to their market cap. They are profitable on an earnings and free cash flow positive as well. So on an earnings basis, they are profitable. So it is a name to keep an eye on, especially if we have some fans of payment processors that I know we do listening to the podcast. So a name to keep an eye on. It's actually, talking about Nueva, their market cap was way higher than I thought it would be. It surprised me.

I thought they were on some huge drawdown. Wasn't there some short report? the thing just got absolutely crushed i mean i feel like most canadian companies that are payments process to get a short report soon earlier they've been getting a short report yeah yeah it's like a ticking time bomb on a short report coming out on them no yeah it's it's uh it's one that i followed ipo and then 9.4 billion i, it's one that I followed IPO and then 9.4 billion. I mean, it's pretty big. No, it's not small. I mean, gambling, right? Online gambling. That's a fast growing market. All right, number six, let's talk about Q4, ticker Q-F-O-R, Q4. The company is called Q4 Incorporated, like Q and then the number four.

It is $200 million in market cap, roughly. So I believe this is the smallest one on our list. It IPO'd in the fall of last year in 2021 when tech businesses, like software as a service businesses, were doing well in the market. They've been on decline pretty much ever since this business IPO. Terrible timing. The stock is trading at half of the IPO price. What a disaster. However, however, the most important word here, I think this is a pretty good opportunity now at 200 million in market cap. This is a Toronto startup whose office was across the street from where I used to live downtown. Q4 holds substantial market share as a provider of SaaS services for investor relations. So Q4 is the platform we interact with when we're on that investor relations platform,

whether we know them or not. Despite the investor relations platform having over 50% of the world's most influential brands in the US, this company is not well known by the investment community whatsoever. We think the company provides sticky, easy to use software with recession proof type qualities. Whether we are in the midst of a strong or weak cycle, public companies have to do their investor relations. There's no ifs, ands, and buts about it. Q4 is growing at some pretty nice paces with recurring revenue.

2021, they saw their customer count grow to over 2,600 customers, which was up 15%. Annual recurring revenue is up 22% to $52 million. Now, I challenge you to do something. When you look at an investor relations site, if you click on a presentation or you're on their website and you're the cloud provider and the CDN provider, you might notice that it'll say in the URL, Q4 dot blah, blah, blah, blah, like the rest of the URL. That Q4 dot, dot, dot means that it is on Q4's platform. They have over 2,600 customers, as I mentioned,

58% of the S&P 500. 58% of the S&P 500 is using this small 200 million in market cap TSX software name. Unbelievable. I only know about this company from looking at their office every day. Customers like, well also, and then I started noticing, holy, every single company I look at, they have their IR business. Customers like Spotify, McDonald's, Nike, Visa, CIBC, Salesforce, Coca-Cola, Netflix, Shopify, Walmart, many, many more, 58% of the S&P 500 are their customers for business-to-business recurring revenue SaaS. super interesting name at 200 million in market cap yeah yeah i think you'd mentioned i think you talked about it on an episode before not in detail but i feel just recently yeah i feel like that rings a bell it deserves a deep dive potentially i uh i'll be all yours if you if you do a deep dive

now moving on this is the company where i cheated a little bit so it's wheaton precious metals corporation ticker wpm it's uh dual listed in canada and the u.s so their market cap in usd it's slightly higher than 20 billion but it would have been lower just a couple weeks ago right now it sits around 21 billion in USD again I cheated a little bit on this one but I thought it was good to me we'll give you the pass I was good to mix it up with kind of a mining plate this one I think it's a great commodities play but specifically for precious metals like gold and silver this is another streaming company so in the fall i did a dive into franco nevada corp so wheaton precious metal is

another company like that for those who missed that episode a metal streamer will typically finance the operation of a mine on a fixed cost basis and in return they'll have the rights to the metal at a predetermined price so it's a pre-established price. So they have a lot of upside if the price of the commodity or the precious metal does go up over time and a lot less risks. So they don't have any risk in terms of the continuing operations of operating that mine, for example. So if you like the upside of precious metals, but don't want the risk of a traditional operator, Wheaton or obviously Franco Nevada, which is a much larger company, are definitely two

companies to consider here. Yeah, you've been consistent on your messaging around streamers and it makes complete sense to me. Let's talk about the big green machine, GFL. That green machine is only getting bigger as of late. Luckily for investors who want to own a piece of it, however, it's not getting bigger because the share price has basically done nothing on a 12-month basis.

