The Canadian Investor - The 20 Largest Stocks are Pushing the S&P 500 higher

Episode Date: May 18, 2023

In this episode we go over the recent US and Canada CPI data and what it means for inflation going forward. We also look at what has been driving S&P 500 returns so far this year and discuss the earnings of a couple Canadian Stocks. Symbols of stocks discussed: CSU.TO, PLC.TO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! TCI meetup registration Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Bélanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis, as always joined by the very thoughtful Simon Bélanger. Today is Tuesday, May 16th. We're doing an earnings and news roundup on today's show how are you doing good sir how

was your weekend that was good yeah nice weather um you know had uh mother's day um on the weekend as well so that's always nice and yeah mother's day is different for you now yeah it is definitely different uh but aside from that no it was a nice beautiful weekend in Ottawa. So just enjoying the nice weather. So I went to No Frills, as I do, as a No Frills hauler, grocery store of choice. And you want to see inflation in action. You know when you throw a quarter into the grocery cart? Yeah. You have to put the quarter in there.

Did I show up? It's a loonie now. Oh, really? All of a sudden, they've changed all of them. It's now a loonie requirement. So that was a fastball. That's inflation right there. You have quarter to a full dollar to take out a grocery cart. Simone, let's get right to

the big announcement, which is tickets are now available for our meetup on July 7th. The Eventbrite link is in the show notes. We're going to put it in the show notes of this one and all the shows until it's sold out, which will be very fast. So this is Friday, July 7th. We're having a three hour cocktail party, downtown Toronto. We'll do an hour of Q and a set up. We got like 80 to a hundred chairs, and then we'll put the chairs away and we'll do around like two hours of social meet and greet, just chatting amongst the listeners and ourselves. We're going to supply the food, the beer, the seltzers, the soda water, the non-alcoholic drinks, whatever you want to drink and eat. We got you.

100 tickets are for sale. $30 Canadian with fees included. That gives you drinks, food, the venue. We're ready to go. So that is the evening of Friday, July 7th in downtown Toronto. If you want to be there, buy your tickets when you hear this

in the Eventbrite link on your show notes, or you will certainly miss out and there will not be, hey, Simone, I really want to go. Do you have any more tickets? No, there's no more. So don't get FOMO buying stocks, but certainly get FOMO with coming to our meetup. It's going to be a great time. Yeah, and you have to remember, too, it's just not for our show.

So it's going to be for the Canadian real estate investor as well. And Dan and Nick will be there. So there's definitely going to be, I think, a lot of demand for that especially pretty much everything's included um and it's my yearly toronto trip so i'll be there i get there on the thursday already booked my hotel and then going with my wife and daughter so we've planned a few other things around it she's going to see uh queen b on the sunday so i'm getting the beyon the Beyonce show. Beyonce with my girlfriends there. So surprised you're not going. That sounds electric. I'll be a single daddy in Toronto. So should should be interesting. Let's get into it. You have a U.S. and Canadian inflation print.

Let's do it. Yeah, exactly. So luckily, I mean, it came out right today as we're recording this for Canada. I'll start with the US just because it came out last week. So it came out that the US, the headline number was 4.9% was pretty much in line with expectation, depending who you were looking at. They may have said slightly below, but in line, regardless, I think it was pretty much what people were expecting the month over month change was 0.4 percent which was higher than the previous month over month so and I'll give my takeaway after I go through the figures for both Canada and the U.S. where I you know my overall general view on it now drilling to the categories, food was up 7.7%, but it was flat

month over month. Energy as a whole was down 5.1%, but up 0.6% month over month. Gas specifically as a subcategory of energy was down 12.2%, but up 3% month over month services which have been especially sticky were up 6.8 percent used vehicle which we know they were way way up during the pandemic keep trending down so down 6.6 percent on the year over year however they were up 4.4 percent more month over month so it'll be interesting whether that kind of starts trending back up here. New vehicles were up 5.4%, but down 0.2%. And I'm going to ask you, I don't know if it's just me anecdotally seeing car dealerships in Ottawa, but I know about a year ago or so, year and a half, every time I went by a car dealership, there was barely any cars on the lot. Every time I went by a car dealership, there was barely any cars on the lot.

