The Canadian Investor - Tesla Slumps, Shipping Woes, and Leon's Real Estate Leap

Episode Date: February 1, 2024

In this episode, we dive into the Bank of Canada's decision to maintain its policy rate at 5%, Tesla's challenging earnings report, the impact of shipping issues on the global economy, Leon's Furniture's surprising move into real estate development, the performance of Canadian National Railway, and the unfolding accounting issues at Archer Daniels Midland. Additionally, we provide a comprehensive review of ASML's Q4 and full-year earnings, shedding light on their pivotal role in the semiconductor industry. Tickers of stock discussed: TSLA, LNF.TO, CNR.TO, ADM, ASML Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent. We're recording our news and earnings episode, like always, that will be released on Thursday. Dan, how are you? Are you considering yourself the good luck charm for the Oilers right now?

Yeah, absolutely. I was hoping last week that we'd be talking about 16 in a row, and we are. Hopefully, it kind of sucks they get the little all-star break now. Who knows if that'll help them or hurt them, but they're going for the record next game. And I actually had a buddy who is so confident that he is flying down to California to go to the Anaheim game where they would have the chance to break the record. Okay, okay. And I told him, I'm like, man, they got to beat Vegas first. I think that's bad luck, I think.

But hopefully they can pull it off. Yeah, that's funny. And I don't know about you and getting back to more of the investing world. It was a struggle for me in terms of choosing what topic there was a lot of like macro stuff we can talk about there's also earnings are really starting to be packed you know back in in action obviously on the u.s side the canada side starting to pick up as well did you have that same challenge because one topic we aren't going to touch on is what's happening in China. I know there's a lot of stuff happening. So probably in the next couple of weeks, we'll try to talk about that. But was that the same thing for you?

Yeah, pretty much. I mean, especially on the Canadian side, earnings wise is pretty slow still. But this week is definitely going to start rolling in. I think tonight we have what Google, Amazon, Microsoft, maybe tonight or maybe tomorrow. I can't remember. Most of them report after hours. Yeah, there's a few reporting of the big tech for sure. I don't know which ones, but yeah, it'll be something to keep an eye on. Well, let's get started. We do have a full slate today. So we'll start off with some Canadian content. I think something that everyone is keeping an eye on, at least if you're a homeowner and either you have a variable rate or you're going to be renewing your mortgage in the next couple of years. So the Bank of Canada decision last week came up. And of course,

to no one's surprise, the Bank of Canada kept its policy rate at 5%. So what's your initial thoughts on that? I'm going to do a little bit of a breakdown here, but I'm assuming you weren't surprised either. No, I think there was, I guess, a small chance that there would be a cut, but I think they were factoring it in as pretty close to zero that they would cut. They would just keep it steady. I mean, it's definitely helping. And now they're kind of shifting their mentality towards you know every single policy meeting they would say you know like we'll raise again if needed we'll raise again if needed and now it's kind of shifted to thinking about when to cut which probably means that you know unless something happens with inflation now where we see a big spike up this is probably the top and i've noticed mortgage rates have been coming down a bit,

I think. So fixed rate mortgages, at least, and maybe even variables. I'm not exactly sure, but I'm up for renewal in a few years. And I'm hoping that they're a bit lower when I get there, but not surprising at all. Yeah, exactly. So what they were saying, the Bank of Canada, when they held the press conference, it was Carolyn Rogers and Tiff Tiff Macklin. They held a joint press conference, which I do applaud them for, including Carolyn Rogers, because she's more charismatic and way better at explaining things than Tiff Macklin. I don't know why they don't use her more often because she's way better at communicating. So the discussion, like you alluded to, they were saying that it shifted from whether the policy rate is restrictive enough. So if rates shifted from are rates high enough to how long they need to stay at their current level. Now, one of the things they said

is Canadian economic growth stall in the middle of 2023. Pretty obvious if you've been paying attention to this. Economic growth is expected to be modest in 2024, week in the first half and then picking up later in the year. They expect 2.5% growth in 2025. And that's similar to what Ben Tao was saying in his interview with The Globe that I summed up last week. So I do encourage people to go back to that episode if you're interested in hearing that. So it does line up with that. And they're saying with weak demand, upwards pressure on prices should continue to moderate. And their key mandate here is inflation. But of course, I've had people push back on that. But yes, their key mandate may be inflation. But, you know, they there's always in the back of their mind to like they they don't want to break the economy as well. Right. So it's always kind of that balancing act between inflation and making sure that it comes down and it doesn't impact too much the economy. That's always the fine balance they're trying to do. Shelter inflation

remains high because of higher mortgage payments, higher rents and higher mortgage costs. And the path back to 2% inflation will be slow and the risks remain. Inflation is expected to stay around 3% over the first half of this year and trend to 2.5% by the end of next year. They were very kind of, as they were saying this, it was Tiff Macklem saying this, obviously he was saying that there's still some risk here and they expect to get back to the target inflation rate by the end of 2025.