GFL has a strategy to capture high growth in the very mature, slow-growing North American waste management business, win large city and corporate contracts by being relentlessly competitive on price, and then let pricing power do the work after because there are switching costs here. You better believe it. If you have no issue with a ton of debt on a balance sheet, a leverage name in waste management. GFL is a name to consider. However, the balance sheet's getting better. I'll give them that. That net leverage ratio has been on steady decline. They address it. They don't let it just linger. It's the elephant

in the room. They talk about it all the time. The North American waste business is super fragmented. Here I am talking about roll-ups after roll-ups. GFL's aggressive acquisition strategy is one of the best, in my opinion today, excluding the revenue boost from GFL, however, or sorry, from acquisitions, GFL is however growing still at about 7% per year organically. This is very impressive as the waste market is growing a lot slower than that in North America. And WCN Waste Connections is another great Canadian roll-up of waste management. But that one does not meet our criteria here as it is over $30 billion in market cap. Yeah, now moving on to a company that I actually did not know they were publicly listed until i started doing some research last night so pet value ticker pet pt on the tsx they have a market

cap of 2.2 billion they went public in i think june july of 2021 at 2020 a share. They had close to $776 million in sales in 2021, which increased at 20% compared to 2020. Most of it was same store sales growth, which was 17% last year. They are guiding for 10% increase in revenue for 2020 using the mid-range of their guidance here. in revenue for 2020 using the mid-range of their guidance here same store sales between six to nine percent increase and so those are actually pretty good number uh they are looking to open 30 to 45 new stores in 2022 one thing um i just had an overview so one thing i would need to research here is in terms of their presence in the u and in Canada. So I believe they're only in Canada. I didn't do a deep dive. It was just a quick list that we did here. So my apologies for that. But Pet Value, it's essentially an alternative to PetSmart, if you'd like, in Canada.

So they do have smaller stores. Personally, I do enjoy going there there i like the experience much better than going into a huge pet mart a pet smart store that may vary from people to people would we all know that uh you know pet owners are ready to spend money on their pets and usually money is not an object so i think they're in a very good space when it comes to that again this is just a name i discovered so this is brand new to me. Maybe I can do a deeper dive at some point. They were profitable and free cash flow positive. I did have a look at that. They generated $115 million in free cash flow in 2021, which was a little bit down for 2020. And they're trading around 20 times free cash flow, which is not cheap,

but I've seen worse as well so um a name to keep an eye on especially if you're looking for a canadian pep play if you're specifically looking for that niche uh fit in your portfolio all right number 10 we have made it i've done all of the typical names that i you know i would do and last on this late is bombardier recreational products ticker do do it is also dual listed as ticker do ticker do despite facing some supply chain retail issues, revenues are up almost 50% to $2 billion in quarterly revenue. The market appears to think that this is a largely grow via COVID pulled forward growth. However, I am happy to take the other side of that bet.

I do not believe that is true. The business foresees further momentum into 2023. And we think the white hot demand for, and when I say we, I mean my analysts, I think the white hot demand here can continue for a long time. Consumer interest in power sports, these wreck vehicles is really strong.

New products can be hitting the market over the next couple of years. This Sea-Doo pontoon boat. Oh boy. The demand for this thing is crazy. Sold out immediately. And so the business is growing well, really well organically. Simone has now officially has his cute dog on the Zoom call we love to see it uh this business is growing really nicely organically it is the brand name it's got ton of staying power and wreck vehicles with skidoo for the snowmobiles cdu for the jet skis can-am for the atv all-terrain vehicles and links which is also in that category they've been deleting the share count as well, which is important to know. Buying back tons of stock, they do pay a dividend.

Honorable mentions for me here across the board are WSP, First Service, Colliers, Equitable Group, we love you, Wikibank, TMX Group, Stantec, Descartes, and CAE, the pilot training business. And so there's lots that are TSX only listed that are worthwhile. Just as a reminder, do not make it your only hunting ground. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real

people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra

income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. All right, TCI podcast listeners, we have a fun little interview, myself and Adrian, who is an analyst at Stratosphere. Adrian, thanks for coming on the show. We got a lot of fun stuff to talk about in our process. How you doing, buddy? Good. I'm doing this. I know you're feeling a little under the weather, but you're going to tough it out. A couple coughs in the background.

We'll edit it out and make it seamless. Let's get right into this because this is on the back of another recording with Simone. And I think people have a lot of questions about our process, how we do things, the way we think about high-quality companies. And I think that that's actually a really good place to start. What are some business qualities that a new idea for you, for us in terms of it must check all the boxes to consider investing in them? What are some just like basic criteria that we think of high quality business? Yeah, that's a fantastic question. And I think, you know, overall, I think our processes are very

similar in terms of how we look at businesses. The number one thing, first and foremost, is there's got to be some sort of a differentiated product offering. So this cuts out a lot of commodities. And I'm not just talking about oil or gold. I'm talking about commoditized services and products as well, like like airlines or hotels and things of that nature. And just to simplify that you mean like, because they're competing purely, almost purely on price, correct? That's exactly it. The value proposition there is price, you know, one company can't meet the price standard of the customers, then those customers will go elsewhere. So unfortunately, that's not that strong of a moat.