And now I definitely notice a shift in that where the lots seem to be very full and there seems to be deals. So it's usually like really cheap financing to entice people to buy a new car or you get a pretty significant amount down on the retail price. Have you noticed that in the GTA? I have noticed it. I noticed it a lot at the beginning when it went from super empty lots to like back to normal again. I haven't noticed it kind of again now into excess. But what I have noticed is looking at the inventory levels of these used car retailers, that's the true tell right there, is looking at the inventory levels of these used car retailers. That's the true tell right there,

is actually just looking at the accounting of these names. And I have certainly noticed, and we've talked about it here on the podcast, about inventory levels. So, yeah, I mean, things are changing quickly from that perspective. It's obviously very cyclical. And then you have combined cyclicality plus supply chain disruptions that we saw with cars that dragged on and on and on. You had a bit of a perfect storm.

Yeah. And you have right now people getting squeezed with inflation as a whole, right? So I think, you know, I don't I'm not sure how many people are actually looking to buy new cars. So I think that's probably affecting things. They, you know, I don't, I'm not sure how many people are actually looking to buy new cars. So I think that's probably affecting things. They, you know, there's a shortage, they produce to try and fill that. There's always that thing, right? With the offer and demand.

And then you get rates. You get rates. Then you get rates. Yeah, exactly. So financing is more expensive for cars. So there's always this, when you have a really a short supply for something the producers end up making more and then oftentimes they make too much and they have to start discounting things so yeah I definitely noticed that as well in Ottawa now another important component here shelter costs

were up 8.1 percent and 0.4 percent month over month And the core CPI metric used by the Fed rose to 5.5% and 0.4% month over month. For those who are not aware, core CPI is the obviously it's a measure of inflation like CPI, but it just strips out food and energy prices because they're volatile. And central banks tend to zone in on that because a lot of the reduction in inflation is actually because of energy costs that have gone down. It has a big, big impact here. Now, if we go on to Canada, it's actually pretty similar. Some slight differences in percentages, but headline number was 4.4%, which was slightly higher than March at 4.3%. And I think it was pretty much in line with expectation. And it was up 0.7% month over month, which is pretty significant. If you compare that

to March, it was up 0.5% month over month. So I think it's something to keep an eye on, especially the year over year, right? You know, there's always the base effect. Last year, we're seeing some pretty high inflation at this time. So you want to definitely people will want to keep an eye on the month over month. Food prices, like we saw in the US, were up pretty big at 8.3% and up 0.4% month over month, again, more than March. Shelter was up 4.9% and 0.6% month over month. Energy as a whole was down 4.2%, but up 3.4% month over month. So very similar to the US, gas was down 7.7%, but up 6.3%. And services inflation seems to be sticky here as well with 4.8% and 0.5% month over month, which is oftentimes just due to the tight labor market.

And the three core inflation measures. So in Canada, they look at three of them. I won't go into detail, but they were respectively slightly down and they were 5.7%, 4.2% and 4.2%. So slightly down from March, but still showing some signs of stickiness. And for me, there's two main takeaways here. First, energy prices have a big, big impact on the overall CPI. Not only the energy component, but also, you know, food prices will be impacted by energy prices because of, you know, how they have to be shipped and transported for a lot of the food we consume. And I'll just say that the Bank of Canada, remember, they were

saying that we should be going around 3% inflation this summer. It may still happen. I do hope it does happen. But at the same time, I think it's really too early to draw any kind of conclusions. And you understand now why central banks, you know, they make these predictions. But now I've noticed they're much more careful. And they say that, you know, we think it's going to go that way. But, you know, there's a lot of things that could make it change. So something to keep an eye on. I'm not sure if we'll get to that 3%. But there's, I don't know.