We'll see if that happens. Now, I don't know if you listened to the press conference. It was funny, but they got asked five times about rate cuts by reporters and they make it clear. It's always one question per reporter. I don't know if you listened to it. I mean, I just was flabbergasted. Okay. It was just, I mean, after two, clearly they're not answering that question. So maybe move on, have some other questions prepared. So I was a little confused at some of the reporters and the lack of preparation for some of them. Not to say there

were some good questions that were asked, but the fact that people were just asking this time and time again, I find that a bit of a head scratcher. And maybe News Outlets should rethink who they send to these press conferences that actually have a bit more deep knowledge on how the Bank of Canada works. And one thing that's really interesting that no one asked a question about is why the Bank of Canada injected $10 billion in the span of a few days in the repo market. So the repo market is essentially short for repurchase agreement. And it's a tool that's often used between banks but can also use by central banks and a simplified version example of how it works

is let's say you have royal bank they need 200 million in cash for their ongoing operation they have tons of asset but they need a bit more liquidity so royal bank has tons of government of canada bonds so it goes to td and says hey TD, can you lend me some cash as collateral? I'll be providing you 200 million worth of Canadian government bonds and you can charge me the overnight rate, which is 5%. So repo means that Royal Bank will be able to repurchase the bonds back from TD at a later date at a slightly higher price, you know, the price that it's worth plus the interest. It's typically done overnight, but can also be done in a slightly longer duration. And if you're a bit confused still, I know it can get a bit more in the plumbing here. An easy way to look at it is just think about a pawn shop. You give them, say, a ring

to pawn and in exchange, they give you cash with the option of buying it back at a pawn shop. You give them, say, a ring to pawn, and in exchange, they give you cash with the option of buying it back at a later date. So it's almost, you know, I think that's the simplest explanation I've heard when someone was asking the question. It's a perfect example, I think, yeah. If you need cash for, you don't have liquidity, you need to give an item for cash and they charge you more to buy it back. Yeah, perfect example. Exactly. And just to finish on this, because I don't want to get too deep into this, but just the fact that this question wasn't asked. And again, it's a bit worrying that it wasn't asked on the first hand, but also like what exactly is happening with this.

So when central banks intervene in the repo market, it's usually because there is a shortage of liquidity. So they'll basically act as the lender. So signs of liquidity shortage is when the overnight rate starts going above the target, which currently sits at 5%. Could just be a few basis point like, you know, 3, 4, 5, 6, 7 basis point doesn't have to be a huge increase, but it typically is a sign that the market is getting tighter, liquidity is getting tighter. So, you know, the lenders are able to charge a bit more interest. And that's not something that the central banks or the Bank of Canada in this instant will want to see. And I know there's a lot of new terms if you're kind of new to the podcast. So liquidity is just a fancy word to say it's typically cash

or assets that can be quickly sold for cash. So that's something to keep an eye on. I know there are some news outlets that started kind of looking at this a couple of days ago. So we'll have to see whether in the next announcement they'll be asking those questions. But I just thought it was interesting that they are so zoned in on interest rates. And I do wonder sometimes if the reporters are really well-versed or at least more than just a basic understanding there. Some are, to be fair. Some are, yeah. Clearly, a few of them only ever had one question. And once I got asked the first time, they were kind of screwed. They had nothing else to ask. But yeah, I mean, in terms of inflation, especially with the higher mortgage payments, higher rents, and I think they view this as probably an easy thing to get down.

So they're probably going to wait until they see improvements elsewhere. And then they know when they cut rates that mortgage payments, higher rents, higher mortgage costs should come down, which, you know, maybe gets them to their target a little bit easier. But the one thing is, it's so hard to predict. Like, I don't know if you remember last year, they said that they would get to target, I think it was at the middle of 2024, late 2024, then it gets pushed to 2025. Now it's, what is it, the end of 25? Or I don't know. It's so hard to predict this type of stuff. And I mean, even in the pandemic, they said it was transitory, which I guess it always

is in a way, but they never expected it to go as high as it was. So I mean, even these policymakers don't really know what's going to happen. That's kind of why it's so hard to devise an investing strategy based on stuff like this. But I find a lot of people get really obsessed with this type of stuff. Yeah. And to be fair, we don't know either, right? There's so many variables that could go into getting inflation back down to the target range of 1% to 3%. So keep in mind, one of the more obvious one is in my mind, that's, you know, not talked about all that much. It's really the price of oil. Like price of oil has been quite low for now a pretty significant period of time. And of course, when CPI data, inflation data comes out, it's always

like, oh, you know, it was brought down by the price of oil. That's still much lower than it was a year ago. But I don't know if they're factoring any major kind of oil shocks in that target, because if it does happen, I have a feeling that the 1% to 3% target may be pushed back even more down the line. That's just my inkling, especially with the kind of what's happening in the Middle East and how many large producers are there and how much it could potentially affect supply. That's where I do, I have a, you know, I find it a bit of a head scratcher. Yeah, it's a big element in all of it. Like you said, we've had, I don't even know what oil is right now. It's like low 70s. But if it, you know,

if it spikes again, you never know where these numbers could sit, which is completely unpredictable. So like we said, it's so hard to predict it. I mean, hopefully we can get back to that level because a lot of people are definitely struggling still with food, mortgage costs, all that kind of stuff. The quicker, the better in reality. Yeah. Yeah, definitely. 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.

Now we'll enough about macro, the bank of Canada, we'll move on to the first earnings we'll talk about. And it's about Elon and this company. Do you want to tell us about Tesla earnings? Yeah. So Tesla was pretty lackluster again. The stock taken an absolute beating over the last month. It's down 28%. It might've, I think it recovered a bit after this, but it's down 28% while the S&P over that timeframe is up two and a half. So the stock is now down 31% over the last three years and is underperforming the S&P 500 by a whopping 62%. If we go to November 2021 highs, it's down nearly 54%. So when you compare the fourth quarter of this year to last, total automotive revenues came in pretty much flat. I think they grew one

or 2% and vehicle deliveries only grew about 2%. So it's energy and services segment did post some pretty nice growth, 10% and 27% respectively. But these make up a really small portion of the business, only around 14% combined. So for this reason, Tesla, it's just taken a pretty big thrashing. Gross margins dipped 612 basis points, which would be 6.12%. And operating margins have fallen nearly 8%. Again, this is on a quarter over quarter. So comparing this quarter to last year's on a year over year basis, the company has saw some pretty reasonable growth auto revenues, 15% while energy generation and services grew 54% and 37%. Again, they make up a relatively minor chunk of the business.