So what we like to look for, what I like to look for in my own investments is several types of competitive advantages. The more the merrier. Not every business will have every single one. But the things that I'm looking for are things like switching costs. You want them to be really high for customers. Things like high barriers to entry. We want contracts in there. So, you know, there's like pricing power that comes out of very tight contracts. What else? We have network effects. That's a really big one. And a lot of our names that we have on Stratosphere have very strong network effects. Intangible assets would be another one. Things like high spend that, you know, some companies spend a lot of money and it might look daunting at first, but that spend, what it really does is it really solidifies the moat for a lot of these companies.

It's high capex, high investment sort of companies. There's not many businesses out there in the world that can invest that kind of money. So those are the main things that we really look for in terms of the business qualities. Everything you're touching on there, Adrian, is really around how durable the business is from competitors. And that's a word we throw around quite a bit because we want to own things that are extremely durable over time and um you you mentioned switching costs let's just double click on switching costs for a second do you have any like really good examples of things you think of out in the market

something you may own today maybe it's like an aws type thing. And I know that's a position you own in your own portfolio is Amazon. Do you have some like good ideas? Maybe it is Amazon of just like really high switching costs that make it completely insensible for customers to switch to a competitor. Yeah, I think AWS at Amazon, I think that's actually a fantastic example. When a company throws all of their workloads onto a cloud provider, it becomes extremely, extremely difficult to take that off. There's an entire process around these workloads. And once you have these workloads embedded in a cloud provider, the financial implications and the amount of training that would be required

to switch onto another cloud provider are just unfathomable. So really, those switching costs are extremely high. Companies that use any sort of cloud provider, whether that's AWS or GCP or Azure, they don't have many incentives to switch cloud providers. So I think that would be a great example. I have been told by someone I know that switching your cloud provider while running your business is like trying to swap the engine of an airplane mid flight. It's like, it makes no sense to do it. And it's dangerous for your business to do so. And so I think about that a lot.

And I think about that a lot with a lot of these really sticky software offerings. It's just like, why switch? The switching costs are incredible. And that's why I think people like software so much as investors. How are you thinking about their kind of capital allocation strategy as well? Yeah, so reinvestment opportunities, there's a couple of pillars there. One, that could be new geographies. So if a company operates solely in North America, for example, there could be reinvestment opportunities by expanding into Europe, Africa, Australia, really anywhere else other than where they currently operate today.

Another one would be an acquisition runway. So this is mostly relevant for industries that are highly fragmented. And this isn't really limited only to tech, because tech has a lot of software companies that, you know, vary in size, and really all over the world, there's always some new tech company popping up here and there. But even things like waste disposal, it's a highly fragmented industry. So if there's a if there's a large acquisition runway, that's that's another way that companies can reinvest. And what's amazing about some of the companies that we cover on stratosphere is that, you know, the the the tip the the common thought is that acquisitions kill value and that's true a lot of them do but for some reason the companies that

we cover every single time they acquire a company value is created so it's it's really incredible how they do that it's really around a track record too like i'm always nervous when a company starts an acquisition strategy. I have to be proven that they're good at it. I need to see a track record of it. If I'm late to the story, that's fine. A proven roll-up strategy is needed because so many of them fail and so many of them have bad IRR. So I think that you mentioned there, like the ones we cover, they're all, they're all like the ones that are doing acquisitions. They're not new to the game of doing acquisitions. That's correct. We talk a lot about long-term compounders. We talk about this like durable business, long runway for growth.

Like these are kind of the terms we throw around. Some of it's jargon. Some of it we try to just say in very simple terms. What are some common characteristics of some of these like mega winners? You know, the like super successful long-term compounders that everyone likes to talk about and rifle off. What are some common characteristics that these companies all share? I think the biggest thing is they really just defy the odds. Time and again, they just come out with new product lines. They enter new geographies.