What do you think? I think there's some good and bad in terms of the numbers that came out. Yeah, a bit of a mixed bag. The core numbers you mentioned are surprisingly sticky and, you know, persisting higher than we may have expected. you know, persisting higher than we may have expected. But the turn it's come around from where it was, just even looking back a few months, obviously, the progress is there. And obviously, the Fed had to act in the way that they did to get it there. Now, it's persisting at this number here, which is still obviously concerning and you you look at what

the fed might do on the next coming months but i i don't really have any more hot takes beyond that i i'm not surprised that it's sticky if you look at the inputs of course epi um i i think that we still have many many money more many more months of this. Yeah, exactly. And it's easy to go on Twitter or your favorite mainstream media financial site and try to draw some conclusions. The reality is it's really hard to predict where it's going to go. Yeah, exactly. And we report the news here on Thursdays and we don't we rarely kind of was going to go, then, I mean, shit.

If I had a crystal ball, you know, if anyone had a crystal ball, well, they'd be day trading their way to $10 trillion. I'd accumulate the $3 trillion in market cap that Apple has with a couple of big trades lever up, who wouldn't? 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 questtrade.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. Speaking of that, 2023 S&P returns so far. Speaking of Apple, oh my goodness. So the contribution to S&P 500 return, because it is market cap weighted, the top 20 of the S&P 500 return because it is market cap weighted, the top 20 of the S&P 500 makes up almost 30% of the index. To reiterate that, the top 20 names makes a little over 29% of the

weighting of the entire S&P 500 because it is market cap weighted. So let's call it a clean 30. And then the rest, the next 480 companies make up 70% of the index. The contribution of the S&P 500 year to date. So as of late last week, when I pulled this number, late last week when I pulled this number. 7.5% is the S&P 500. The top 20 has driven 7.08% of that return decomposition and basically flat at 0.47 on the positive for the remaining 70% of the index. So you've basically had all the return coming from Google, Microsoft, Amazon, Google, Nvidia, Tesla, Meta, AMD, almost in order of return to decomposition. And so it basically says like, you know, owning the indexes market cap weighted has definitely been good. If that's the index you own, if you've owned equal weighted, you've got smoked by the traditional weighting of the S&P 500. If you've been in large cap mega tech, you've had a good year so far. And if you haven't

had exposure to the broad index or these mega cap names, chances are you've underperformed with, of course, some exceptions. But the chances are. And it's very interesting now because as of yesterday, Apple is now worth more than the entire Russell 2000, which is basically a small cap index. Yeah, you texted that to me yesterday. Unbelievable. The Apple US equity is 2.7 trillion and the Russell 2000 index has a total composition of 2.6 trillion in market cap across all 2,000 stocks. What do you say to that? I mean, other than the giant gets bigger. Yeah. I mean, it's crazy. Obviously, they're 3 trillion yet or still making the slow march to 3 trillion?

Not quite. Yeah. So, they're not quite there. So, 2.7. I mean, it's just hard to even have your brain wrap, like just wrap your head around how big of a business this is. And, you know, I was kind of thinking when you texted me this and just from a power perspective, how powerful is Apple? Like they are more powerful probably than the vast majority of nations around the world in terms of influence they can yield when you think about it you know obviously not having a military or anything like that but um yeah that was kind of what was their top five i i would come out and say they are top five as an entity if you include nations as well in terms of power, influence, and sheer profitability.

No, it's crazy to think about that. But that's kind of what went through my mind when you mentioned that because, I mean, can you imagine if Apple went down 50%? Something unforeseen happen? Like it would be devastating to so many portfolios. Yeah. And here's what I think about this, right? Is people are so quick to mark down the multiple of a TSMC for China risk in terms of capacity and manufacturing. And many names that have that kind of risk overhanging the business, the multiple just can't expand, right?

Not Apple. What's the deal there? I mean, it's all made over there um their tie with both the u.s and chinese government is very strong and very important for their business to operate and uh it doesn't seem to ever affect the multiple no i know it's um just baffles the mind i guess i don't know i don't know what it is maybe it's because apple has just been performing so well for such a long period of time and you know we talked about in a recent episode even when there was uh iphone sales were starting to be a bit sluggish and people were putting Apple down. I think it was what, like

five, six years ago around that time frame or even a bit before that. And Apple came back out and more resilient than ever. I think people are just used to, you know, just not listening to any of the noise or any of the risk. They just assume that Apple will keep on going. And, you know, they probably will. And I own Apple and I do own it outright and part of index funds as well. But, you know, there's always a risk. There's always risks in every single business. There's no such thing as a risk free business. So I think that's just important to remember before, you know, anyone gets too tempted and you know putting half of their net worth in apple because they think it's safe yeah and don't get me wrong uh you know it is as blue chip as

they come and you know being highly concentrated in certain businesses i i don't i don't have a particular issue with that it's just to to say that you know it's too big to ever have risks is insane. And people used to say that about GE all the time. Yeah. It was the de facto blue chip, right? And how has that gone so far? Maybe it turned around, maybe. But from its historic dominance, they basically had their hands in everything.