And it's pretty clear right now that even, you know, a lot of people say Tesla is a lot more than an automobile company. But for right now, it's very much an automobile company because the reason this company is struggling so hard is because of its auto segment, which is, I think, 82% or 83% of total revenues on the year over year. Free cash flows dipped 42% on the year, despite Capex capital expenditures only increasing 24%. It's pretty clear the company's being hit pretty hard on multiple levels. For one, just a general slowdown. I mean mean teslas were crazy popular in the pandemic when there was a lot of money around these vehicles are very expensive the kind of the ev narrative was a lot bigger then now it's really slowed down the adoption of ev vehicles you know people can't afford them right now and as a result they're pretty much having to cut prices i'm not

even sure how many times they've cut prices. It has to be two or three times now. They've had to cut prices down to try to make the vehicles more attractive. And I mean, I think even Musk came out now. And while this was probably a year ago, but he said, you know, like when interest rates were at 0%, there was almost no financing costs when purchasing a Tesla. Now you factor that in, people are going to get that same payment. They're going to be paying like 30% less for

the vehicle or something like that. So it's a pretty big factor. And this is highlighted by the fact that year over year margins are down more than 7.5%. And to put this into a little bit more context, it had gross margins of 25.6% in 2022. So in terms of its total gross margins, like as a percentage of what it had in 2022, they're down about 30%. On a full year comparison, the numbers don't look too bad, but quarterly results, especially over the last quarters, kind of show some pretty big issues in terms of the company, especially relative to its valuation. It's pretty hard to justify multiples the company is trading at, especially when you look at the other auto producers, which are nowhere even close. And that's exactly why it's underperformed for quite some time now. And they even said that its vehicle growth rate may be notably lower than

the growth rate achieved in 2023. So it grew vehicle sales by 15% in 2023. They expect it to be notably lower. Like to me, that means maybe 5%. I don't know, quite a big cut. I mean, in my eyes, they state that the energy and storage business should outpace the automotive business in 2024 in terms of revenue growth. But again, that segment makes up and actually I said 14% before apparently it's 7.3% of revenue. So or that's that's actually just their energy storage. They also have the services business. But regardless, they're really small portions. And I mean, just straight up in my opinion i don't know how the company is really all that attractive right now it's it's trading at 150 times it's trailing free cash flows which with no you know major signs of growing that cash flow

like at least in the next few years just because of the struggles they expect from the from the auto market and i think that's why it's taken you know it's down down huge especially like out of all the you know big tech big tech magnificent seven it's it's the worst by by quite a wide margin yeah and i mean you're right for the so for people to give a bit more context here So the total automotive revenue for looking at just the past quarter, so that's about 21.5 billion roughly. And then you're looking at the rest of the revenue being about 3.5 billion. So it's still predominantly automotive driven and totally agree with you there. And I think it's going to be challenging for a lot of companies, especially with higher rates. And that's something I'll be talking with Braden on the Monday episode is I pulled out some stats.

I think it was from, I can't remember the source, but basically at least in Canada, three quarters of people buy cars either on financing or they lease them so that higher interest rate they have to pay makes a big big difference when you think that most people still buy cars on credit when they buy them whether it's new or used use it similar figures although obviously you're not leasing it when they're used but it's still more than half of people do it for on credit for used cars as well. Yeah, and it's a huge cost to pay right now. I don't even know what – I haven't financed a vehicle for quite a while.

I don't know what the interest rate would be on a new vehicle. I know you can still get pretty low, but I would imagine like 5% plus, which, I mean, is pretty big. And especially when you get into the used vehicle market, it's probably even bigger. So, I mean, the one thing, the one thing about Tesla is Elon Musk is, is like openly blunt about this type of stuff too. Like he does not shy away from saying that they are going to struggle in the next while. And he he's pretty much stated that, I mean, their margins, that's a huge dip in margins. And I think it's mostly due to just trying to cut the prices. And I don't know what even what a Tesla was worth, you know, back in the pandemic.

It had to be $100,000 for one of these things. They're crazy expensive. And now, like, people just, they just can't afford them. So, yeah. Yeah, I think you're right. Depending, I think, on the model, I think the cheapest model was probably cheaper than that. Maybe in the, like, I don't know. I've never been that interested to buy a car from them.

Just not that they're not an ICE car. It's just I don't think the infrastructure is really there to make it a seamless experience right now. And we've talked about that before. But yeah, I think it's going to be definitely a challenging year, especially with EVs. They're really expensive at some point, too. You have all these government incentives. At some point, I mean, you're going to have to dial down those incentives. So it's going to be interesting how it goes for them going forward.