They just do things that no sell-side analyst, no retail investor, no fund was able to ever predict. analyst no no retail investor no fund was able to ever predict so um it's just deeply rooted in having that inherent optionality that again the commoditized companies do not have like what what else can a hotel business do other than run a hotel business or what else can an airline do outside of um you know providing air service uh there's just not a lot of optionality in that. But the companies that we cover, they have this optionality that just seemingly comes out of nowhere. It's literally created out of thin air. Like if we think about Amazon, for example, they started off selling books back in the late 90s. And now they're they're this huge cloud provider, they provide ads, they're an e-commerce giant like who would have ever predicted this 20 years ago 30 years ago if you look at just even like the top 10 in market cap on the s&p 500

for instance all of them at some point during their time as a public company, completely changed the narrative. Like Apple was a public company for how long before the iPhone came out? You could have seen, I mean, you could have seen their success and their beautiful products, but no one was going to properly estimate the success there. No one was going to properly estimate that AWS would spin out like this trillion dollar company out of nowhere. No one could predict the company that everyone loved to hate in 2013, Microsoft, would end up becoming the number one in market cap company in 2022. Like, there's all these really interesting things that no one could really predict. And they all have that common characteristic, what you're talking about, which is this optionality

and management team that is hungry for more. They're hungry to expand their addressable market. And I think that that has been a really common characteristic of the companies we've looked at. Yeah, I think that's a good point as well. These management teams, these are, you know, the companies that we look at, these are literally the best businesses in the world, right? So if we're going to trust anyone with our money, come up with great new ideas, it'll be these companies. They have an insane amount of resources.

Their management teams are sharp. These are the sharpest individuals literally on the planet so it's not surprising in hindsight to see some of these companies come out with such value creating concepts um but it really comes down to that you know that hunger that's uh that's there in those companies yeah and i mean we're rifling off a bunch of large tech in hindsight it's it's easy to say like these large mega cap tech companies look at all the optionality they've had through the years but even like you know businesses we we like right now that are well under 100 billion in market cap like like 40-ish. I'm thinking of like Unity or Spotify. They just

also still have this gigantic market to address and optionality to address outside of their core offering. Like Unity is getting into like this media segment. The movies are being made on the gaming engine. They have optionality built in to expand to new markets. This is what you and I are talking about right now, which is just like these commodity businesses, these businesses that compete largely on price, they just don't have those characteristics to be some mega wealth creator in our portfolio. You know what I mean? Yeah, at least over the long term, right? Like recently, oil has been doing exceptionally well, but that's still not enough of a driver for me to invest over the long term. Today, the economy is doing oil is doing great. So of course, oil stocks are going to do well,

also, but what's next you're going to look like for the year after that does management have what else can they do other than drill more oil right and then if the price drops then your those investments in production they're destroyed right there's value destruction literally happening before your eyes so i'm not a trader no i i'm not a macro guy so i i prefer to stay away from those kind of businesses. I like the ones that, you know, show that they have a great management team, they have a great track record, they know what they're doing, they've invested in value creating projects. And, you know, despite the environment, they're able to do well, I think those are the companies

that it pays to have a positive mindset on and, you know, just trust in the management team and let them do their thing, see what they can do. I think that leads really nicely actually into the next question, which is, you know, you're just, you're monitoring and watching the thesis play out, but how are you tracking that thesis? What is your process to stay on top of the story i think one of the huge value propositions of our platform astratosphere is that for each of the companies we cover we're picking just sometimes three four even sometimes just one or two metrics that are really important you're able

to kind of keep tracking like okay yes it's, it's working, it's working. What are the other things you're also doing? And maybe that's a big part of it to stay on top of this investment thesis over time. Yeah, so I'm going to, I'm going to take a step back for this one. I think for everybody in terms of tracking the investment thesis, it looks different for everybody. And you kind of just got to do what you're comfortable with. And for me, that's really just kind of taking a step back from the day-to-day noise and information that we're bombarded with. And just thinking about the main drivers. What are the value drivers? Like, for example, you said the users at Spotify.

Or, for example, if we're looking at Costco, the number of stores, the square footage. How efficient are they with that space? Are they generating more sales per square foot or are they generating less sales per square foot? I think end of the day, you know, if you get a news story that pops up here and there, most of the time it seems to be noise. So what I like to do is just take a step back and I want to see these things come through in the numbers. So if there's a positive story, I want to see it come through in the numbers. If there's a negative story, same thing. I want to see these things come through in the numbers. So if there's a positive story, I want to see it come through in the numbers. If there's a negative story, same thing. I want to see it come through in the numbers.

So for me, most of my process is really around the quarterly reports. And even then, I think quarterly reports are quite noisy, to be quite honest. So I'm a big proponent of potentially looking at things semi-annually or even annually but yeah it's just difficult to measure business performance in such a short period of time like things things move around things ebb and flow so it's it's tough to to look at you know one quarter of data and make a make a call on a great business like end of the day a great business is a great business the reality of life is that things go up and down. So I don't want to put too much weight on things that are happening over the short run.