Real quick, I don't have any notes on this, which is idiotic of me, but Google released their new BARD AI tool. And for some reason, we don't have it here in Canada yet. They give it to like every developed country except Canada. I have no idea why. Just use a VPN. Try it out that way. I have no idea why. Just use a VPN. Try it out that way. I guess you could, right?

Dude. Yeah. Yeah, you can. I haven't done that, but I should. Every time I go download a VPN, I just get sketched out. I don't know why. Why does every single VPN look like I'm about to lose my entire bank account?

Yeah, I mean, you have to use the branding. I've had different VPNs in the past. And usually I would just say, you know, for people looking at VPNs is just, you know, pay, just get a reputable one and pay for the like small subscription fee versus a free one. fee versus a free one uh just because you know i think just like you said it's not worth kind of compromising your data and just to save a few dollars a month yeah it's like you know if if the product is free you are the product right and and and for vpns i don't want to be the product man uh yeah so they they launched this bard aired AI thing and Sundar did his whole keynote speech. By the way, Google does some real sexy keynotes. It's definitely not bomber and gates up at the front doing a Microsoft keynote. It's very sleek and very, very nice.

And what have they added? Like 180 billion in market cap since the announcement? Like, you know, sell Google because of AI. And now it's buy Google because of AI, like a week later. And this goes down to what I had said before, which was, I had Google as a massive position. I own it as a medium to large position. I took some of it and put it into Microsoft to build up another big tech position. I only owned Google of the big tech names. I saw what Microsoft was doing with the Azure, the partnership with OpenAI. I said, let's just hedge something here. The Bing thing, let's just hedge something here. The Bing thing, I want to own search. And now everyone's piling back into Google. And my thesis is still true here, which is search is changing and monopolies

hate change. So they have a true innovators dilemma and maybe they come out on top of being the best. They have the most unique dataset. BARD is better than ChatGPT for reasons X, Y, and maybe they come out on top of being the best. They have the most unique data set. BARD is better than ChatGPT for reasons X, Y, and Z. I don't think it's there yet, but say that that happens. Search is now a completely different business model in an AI world. And so they have to disrupt themselves. And I hate uncertainty if I own a monopoly, right? Like that's the whole game. And so that hasn't changed at all that they have to disrupt their own search business to survive here. And that's not a good thing, right? Like when you, when you do 24 billion in operating income from the core search business every quarter. I don't want to see that change, right? And so I want to see it go up and continue to dominate. And maybe it does.

But people can flip-flop their thesis so quickly. And I think that that's a bad way to go. Yeah. No, I know. I mean, I own it. I bought it when it was, you know, everyone was selling Google, basically. Well, I think the whole market was kind of down, right, in November, October, November of last year. I just held it. It's not a huge position for me, but it is interesting that the sentiment is changing. But it's just all about AI, right?

Right now, investors, as a whole, they hear the word AI or something good related to AI comes out, and they get excited. Regardless, you know, no one knows how Google will actually use it and monetize it. That's still TBD. I know they probably will integrate it to things like their Google Suite, Gmail, make those things better. But what impact will it have on revenue will offset potentially less revenue on search. Who knows?

So just finding that people, you know, all the hype surrounding AI right now. Now, to be fair, it deserves a kind of rebound or re-confidence from investors just because, look, I mean, it looked like Sundar was just sitting on his hands while Satya Nadella and Sam Altman eat their lunch. Like there needed to be some response. And the response that they came out with was good and it was refined. And the tools looked very promising and the distribution being key inside of, you know, the G Suite programs.