Yeah. And I was just looking up the, I was trying to look up the estimates for, they still like, they're still pretty bullish on Tesla. In terms of earnings growth, they still think they'll grow earnings by 30, percent over the next you know year or so but I don't know it's tough it's tough right now to see any you know like short-term upside in the company but who knows we'll see where it goes it wasn't it wasn't a very good quarter that's for sure I mean they're down yeah like I said nearly nearly 30 on the month so that was fairly obvious yeah and but to be fair to for tesla and for those who might own the stock it's always been a very volatile stock yeah so this is not out of the ordinary whether

it goes way up or way down so it's just something that's par for the course so if you do like the company still you know take that in mind if you take a position. And I think we've discussed this before, Brayden and I, you as well. Position sizing matters a lot. So if you want a position in something, but you know, you're afraid of the volatility, but you still want to get some exposure, maybe size it accordingly. Maybe just do a position that's like one or two percent so it doesn't wreck your portfolio if it goes sideways and you can handle the volatility. That's always, and I don't think it's talked enough, position sizing is such an important tool to

kind of manage the risk within your portfolio. Yep, absolutely. I agree on that. I don't like, I'm not, I'm not like totally beating up on Tesla, but just like when we look at this quarter, it doesn't look, you know, short to midterm. It might have some issues in terms of sales and stuff like that. And they've they've pretty much stated as much. But I think it's still, you know, a pretty good company when you think of, you know, a long term investment in, you know, the adoption to EV, all that kind of stuff. Yeah, yeah, definitely. So now we'll move on again, all that kind of stuff. Yeah, yeah, definitely. So now we'll move on again, a little bit of macro. And I think this one is really something to keep an eye on,

especially as we were talking about inflation earlier. So the impact of shipping issues on the economy. So I did some research for this. I think it's really interesting. So the Drury World Container Index, WCI, it actually tracks eight major trade routes and the costs associated with those trade routes. And I was curious to see what the cost is. And for those who are on Join TCI, you'll be able to see that the costs have simply been on a, essentially it's a hockey stick trajectory to say the least so whether you're looking at the worldwide costs amalgamated as a whole or looking at different trade routes the costs have gone way up for sure there are certain trade routes that it's gone up a bit less and i'll explain why because it is impacted by what's going on in the red sea but definitely

something to keep an eye on in terms of inflation because there could be some inflationary pressures because of this. Now since Houthis in Yemen started targeting cargo ships through the Red Sea shipping costs have almost doubled according to the index with the sharpest increases seen for goods heading from Asia to Europe because they have to go through the Red Sea. And the only other alternative is much more costly. The impact is not as high in North America. But there is still a pretty significant impact.

As the cost for shipping goods is overall higher. Now attacks on container ships have continued. As news of British tanker. The British tanker was actually hit by Houthi missiles last week. And more and more shipping companies are choosing not to go through the Red Sea, which will definitely put some more pressure on costs. And that's because the Red Sea and the Suez Canal is a much more efficient way to ship goods from Asia to Europe. The alternative route is through the Cape

of Good Hope, which essentially for those who want to visualize a little bit, it just means that the ship have to go all the way around Africa instead of bypassing through the Middle East. So it does increase the cost and going through the Red Sea takes approximately 25 days where going around the Cape of Good Hope takes 34 days. So that's a difference of nine days or 36% longer. So clearly there is additional costs that'll be much higher than that. You have to pay your crews longer. There is more fuel required. There's all these different additional costs. And to make things worse now, a severe drought has been happening around the Panama Canal and is forcing them to reduce traffic that goes through the canal. And if this goes on for a while, it's going to increase shipping costs for goods that are coming from Asia to the east coast of North America. That's because those ships typically will go through the Panama Canal.

Having trouble with that word today, but I'll blame that on lack of sleep and being French. But the good news in all of this is, I think, I don't know what you think, Dan, but I think it might be good for railways, at least in Canada, because the lodging behind this is these ships may opt to go more on the West coast of North America instead of going through the Panama Canal and have those ships, those goods shipped by rail. So overall though, I think this

is not great. It's something to keep an eye on. It may, I suspect there's going to be a lag effect here. So we may not see the inflation related to that just now, but over time, I think we will be seeing more and more inflation due to these higher costs. Yeah, I didn't even consider the railway thing. That is pretty interesting. I know I was reading up on the Panama Canal, and I believe they said they're going to cut shipments by like 36% because of the drought. They said at first they had estimated that it'll cost them $200 million, but now they're up to like $700 million. So, I mean, ultimately, it's not really good overall for inflation. I think, wasn't it the Suez or the Panama Canal where that boat got stuck?

That was the Suez. Yeah. Oh, yeah, yeah. Yeah, yeah. I think, yeah, I think that might have been last year. I don't know. Everything just blends in. And they had that, they had the track hoe there, like trying to dig out that big boat,

that picture. Oh my God, that was hilarious. Yeah. Yeah. I mean, it's a tricky situation. Like shipping, I mean, having a job in the shipping industry, especially going through here is pretty dangerous right now. I've watched a few of those videos where they like hijack those boats. It's pretty crazy, but ultimately, hopefully they

get that resolved over the short term. Cause obviously you're saying what is, I can't remember what you said, like 30, yeah, 36% longer. I think I would, it was like an extra 3700 miles or something extra to go around africa to make this work so not good lots of turmoil going on right now for sure yeah and the cost associated with 36 longer it's way more than 36 when you think about it right when i was saying it's not just the additional time is the additional money you're paying your cruise it's the additional gas so the companies your crews, it's the additional gas. So the companies have to pay for all that stuff. And if they decide to go through, I can just imagine, this is just an educated or uneducated guess, that insurance costs are going through the roof.

Or either that or insurance companies are starting to not want to insure these boats. So that would be another thing. So something to keep an eye on. And I'm sure that's something the central banks are keeping an eye on as well, because it could definitely be inflationary when it comes to goods. Yep, definitely. 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. Now we'll move on to, I saw this story yesterday and yeah, I mean, maybe I'm sure Dan and Nick on the Canadian Real Estate Investor Podcast will talk about this, but you want to tell us about Leon's Furniture or Leon, as I like to call it. It's definitely called, yeah, it's definitely called Leon's. I just like to say Leon. They're going to be starting to build homes. Yeah. So it's a little bit, I think a lot of people don't even realize that Leon's is publicly traded, but they are publicly traded on the TSX.