I want to see things more over a longer period of time. So for me, that process is really just kind of, I keep in touch with the news, but I try not to put too much weight on it. Again, I want to see those things come through in the numbers. When these news stories come out, I'll try to think about whether that'll be a permanent impairment to the business if it's a bad news story, or if that's something that'll be a temporary headwind. So there's a couple things there, right? Which is, you mentioned, you're looking at the quarterly reports, you're looking at, you know, the actual fundamentals and performance of the business

coming out in the numbers and in the things that you're tracking and care about. And you say, maybe even quarterly is overkill. And I tend to agree. But if we look, especially in new investors, retail investors, a couple quarters can feel like a lifetime if they haven't had a whole lot of context on investing in a business, having a business you've owned for 5, 10, 15, and longer years. It can seem like a really long time when businesses on the stock market are valued on a daily basis. It feels like there's something you should know. It feels like there's a story being built, a new narrative being built that just may not exist because assets are priced every business day. Businesses are getting re-rated. And the real fact is that business

fundamentals just don't change that often. And when they do, it takes quarters, years, decades, not, you know, a few days. So I think that that's important to kind of double click on. Yeah, I think you got it. Over the short term, the, you know, a stock will move up and down in very random sort of ways, right? But over the long term, it comes down to the business fundamentals. So I think it really pays, you really owe it to yourself to not stress too much about those kind of things. And that's what I try to do. I try to just keep things simple. You know, if, if it's not that big of a deal, 5, 10, 15 years from now, I don't think there's really a point in stressing about it right now. And what is hot and what people like and what is favored in the stock market has such a short view. It has so much recency bias. Let me give you an example. So

what's hot these days? It's commodities, it's oil. Let's look at a very well-run company, a wonderfully well-run company, a wonderfully well-run company, something that we would never put our own capital into because it's commoditized, but a very well-run Canadian company, Suncor. Suncor is up 173% since November of 2020. That is incredible. Today's price is the same as October of 2008. That is more than a lost decade. We're talking about almost 15 years of no returns. If you bought it in 2007, you're down on your investment. And you've held it for all this time.

Sure, you've collected a dividend. You've collected a yield. But the S&P paid a 2% yield that whole time too, right? Like it's not like you weren't getting paid somewhere else in terms of cash back to shareholders. And so these are the kinds of things where I go, okay, that's worked. That's worked. What for a year, it's worked for a quarter, zoom out what's been working. And what's been working is good businesses. Yeah. And I kind of understand these retail investors.

When I started investing, I was investing a lot into things like cannabis and that was total destruction. I should have never done that, but you learn a lot of lessons coming out of that. But a lot of it was also oil and things like trading for the short term, right? In the end, I'm grateful for trying all those things out because I think it showed me a lot, right? But what it really led me to is the realization that quality businesses are the ones that will never go out of favor. So while I was investing in things like oil and cannabis,

and getting absolutely destroyed by the market and realizing, you know, thinking what's going on, Apple, Amazon, and even like Canadian banks, for example, which I would consider quality too, but you know are more commoditized in some of these tech businesses they would just continue to rip right so i'm i'm looking at my portfolio thinking what's wrong what am i doing wrong i thought that you know the free cash flow yield on these oil stocks is like 13 how come i'm not making any money yeah um and and that's really what it comes down to you're investing in a commodity business oil prices go down that's it every single project the returns are hit so there's not much you can do there's a lot of things that are out of your control

um macro is is the one thing that you absolutely cannot predict reliably well and you can't control it at all so i would prefer to keep that out of my portfolio as much as possible and just stick to the quality businesses. Yeah, that's really well said. If I make one macro call that's right on this podcast, just know it was complete luck. That's all you need to know. 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

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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. So you're a young guy and we should talk about, we haven't even really backtracked how we met. You were writing some really thoughtful pieces. I think the one I

read from you, what was it? The Lululemon report you wrote. I thought it was quite thoughtful. You had another report on Unity that the gaming engine we talked about. I was like, gaming engine we talked about i was like oh this kid's good and you're you're a you're a cpa so you are an accountant by trade um and so even though you know we're young guys you you are a way better analyst than me in terms of reading statements you have that actual accounting background and so i'm always bouncing ideas off you i'm like like, how does this make sense? And you always know the answers. When I first reached out to you, I was like, this guy could be anywhere in the world when I hit you up because you were writing these pieces anonymously. You could have been literally anywhere in the world. And it turns out you were in Mississauga, Ontario, like 10 minutes away. And we went and

chatted and went for a beer or something like that. I just find that coincidence hilarious. But your skills as a accountant has been helpful for me as well. And how do you think about your knowledge in accounting and for people who may have no background in accounting, how do you think it helps you as an analyst and as someone assessing businesses to invest in? The CPA in Canada has actually changed a lot over the last 10 years or so. Prior to 2014, there were three different bodies, but today there's one unified body. And with that restructuring, there were a lot of changes to the the