And so all of that is good. So I get why the stock is up, but my goodness, how quickly sentiment changes. But I will say for good reason, because they came out with just crickets in a very important time for this business with a very competitive, huge market for the taking here. market for the taking here. 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, let's move on to the next name. Yeah. So we'll move on to Park Lawn Corporation Earnings. It's a company I used to own. We talked a little bit when we first started the podcast. I sold it. I think it was early in 2020. I ended up selling it just to I had some better ideas to invest in. That's why I sold it. For those who are not familiar with Parkland Corporation, and actually a side note, someone did ask if we could talk about it. So I figured it was a good opportunity because they came out with earnings. It is a company that operates cemeteries, funeral homes, and crematoriums. So in terms of sticky business, that's probably the ultimate, you know, sticky business. Obviously people, you know, unfortunately everyone has an

expiration date and people pass away. So that's the core of their business. They have been mostly growing by acquisition. They do get some organic growth, mostly it is it is by acquisition so revenues have grown at a compound annual growth rate of 13% over the last five years just to give context before I go through the earnings free cash flow per share has tripled over the last five years they pay a dividend that yields just under 2% It has not grown, but it might seem like it has. However, it's just because they went from a monthly payout to a quarterly payout. So the actual yearly payout hasn't changed. It's not been a great stock to own in the past five years with the total returns being 17%.

If you compare that to the S&P 500, it's actually around 60%. So definitely lagging the market there. But, you know, it's a company that, you know, for those who want something a bit safer, they want to sleep well at night. That's probably going to fit the bill here. The sales for Q1 2023. So sales were up 4% to 86 million. They said that they had less calls, which resulted in less revenues, although their revenue per call increased 1.5%. And call is just a term that they use to basically save almost like each client, if you'd like. It's just a call because you know encompasses more than usually just one person this was mainly due and i was surprised to a decline in mortality rates they said it was most likely because yeah i know huh so it was for those who can't see me i'm like huh very

interesting like this is it's not something you read on many annual reports. No, exactly. And I wanted to check the data. And StatsCan actually has mortality rates, but I'm assuming it takes them time to compile all the data because they only had up to 2020. But it's interesting to see. They actually break it down for those interested interested not to get too into the death topic but you have the whole mortality rate over i think a thousand for the broader population and then they break it down by age group um for those not aware so under a year old it actually is quite high and then as you get you know one plus then it completely drops and then obviously as people get older it increases over time but it's just interesting if people are interested in this kind

of business something to just be familiar with because clearly it does have an impact on the business gross margins were down 69 that's not a that's input. No, no. I would have had to think about with many businesses, but this one certainly matters. Yeah, exactly. It does matter, right? If people are dying less, they're not going to be using the crematoriums or funeral services as much. Gross margins were down 69 basis point to 26.6%. Operating margins were down 400 basis point to 26.6%. Operating margins were down 400 basis point to 12.3%. Not great, but I did do a historical view and their operating margins do fluctuate quite

a bit from quarter to quarter. So I wouldn't draw too many conclusions from there. I will say, though, that, you know, the funeral or this type of business, they're usually a relatively low margin because, I mean, they're so sticky and it does oftentimes, you know, consolidation is oftentimes a good thing because you can save on scale. Earnings per share was down just shy of 50% to 13 cents. Free cash flow was up 10% versus last year. So overall, I mean, I haven't been following it all that closely since I sold for obvious reasons, but it seems like it was a decent quarter. It's definitely, you know, it's, I think it's an interesting play for someone who's looking for something a bit safer. The only downside,

and I wish that they would increase the dividend, it would be nice if the dividend increased, not necessarily by a lot, but maybe a range from 2% to 5% every year type of deal. So you can hold this, and it's also kind of a dividend growth investment because a lot of your returns, I think, will be dependent on that versus just some pure growth and the share price being higher type of deal. It's a business that, what do they say? The share things in life, death and taxes. And this is definitely a play on that.