So they had a 16.2 hectare parcel of land, and all they kind of said that it was historically been reserved for employment use. So I don't really know what that would mean. It's hard to tell. They didn't really expand on it. But what they plan to do is take that parcel of land and build they want to build over 4 000 homes so the parcel is in toronto um i didn't get the exact location they did say where it was but i actually forgot to write i forgot to write

it down here i was going to mention where it was and maybe you'd be able to tell if it was like a hotbed or what in toronto but they're currently in discussions with the city to get permitting in place. And what they plan to do is build also a flagship store at the heart of the development. So they're going to build 4,000 homes. And I would imagine their strategy here is to build that flagship furniture store to furnish these 4,000 homes. So it seems like a pretty good idea. We're giving you a discount as long as you buy all the furniture and appliances from us. Exactly.

The land was probably never going to be used as a cash generating asset. And the fact that it's going to be able to build over 4,000 homes in pretty much Canada's real estate hotbed should allow it to unlock, I don't know, to me, massive value from this tiny parcel of land. Well, I guess not tiny. 4,000 homes is quite a bit of homes. The company says it owns $236 million of unencumbered real estate on its balance sheet, and it feels like its real estate portfolio is not reflected in its share price at all. And due to this, like due to this news, the share price went up 10%. That's not really that surprising. They took, I don't even know what it was used for before

and are going to expand it into this huge neighborhood. It's, you know, overall, like Leon's in general, like when you think of this company, it doesn't really seem all that interesting, but it has been, and i was actually surprised a 15 baggers since the the mid-1990s so it's outperformed the s&p it's returned 16 almost 1600 since the the mid-90s and this is probably not a company i would ever really look to own, like just a furniture company, just with how cyclical it would be. But there's no doubt that it's done quite well. You have returns even before.

Yeah, with total returns. Yeah, so it would have started here in early 1990, so January 1990. so January 1990 and the total return so including the dividend would have been 3,466 percent or 11.1 percent annually so you would have outperformed the S&P 500 I believe at that rate annually so hey I mean they haven't been doing as well in recent years so if you go back to the last 10 years then you're looking at 7.7 percent annually and 110 percent return which is still not bad probably in line with the tsx i would think about that but probably pretty close yeah yeah i didn't realize it was publicly traded either so yeah it's one of those like there's that and what's another one oh sleep country like a lot of people sleep country yeah that one i knew yeah these like tiny but not really tiny oh yeah zzz yeah yeah but yeah like

these tiny like canadian pretty much canadian only furniture stores you don't really think are that big to be publicly traded but they actually are I just thought it was kind of interesting that they're venturing into home building. Yeah. I mean, the only way I can think of that making sense is if the land is clearly like undervalued by shareholders or investors. And I think that's what they mean. Yeah. And that's what you said. So if not, I mean, it's difficult to see how it would make sense. I mean, building homes is not an easy business. Building costs have gone up. You know, it probably is a bit tricky to even price homes right now.

So if you pre-sell these, I don't know if they're going to be doing single family home, row houses, semi-detached. Mix, okay. But even then, it's a bit difficult to probably value these homes i'm sure they'll get some expertise some good builders to uh to help them out with that but uh i mean it'll be interesting i would not have expected that at all yeah that's kind of what i took from it too when they mentioned how much real estate they have on their balance sheet and how it's not being reflected in its share price. To me, this seems like a move to, you know, maybe bring some of that value out.

And we'll see how it goes. It'll be interesting. I mean, it's Toronto. There's going to be demand for the homes for sure. So, yeah, it feels like there always will be in Toronto. But now we'll stick in Canada for the next one. Some more earnings. Canadian National Railway, Q4 in full year.

So all amounts are in Canadian dollars here. And I'll mostly talk about the full year numbers. So revenues were down 2% to $16.8 billion. That's a decrease of $279 million or 2%. Operating income was down 4% to $6.6 billion. The operating ratio increased 80 basis point to 60.8%. Now, if you're not familiar with operating ratio, it's not great to see an increase because this is the opposite of operating margin. So, lower is better here. Net income increased 10% to $5.6 billion. Earnings per

share increased 15% to $8.53. That's because of discrepancies because they've been buying back shares pretty aggressively, returning capital back to shareholders. They generated 3.8% in free cash flow. That's a 9% decrease. Now, in terms of railway specific metrics, car velocity increased 4%. This is simply how many miles a car moves a day. A car is just like, you know, these like kind of single units, if you'd like. There's all different kind of names, but they use car velocity here. Train length was up 1%. Revenue ton miles was up 2%. And this is a measure of how much revenue they make per volume of freight transported. So again, this is good that it's going up. It increased the dividend. They said they would be increasing the dividend 7%. And they would also have a new buyback authorization of up to 32 million shares until January 2025. So clearly

just returning more capital to shareholders, which they've been doing pretty aggressively since Tracy Robinson has taken over and that debacle of an attempt to purchase Kansas City Southern from the previous CEO. And I mean rouet i believe was the previous ceo and i mean yeah i've talked about it before and just like i do not understand what they were thinking or what they were smoking when they thought this was a good idea and it would actually get approved it ended up costing them about a billion if i remember correctly uh there was like a breakup fee yeah and that they had to pay. And shortly thereafter, he left the company.