material that's to be studied for for tests and and you know while going through school so the CPA today is a lot more than just your typical accounting things like tax and audit and financial reporting or financial standards you know when people think of accountants, they think of those three, those three areas, but there's a lot more to it than just that. And what, what the Institute really tests you on today are those three things, as well as strategy, finance and cost accounting and cost accounting is it's really those drivers that i'm talking about so like how how does the company make profit what are the value drivers of that

and and you evaluate those kind of things to to make decisions so i think those those latter three pillars um of the cpa today in canada i don't know about the u US, but that's how it looks like in Canada. I think it really makes you have to consider everything about a case or a business when making a call of any sort. You can't really rate a business based on just one of those pillars. It's not just the strategy. It's not just the financials. It's not just, you know, governance, you got to look at everything. And considering a lot of information within a couple of hours and making an informed decision on a couple of things. I think that's what really helped me become an analyst. And that's what really, I think, got me to exploring the investing world in the first place. Because there's so much information

that fascinating to, to read about and to understand what are some of the ways that we see today get really convoluted with accounting one of the things that i think of right away is i get so many emails. I get Twitter DMs. This is just an example. They'll be like, look at this real estate investment trust. It trades at six times earnings. And I respond with, do not use that metric. A real estate investment trust needs to look at funds from operation or adjusted funds from operation. That is the actual cash flow from the business. Like you can't use net income to value a real estate business. It just doesn't make sense from an accounting perspective.

Um, I think, you know, first and foremost, I think that shows a lack of understanding of the industry. So, you know, again, I was there before I also looked at REITs back in the day, on an earnings multiple. And I remember a couple of years ago looking at, you know, American Tower, and it was trading at an earnings multiple of like 100. But American Tower is a REIT, you shouldn't be looking at it on an earnings basis, right? It should be on funds from operations, like you said. So, um, I think that really shows that there's just a general misunderstanding of what the industry looks like, what the accounting looks like. Um, and, and, you know, if markets in general, okay. And, and i'm kind of going off on a tangent here but markets in general know what they're doing okay so if you're looking at a business that is very commonly held by people

and and you see a trading at some weird multiple and you're looking at it and it just doesn't make sense to you you're probably not looking at the right metric right and there's plenty of examples like this like one is reits like you look at the the earnings multiples and they're all over the place um constellation software it trades at a earnings multiple of like a hundred but what you should be looking at is the free cash flow and it trades much more reasonably over there it's like around 30 um you know so i i think it just shows a general misunderstanding of of the industry um and you got to compare to other companies within the industry so i think that'll show a lot um you can't look at any company on a standalone basis and determine whether you know you can't say that one company is cheap without considering

anything else, right? Valuation is an art. It is hardly a science. And we try to make it a science. And it works to an extent, but it is mostly an art. So you got to consider the growth of the company, the growth of the industry, and also the valuation of other companies within that industry. And how do they look compared to the company that you're looking at? So yeah, those are those are my thoughts there. I like that you're bringing to that point, because it is an art. Let's, let's talk about some ideas we like, you know, we do this now full, like for a living. So let's talk about some ideas.

What are you looking at lately? Some businesses I I'm looking at this list you've prepared here and like you and I both can just talk about how much we like these businesses a lot. So, uh, let's just start, let's just start with the first one. Sure. Yeah. Thermo Fisher would be the first one. They provide laboratory solutions for the science community, essentially. They provide diagnostics tools, analytical tools, just everything that the science community needs to to push forward innovate innovation in in that world um thermo fisher it's a fantastic company i own it indirectly i own a medical devices etf i am considering leaving that etf just because there are some high quality companies in there

that are that used to be in there but are no longer there yeah i saw i saw you were talking about that like donna donna her's not in there anymore what's that about that's right i i have no idea i tried to look for a reason but i can't find it i think the only way would be to contact the etf the actual provider yeah yeah yeah so it's it's quite unfortunate danaher is a great business um and and i think that was the third holding the third biggest holding in that ETF so it's quite unfortunate but the biggest holding in that ETF is Thermo Fisher just an absolute massive company they have about 400,000 customers these customers they're not individuals these

are organizations governments educational bodies biotech companies and things of that nature. So 400,000, that's a pretty big number, right? They provide everything that the science community needs to push forward innovation, like I mentioned before. And they have this massive network of companies that literally just hand them like what they need. So that takes out a lot of the work that, you know, they would have to come up with on their own, like test and trial products and then see if it hits the market. Like they're literally spoon fed. products and then see if it hits the market like they're literally spoon-fed um i think of them like an api provider type infrastructure business but for biotech it's like it's it's where i want to be in that industry and this is like a 230 billion in market cap company. So I was just down in Florida and I played golf with some couple from Minnesota. And the woman, this is anecdotal, I know, but the woman, she's a hell of a golfer, by the way. Wow. She was really good. And she was like, oh, what do you do? And we're talking. And then I was like, what do you do? And she's like,