Now, the growth has been pretty solid just from an acquisitive perspective. And so I guess I'd push back on that just because they've seen such higher ROICs. And so I understand them not paying out a huge, huge div. Sure, if they increase it, you know, two to 5%, I think that that's reasonable that you highlighted. So fair enough. at you know two to five percent i think that that's reasonable that you highlighted um so fair enough but the assets they acquire i mean this is super uh super ripe for consolidation right yeah there's a lot of it is very fragmented especially in the uh the cemeteries oh yeah i would think cemeteries and funeral homes yeah i I would think. Cemeteries and funeral homes. Yeah, I think they're both very. I mean, it's pretty common.

Like I know in Ottawa, I can think of a few that, you know, there's they own two, you know, two, three, four. That's about it. They're only, you know, located in Ottawa and that's it. So those are it makes me think a little bit about the waste, solid waste collection. So the garbage pickups and all that. So it kind of reminds me of that in terms of, like you said, ripe for consolidation. Yeah, and it just being so needed. Yeah, exactly.

Like not going anywhere anytime soon. Between this and waste connections, it's actually kind of similar in a lot of ways. Now, I'm on board fully for this. If you look at the cemetery business, I mean, it has kind of all the wonderful qualities you'd hope of a business. And I get that it's obviously quite morbid by nature. But when you break it down into its actual parts, I mean, the cemetery and funeral home business is very good. And someone to roll it up makes sense. And Park Lawn, I know people personally that have owned this stock

for a very long time, and they have done exceptional. You know, it's not going to... And it's not being disrupted by AI, you know it's not gonna and it's not being disrupted by ai you know like no there's a lot of disruption in the world and this is probably not one of them yeah and they have to like the cremation that they have to is even if we enter a recession a tougher economic environment maybe people will shift from you know smaller bigger to smaller funerals and maybe save on the cost a little bit but at the end of the day you'll still have to use their services so it's pretty it should be pretty recession resistant as well i've looked at the name so many times i've come close to

buying the stock a few times actually too uh never never pulled the trigger but uh Never pulled the trigger, but whatever they started doing in 2016, the top line started exploding. Maybe just a lot more acquisitive. I think so. I guess. Yeah. Must be that. All right. Speaking of the top line exploding via acquisitions, Constellation Software reported their first quarter yesterday at the close.

This is ticker CSU.TO, but if you listen to the podcast, you're probably familiar with the name at this point. The quarter revenue was 1.92 billion, which was up 34%. So maintaining that 30 plus percent top line growth rate. A nice 5% growth on the organic growth line if you back out FX. Free cash flow of 453 million, which was up 40% year over year. And they spent 452 million on acquisitions in the quarter. So generate 453 million in free cash flow available to shareholders. They throw back 452 back into acquisitions, 100% of the free cash flow. They completed an acquisition. This is not news, but in the quarter, they did complete the acquisition of Wide Orbit and the spinoff of Lumine Group,

which now trades as ticker LME on the Toronto Venture. Seeing good results, stabilization of some big carve-outs they did, notably Altera. I'd like to highlight the maintenance and other recurring organic growth line item. What this means is they're software companies, so they have recurring revenue elements to these software companies, so they have recurring revenue elements to these software companies. So outside of the licensing business and outside of the hardware businesses, the bulk of this business, in fact, around 72% of the business is from the maintenance and other recurring line item. That has been solid at 6% quarterly organic growth. And so the knock on this business is always you get like, you know, flat to low single digit to low single digits on the negative of organic growth, but not on the core of the business of software companies in this segment,

which has been persisting above 5% now for one, two, three, four, five, six, around seven quarters in a row. So that's quite a positive development and it speaks to everything that Mark has said that they think is important. This morning, Simone, this might be interesting to you. They announced an acquisition of Winklevoss Technologies. Are you serious? Does this name sound familiar to you? Oh, it does, yes. So they're the Winklevoss brothers.