So, yeah. So that's kind of the gist of it. The last thing I'll mention is Tracy Robinson on the call said there remain some questions on where the economy is heading, but they expect continued improvement as the year progresses. And again, that's in line with what we were talking about earlier with the Bank of Canada and also Bantam when I was, you know, giving an overview of his interview with the Globe and Mail. And because of improved efficiencies and the economy slowly improving, they expect earning per share to grow by 10 percent in 2024. So overall, I i mean not a great uh year and quarter i would say fine they were i mean

not a big surprise is what i would say i think most people were expecting that earlier in the year they had kind of slower business because of all the forest fires that we saw in canada as well but kind of what was expected i think from, from my view, and then it'll be interesting how it trends in 2024. Yeah, it's not all that surprising, especially like railways are going to be cyclical to a certain extent. They're going to slow down when the economy slows down. The earnings guidance is actually pretty good because I remember at one point they were pretty much saying earnings would be flat or or maybe grow in the mid single digits which would have pretty much been from buybacks probably because 32 million

shares is about five percent of their outstanding so i mean half of that is probably coming just directly from the buybacks but clearly they've see a bit brighter outlook. In terms of buybacks, they do buy back a ton of shares. So they bought back 22.5% of shares outstanding over the last 10 years. So that's quite a bit. Yeah, and it's not obviously a sexy business. And CP is a little bit different. You can make a case that CP may have a bit more growth ahead because of that. Kansas City Southern, but they also took on a lot of debt to make that acquisition.

So I think it's give or take. I personally don't think you can go wrong with any of the two railways. At the end of the day, governments are very, you know, the regulatory kind of situation around railways makes their moat extremely sustainable and very difficult for any competitors to come in, whether it's just regulation and thinking of building a new railway, right? Think about it. If you wanted to build a new railway across Canada, you'd have to essentially get approval from the federal government, but all the various provinces and then add in the cost of what it would actually cost to do that and the sheer investment i'm not saying it's impossible but i'm just gonna say it's probably a below one percent

probability that it would ever happen at least in i feel like in our lifetime yeah it's much the same as the as the telecom companies here in canada i mean the infrastructure and the government regulations makes it almost impossible for like major competition to step in so yeah the only difference is they don't have to constantly upgrade their uh their 5g or 6g network which costs billions and billions of dollars yeah they're it's a little less in that regard although i mean the railways are probably i mean they do probably require a ton of maintenance especially with uh ties and all that kind of stuff. But yeah, I think they were saying their capex is going to be around 3.4 billion for this year,

if I remember correctly, just going on memory. So yeah, you're completely right. It's definitely capital intensive. I think that's close to Telus. Telus, well, yeah, Telus is around that amount. So yeah, these businesses, they're not cheap to operate. The only difference is they generate way more cash flow than the telecoms, which I'm going to take every day. But I think that's enough for the

Canadian railways. You want to talk to us about Archer Daniels Midland accounting issues. I mean, I wasn't really aware of this company all that much so maybe i think that's a bit of a learning opportunity for me as well oh i'm surprised you didn't know but they're a huge uh pretty much food processor like crop type company they went bonkers during the pandemic just because of the prices of commodities but they're one of the largest name but i don't really follow them all that much yeah yeah they're're kind of like a blue chip type food processing company, grower, things like that. So they're one of the largest grain merchandisers in the world. They run a nutrition end of the business where they focus on nutrition elements of human

and animal products. And that's actually where the issues are arising. So they absolutely plummeted last week. So they fell from pretty much right away from $69 a share to 51. So more than 26%. And that's a pretty big move for this company. So pretty much their nutrition segment, there was an accounting probe. So the company immediately came out, they suspended their CFO slash their earnings outlook and pretty much stated that the probe was the reason. So there's obviously issues here. They're also delaying their fourth quarter earnings and annual report because of this,

which typically scares the hell out of investors. I mean, there was so much that happened here. The suspension, the earnings outlook, they delay their earnings, they delay their annual report, and they've spent a lot of time and a lot of money to expand the nutrition end of its business in an effort to you know diversify itself away from you know strictly crop elements things like that and it's this is a pretty interesting thing and i actually learned this yesterday so archer daniels has been in hot water in the past they were accused of fixing prices in the 1990s and it was such a huge issue that they actually made a movie out of it with matt damon it's called the informant that is apparently on the uh archer daniels scandal in the 90s where

they were accused of fixing prices i haven't watched it i might now but yeah it's uh yeah i had no idea about that yeah i feel like i saw this movie a long time ago but oh my god i would not have been able before this to tell you like what it was about am i like yeah that's i feel like it's been a while yeah yeah so they've i mean they've already you know the company's already under some pressure prior to this because of the slowdown in revenues coming out of the pandemic. So for it to take 25% additional is kind of a gut punch. But I mean, any probes or accusations of misrepresented earnings is no doubt going to cause a stock to plummet. I mean, we have to remember the market values companies based on these earnings. So

as soon as they're in question, people tend to bail. The 25% dip is quite extensive, especially considering its nutrition segment, which is the one that's under question makes up only around 10% of the business. But I think there's kind of an element of trust here. And considering the company has been involved in this type of stuff before, investors have an even shorter leash so the debate among many investors right now is whether or not the company is a buy expected earnings are supposed to be just shy of six percent for 2024 so i think right now it's trading at around 54 so we're talking like it looks pretty cheap but with the earnings in, who really knows what the case could be?