oh, I work at a biotech company. I work in a lab. And I was like, oh, you work at Thermo? Me just trying to sound smart? I don't know biotech companies. And she's like, no, no, but we give, quote unquote, a shit ton of money to Thermo. And I slacked you that immediately. And I was just like, see, this is the business. This is the bottleneck business. This is one of the best bottleneck businesses in the world, which is like a toll road on science. And it's one that you and I like very much so. Yeah, just a great

company all around. And I think, you know, your anecdotal statement, I think that's what I saw on Twitter from a couple of doctors as well. So know these companies they just can't get around timo you gotta use timo if you want to get stuff done in the science community so uh just a great company all around yeah no absolutely how about uh let's let's just go through this list um what's next up on actually this next one here on the list i've been talking a bit about a bit on this podcast so people listening may have a primer on it but another one that we like quite a lot yep accenture they do consulting projects for businesses all around the world again another one of those durable companies that just seem to grow no matter what and because companies are always looking to

innovate in some sort of way there's that optionality within them that you know no matter what's happening there's always something new that they should be learning about and incorporating into their consulting projects you know and there's there's really big trends today like digitalization, companies moving to the cloud. And the company that has the most knowledge in this world is Accenture. So I think it's a really good company just because I worked in the corporate world and I still do today actually. But I feel like a lot of companies can't really get these projects done on their own there's always some sort of consulting piece that's required just because you don't have

a dedicated team that'll just you know redo your entire cloud or you know come up with some some sort of project and you know push their day stuff to the side and they just work on these projects they usually need a consultant to even come in and approve these sort of things make sure these are the best practices and ACN has all that knowledge they have the knowledge before any company even starts kind of overhauling their their operations or their processes so I think it's a great company I think it's going to continue to grow. Revenues are up like 20% on a year over year basis this year. I think it's going to continue to grow double digits might come down a little bit just because of that pull forward in COVID. A lot of digitalization projects that were kind of pushed to the side during COVID,

but it's just a big winner we like consulting i like consulting quite a bit as a business model it's just like so profitable this company just prints cash if we look at the first two names there i think the competitive advantages come out to human resources like the the talent pool that Thermo and Accenture have, have given them extreme competitive advantages and a huge head start in their respective industries. And they're both 200 plus billion in market cap businesses, very profitable. They're not cheap stocks. They're not value stocks because they shouldn't be. Businesses that are this good just don't trade at 11 times earnings. It's just not how it works. And if they do, either something is super wrong with the business or uh we are in great depression type multiple

compression um let's rifle through some canadian cos uh i think the the one first out of the gate here i banged the drum on all day long on this podcast and i could probably talk about for four hours but um what are you thinking about? Spoiler alert, it's Constellation Software. What are you thinking about lately with this business? Everything they say they're going to do in those president's letters comes out within a few quarters. What an incredible management team, incredible business, I mean, 100 bagger type business. What are you liking about Constellation these days?

Yeah, you know, if we backtrack to some of the things that we said earlier in this show, I'm just a great management team, very durable business and a long runway. And they just execute on everything. But like you said right there were concerns about CSU not being able to purchase bigger companies where are they gonna find these larger businesses that private equity is not you know salivating over and they just pulled off an acquisition of all scripts uh hospitals and large physician practices right for 800 mil i think 670 to 700 there's a bit of a cash position yeah there's a variable component to

that so it's about 700 million let's just go with that but yeah so that concern it kind of seems you know it's still very early in the process that was only one acquisition but the fact that they were able to pull that off and get that kind of acquisition it seems like it seems like they might be pivoting into a whole new world and and I think that's what happens with with companies like CSU it has a long. It's a serial acquirer. So what needs to happen, there has to be some sort of a fragmented industry. And that's exactly what the vertical market software industry is. There's like 30,000 to 40,000 potential targets that CSU can go after.