I mean, I personally wouldn't touch it until the acquisitions are cleared up. And I was actually burnt on a hydrogen play. I think it was a Quebec company not too long ago during the pandemic for pretty much the exact same reason. I don't know if you know about this company, Zabec they were called. So they were like a renewable gas hydrogen. So they were called so they were like a renewable gas uh hydrogen just so they were posting all this growth like really strong numbers and then it came out that they were pretty much fabricating all of it so they were uh you know misleading people with their financial statements they were booking revenues that they shouldn't have which which resulted in way better numbers than actually existed and And then when they revised, when they eventually got caught and had to revise it downward,

it was pretty nasty and they ended up just going bankrupt. They just straight up went bankrupt. Yeah. It was a pretty crazy story. And they were posting big growth. I mean, and then they had to come out and they said, you know, some of the revenues we've booked are actually not going to be coming in.

And it was like, holy, you've got to be kidding me me and it ended up being a lot worse than even initially expected and the company just it ended up folding so uh i mean i learned my lesson from that and again i think as you mentioned you know with tesla with the position sizing like it was such a speculative company for me it was less than one percent of my portfolio i think even like 0.5 so it was like it sucked obviously but it was it was a non-issue in the grand scheme my portfolio so um i mean on that end like archer daniels is way bigger than that i don't think they're going to go bankrupt it's a very small portion of their business but this is just an example of you know the dangers of know, accounting issues with some of these companies and the fact that like, you know, these, there is always risk with, you know, publicly traded stocks, things like this can happen with, with any sort of company. I mean,

Archer Daniels, I think is a $50 billion company, or at least they were before the dip. So this type of stuff doesn't just happen in a small caps, micro caps, things like that. stuff doesn't just happen in uh small caps micro caps things like that yeah i mean it's 30 billion so it's uh it's lost a little bit of a little bit of market cap since then but i mean yeah i think we've seen these kind of accounting issues in the past where there's so many different outcomes that can happen we saw what happened with canopy in canada with their BioSteel segment. Yeah, exactly. You know, BioSteel went from being like the one shining star within their portfolio to basically being the company or the segment that was dragging down the company and its path for profitability. I don't know.

It's hard to say. Yeah. And like you said, it's really hard to say where it's going to go. I mean, an investigation could reveal even more things that went wrong here. So I totally agree with you that when you see this kind of stuff, I think some people may get the urge to be like, oh, you know, brush it off. And it's a the tip of the iceberg that comes out and there's even more weird stuff or shenanigans happening when auditors start going through it. Yeah. And that's probably why you see a 25% dip on a probe into 10% of the businesses. People

might think if they dig even further, who knows what they're going to uncover and i mean i'm pretty sure archer daniels is a dividend king so it's raised dividends for 50 years i could be wrong on that 50 plus years but it's a it's an old company it's got a lot of history so for something to happen like this to a company of this size kind of has this reputation is actually it's pretty surprising, especially with like the immediate, the immediate suspension of their CFO, you know, they immediately come out slash its earnings outlook. So it's probably not going to be good. You don't know the end result of it ultimately, but if they did that, all that so fastly, clearly there there's issues there, even if it's a small portion of the business yeah and they may be just trying to

kind of rip the band-aid off too right just basically we're not providing any guidance or is that what they said like no guidance and we're just reevaluating thing or just slashed it no i think they did slash it give me a sec i would have to look it up but uh i'm pretty sure they still issued guidance but they they cut it okay they it. So they're probably trying to be as conservative as possible as they kind of find out more stuff. But yeah, something to keep an eye on. We'll move on here to a different company, much larger company, probably 10 times larger than Market Cap. So this company I'm talking about here is ASML, the Dutch company, Q4 and full year results. Now, if you're new to the podcast, here is a quick overview of ASML because, you know, they make

some pretty complicated stuff. So this is just high level. ASML is a company that plays a crucial role in the production of semiconductor chips, which are just a fancy way of saying like kind of computer chip, which go in pretty much everything like computers, smartphones, and much more cars. You know, think about anything that's kind of remotely electronic. There's probably some kind of semiconductor chip in it, even your refrigerator. The company specializes in creating machines called lithography systems. Now, ASML's main business revolves around making machines that are essential in the chip making process. These machines use a technique called lithography to create extremely small and intricate patterns on a surface of semiconductor wafers. So it's just a critical part of those semiconductors.

semiconductor wafers. So it's just a critical part of those semiconductors. There is only a handful of companies or not even I think there's like three or four that have like actually build these machines. And ASML is the only one that builds extreme ultraviolet machines. So EUV. And they also have a kind of less advanced DUV, which is deep ultraviolet machines that they build and ship those machines. There's also some other companies that build those. But again, it's an oligopoly here. There's only a handful. So these are really advanced and just a technical know how to be able to build these machines is quite something. Now, the numbers here, all the numbers are in euros. And I think ASML before I go on with the numbers, it's probably one of the most important companies that everyday people don't know about.

You know, if you ask anyone on the street, like, do you know what ASML is? Probably nine out of 10 will say they've never heard of it. And how important it is, I think it's quite often misunderstood by a lot of people. Yeah, I mean, even I'm not too, I don't really know about the company that much. I mean, I've heard of them. I've never really looked too in depth on them. I mean, a lot of this technology is probably just over and above what people are kind of willing to dig into. But I mean, I mean, I personally, you know, I know generally how the machines work, obviously, like going into it and fully understanding from A to Z, basically, you would need a PhD in not computer science, but probably a PhD in lithography or

something like that, if that's such a thing. So it's extremely complex. But these machines, the most advanced one, they cost over $200 million per machine. So this is how expensive these machines are. Now, revenues and profit came in above expectation for Q4, which send the stock up when earnings were released. I think they was up high single digits. For the full year, revenues increased 30.2% to $27.6 billion. At the beginning of 2023, their guidance was that revenue would be up 25% for the year. And they tend to do that. So they tend to be a bit more conservative when they issue guidance. Revenues were up 12.5% for the quarter and compared to last year. So year over year for the quarter and 8.4% compared to Q3 of 2023. So on a sequential basis, they recognize revenue on 53 EUV system. So their most advanced system and 396 DUV system. The ones are a bit less advanced. 42% of the systems sales came from E.U.V. and the

rest from D.U.V. So it clearly shows here that E.U.V. systems are significantly more expensive because it's still a small portion of all the revenue recognized in terms of units yet it's almost half of the total sales net income was up 39% on a full year basis to 7.8 billion EPS was up 41% and they generated 3.2 billion in free cash flow which was less than half of last year so something to keep in mind and what I was kind of curious is I wanted to see how it looked like in terms of the regions to where they ship these machines and what's interesting is the Chinese shipment has actually increased I have a little graphic here for our joint TCI listeners and I'll explain it for those who are just listening on audio. So the top one would be the 2023 result and the bottom one 2022. And what's really interesting here is that 29% of the units were actually shipped to China

compared to 14% last year. And for those who are following the news, maybe a little bit confused here because the US has been putting more and more sanctions on China. And obviously, this company is in the Netherlands, but also the Dutch government has been putting some restrictions in place. But what's happening here is they're shipping their less advanced machines to China. So they were able and every time there is a new kind of regulation in place from the US. You know, ASML tends to make sure that they follow it, but just, you know, just just on the limit. So they're pretty good at that. I've noticed that they they're doing that. So they're still shipping quite a bit of units to China. But again, the most advanced ones are not being shipped to China. And then in terms of guidance,

they expect revenues to be flat in 2024 and gross margins to be slightly lower than the 51.3% that it was in 2023. So I think they're just being a bit conservative here. They're just trying because these are very expensive machines. Like I said, they still have loads of back orders and backlog you know backlog i forgot to put the amount of backlogs but i think it's around the 20 billion mark something like that so but they they take time to build and ship so it's oftentimes these companies that are producing semiconductors like a taiwan semiconductor a samsung for example they buy these in advance with anticipation of future demand coming. Yeah, it's interesting to see China like double pretty much in shipping, but Taiwan went down 12%, which is kind of,

that's kind of interesting. Yeah, but it's still the units, right? So it's not the most advanced one. So that's why it's like skews a little bit, but the most advanced ones are not being shipped to China. Yeah. Yeah, because of regulations. Yeah, exactly. And probably just to finish on this. So the more advanced they are, the smaller they can essentially, the nanometer that they can do on these wafer, the smaller it can be and the most powerful the chips can be. So the more transistors you can actually put on these wafers. So that's the logic behind it.

And they're usually also more power efficient. But again, it's not a perfect process. So when these machines are shipped out for the first time, oftentimes it does take some time for the companies to start producing the new smaller chips because early on in the process, they have a too high and I don't remember the exact term but basically a discard rate where you know the 70 of the chips produced are good and then 30 are not good so you want to get that in the the 90 if not more because it's never going to be exactly the same every single chip but you want to get it to a point where it's high enough where the chips are 95% or even higher in terms of, I don't know the term, but usability or the intent that they're used for.

Yeah, it seems like a pretty interesting, I'll have to look into it. Like I said, I knew of them, but I didn't really know. I mean, semiconductor companies are just exploding over the last while. I mean, semiconductor companies are just exploding over the last while. Even if you look back to 2016, they had $7.6 billion in revenue, and now they got $30 billion as of the end of 2023. They've just skyrocketed, especially 2022 to 2023. They pretty much increased their revenue by 30-some percent. And now they're guiding to – well, I mean, what were they guiding for kind of flats over for yeah so revenue for this year and i forgot but i i'm going on memory here so revenue for this year will be a little really flat that's what they're guiding for but again i

wouldn't be surprised if they have a bit higher revenue i think they're just being conservative there yeah yeah and these companies like these companies aren't small either. This is what a $350 billion company. So they're growing at, they're growing at a pretty, pretty crazy pace. Yeah. They're, I think it's one of the largest, well, I know it's one of the largest companies in Europe. I mean, it's 314 billion euros in market cap. Yeah. It's, it's going to be interesting to see the growth of all these companies moving forward, but I'm going to have to dig into them a bit more. Yeah, good book for people wanting to learn about the semiconductor industry and the history behind it. Chip Wars is a really good one. So that's where I started learning a lot about it. So

highly recommend it. You'll understand a bit more about the whole process and probably want to dig even further but again it's it's not easy to understand I had to listen I got the audiobook I listened to it twice because there are certain parts I was like okay I need to re-listen list like essentially like Google and look up certain terms and certain like concepts at the same time as I was listening to to try and get a decent understanding. And then I eventually started a position in ASML. Oh, so you own it. I didn't know that. Yeah. Yeah. I do own it. Yeah. Nice. Yeah. Yeah. It's been, it's done pretty well. It's done pretty well. It's done all right. Yeah. Yeah, exactly. But no, I think this is,

this is it for the episode today. I think it was a great one. Thanks for those who are tuning in. We've had some great numbers on these earnings and news recently. So definitely appreciate that. If you can take the time, if you haven't done so, give us a five-star review on Apple Podcasts with some nice comments. We always like it. Or Spotify.

And you can follow us on Twitter at CDN underscore investing. I'm Fiat underscore iceberg and then stock trades underscore CA. Okay, perfect. I will one day, one of those days, I'll know it by heart, but it is in the description. So thanks a lot for listening. And we'll see you next week. Yep. Thanks for listening, everybody. The Canadian investor podcast should not be taken as investment or financial advice. Thanks for listening and we'll see you next week. Yep. Thanks for listening, everybody.