And they have this incredible management team that is very, very disciplined on their entry multiple. Mark still doesn't take a salary. His total compensation is zero. Can you believe that? It's all skin in the game. Obviously, he's a billionaire multiple times over um with his equity in the business but you know they publish the executive comp and the operating group guys

make a million bucks a year it's been going up i think they track it like every report it goes like back four years so or five years so it's like 2017, 2018, 2019, 2020, 2021. Mark Leonard, total compensation, zeros across the board. Salary bonus, nothing. He literally writes in the president's letter, he's like, I want to be your partner if you invest in this company. he now pays for all of his travel, all business expenses he pays for on his own dime. He used to fly at the back of the plane because he had his incentives aligned correctly with shareholders. I think in the recent presence letter, he's like, okay, I'm done flying at the back of the plane, but don't worry, I'm paying for it. And it's just like, this guy's just different, man. Like he's just caught from a different cloth. I mean, I just have so many good things to say about this company. Let's move on to another ridiculously good

Canadian capital allocator. You know, maybe Bruce Flatt and Mark Leonard can go on the Hall of Fame in Canada for capital allocators. And Bruce Flatt is at Brookfield. You and I like this name a lot. And can we just talk about two things with Brookfield, the potential spinoff and the fact that they stole the property business off the public market for a bag of pucks and maybe a couple signed baseballs. It is ridiculous that they pulled this off. Yeah, for sure.

Yeah, for sure. You know, on the asset manager side, in terms of the spin off that they might be doing of the asset manager business, I think this might be able to unlock a ton of value. One of the problems with Brookfield, or one of the problems that investors have with Brookfield is, it's difficult to value. You've you've got all this all these like financial obscurities in the financial statements and it's just tough to kind of pick these things apart and and truly value the business so this asset manager asset manager spinoff might might unlock a ton of value and you know the the investors that want to invest only in the asset manager will have that opportunity um and those that want to hold the holding company like myself i'm gonna i i i would prefer to continue uh holding the consolidated company um but we'll benefit from that spin off regardless right yeah that's right there's going to be a stake in that

asset manager so you know if that if the asset manager does well, the entire holding company will as well. Yeah. And it'll help those shareholders as well, because of, you know, you kind of remove a lot of those obscurities. They are willing to go against the grain and act very rational as value investors of real assets. And time and time again, they don't get married to assets and they think about things very logically. If they think it's a good time to sell something, they will. If they think it's a good time to buy aggressively and unloved core infrastructure assets that humans absolutely need, then they will go aggressively into it. And they brought BBY private when the market thought no one was going back to the office. No one's going to step foot in a shopping mall ever again.

They go, okay, no problem. We'll take the whole thing. We'll buy the whole thing off the public markets. Adrian, this has been awesome. Let's wrap this up. For Stratosphere, I mean, we just rifled off just a few ideas. I know you have more on here. Maybe we'll have to do a two-parter. We'll get you back and other people are going to love this. Where can they find more of what you're writing on our site and this like really high quality and always updated investment thesis, always updated metrics, always on top of, of these really, really great high quality businesses. Where can we find more about them? Yeah, it's, it's all on stratosphereinvesting.com. If you go into the stock ideas ideas you know the the section over there and then there's a bunch of listings both uh on the u.s side and canadian companies

and you click on any one of those uh you'll see in the research tab um that's where we put our our thoughts and that's where we put the kpis that we're looking at. And you know what Braden and I are really trying to do is to equip investors with the information that we think is extremely valuable that you might not get elsewhere. KPIs and you know the value drivers they're difficult to find without sifting through, you know, hundreds of pages of, of annual reports. And, you know, you got to pull like 10 of them to, to get some of this information, but we put it all up there on stratosphereinvesting.com for, for our users to enjoy. Yeah. Check it out. It's a, it's free to join and then you'll get it. You'll get a trial on all the, the, the premium research, all the analytics are free. join, and then you'll get a trial on all the premium research.

All the analytics are free. And if you do want to be investing long-term and look at these high-quality businesses, you can get a membership. And I rarely throw out discounts on the show, but this is the first time since we're doing an episode about Stratosphere and what we're building so do that and take 25 off membership with tci 25 i do not have that coupon i'm gonna have to make it after this show tci 25 go on there you're not gonna find it in the email drip you're not gonna find it on the site uh you're going to find it from listening to this podcast that is code tci25 and get 25 off and the nice thing is too uh we charge in us and canadian dollars but we actually charge the

same dollar amount in for canadian dollars as well just because you know i want to as it was a lot of people who listen to this podcast have really given us our start. So we want to, we want to give back to that. So it's the same dollar amount. Go ahead and check that out. Thank you so much for listening, Adrian. This has been awesome. Maybe we'll have to do this again at some point. I am so glad I found you on the interwebs and we've become, we've become friends and become friends. And it's been really great. Thanks for coming on the show, buddy. Appreciate it.

It's been an honor really to be here. You know, I started off as an anonymous account and got the chance to be on a pretty big podcast. So it's been an absolute pleasure. Biggest in the world, I hear. Biggest in the world, yeah. Biggest in the world across all categories. Someone told me that the other day. Thank you so much for listening. We appreciate you so much. 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.