Is that related to them? It's their dad. Oh, okay, okay. So for those not aware, the Winklevoss, they're twins and they are big in the crypto space. I believe they own Gemini. Gemini. And they were the two guys that got like ousted out of Facebook in the original founding with Mark Zuckerberg. Yeah. Yeah. I mean, they've done all right. They were into Bitcoin and cryptocurrency really, really on. And Gemini, I mean, right now, I think they're struggling a little bit because there's some issues with Gemini and DCG, which is the digital currency group that also owns GBTC and Genesis.

and genesis i think they're in court right now because there's been some uh yield products where the funds are frozen that was being offered by gemini but uh was using basically genesis products so it's not pretty right now but i i'm gonna say i'm pretty sure they'll still be okay yeah pretty sure they're billionaires in their own right just bitcoin at this point um so winklevoss technology is a 30 person looks like 30 person uh vertical market software companies for divine defined benefit pension plans oh really interesting so okay interesting yeah this was under their perseus group it was founded in 1987 by dr howard Winklevoss, who is their father, after investigation this morning of the twins. Yeah.

Cameron and... Yeah, it's Cameron and... Tyler? Tyler, yeah. That's it. Tyler? Yeah, Tyler Winklevoss, yeah. Very funny.

You know, those two guys get a lot of, you know, they get chirped quite a bit, but, you know, those, those two guys get a lot of, you know, they get chirped quite a bit, but you know, the fact that they could have become billionaires from Facebook and then still became billionaires after anyways, it's pretty, it's pretty cool whether or not, uh, I think that probably fluctuates by the price of Bitcoin on the day, but, uh, who's to say, uh, all right, let's do this last one. My last segment here. Oh, I do have something else. Yeah.

No, no, I'm saying let's get your segment. Oh, yeah, okay. I'm going to move my segment to another day. Another day. Okay, okay. Sounds good.

We'll be forever. This one won't be too long. So just so I scroll because when Braden, we use the same document. So then this stuff kind of shifts. I did it below you this time. Yeah, it still messed things up, but it's okay.

We're back. So some news came out last week that Canopy Growth said that it will need to restate last year's statement. So they will need to refile several previously filed financial statements related to accounting errors of its BioSteel business, which is not great because if you- Holy shit. Yeah, if you remember, it was one of the bright spots. It was the only bright spot. Yeah, exactly.

I think it was like that and the fact that we're reducing expenses were the only two good things. Everything else was terrible um i remember looking you you read off their financials and just being like i was like oh god this is terrible but thank god they own biosteel yeah well we'll see maybe not let's see what this is yeah so they haven't obviously restated that yet they announced that they will be uh restating those financial statements those not familiar with bio steel if you watch like professional sports um you've probably seen the athlete promoted i think uh isn't connor mcdavid a spokesperson or I know there's some big names, definitely.

Dude, when I watch sports, all I see is gambling commercials anyway, so I don't know. But anyways, it's a pretty pie. They've made some big strides, and they were acquired in 2019 by Canopy. And they said they will refile statements from Q1 to Q3 of 2022. Plus, of course course their full year statement the company said basically that you should not be using those statement any longer they should not be relied on and they found material misstatements made relating to biosteel sales in 2022 so clearly you know was not good news and for a company that was already struggling mightily before that.

The stock was down 19% last week alone. And if you're looking at Canopy, I mean, it's trading for, it's basically a penny stock now, which is crazy. At some point, it was, yeah, trading over $60 at kind of the peak of the cannabis mania. And people were getting all hyped up. And now it's $1.39, $1.39, $724 million market cap. It was, yeah, I must, I just, I'm lost for words how bad it's gotten. I mean, it's seems like it's the same story for pretty much all these cannabis names some are doing a little better than others and I thought canopy would probably come out of it uh but now I mean it's hard to say because yeah sales have

been trending down margins have been trending down and then the one bright spot in their business, they'll have to restate their statements. And the way that they announced that, it's clearly not going to be to the upside. You can't take the coulda, shoulda, wouldas to the bank as an investor. But I heavily debated shorting this thing in the peak of 2018 with the mania. But you also risk just losing your shirt when it's going up 40% a day during that kind of mania that we saw. And I mean, it just gets worse and worse and worse every time you talk about these canopy, the Afria, the Aurora. Every time you have a segment, it seems to be worse and worse and the stock price certainly reflects that yeah yeah and i mean

i think it's still gonna be there's gonna be a business or two there's just gonna be a lot of consolidation and it's gonna end up probably being a low margin business and there's gonna be you know a clear winner without whether it's a company that's already existing or just a new player coming and just buying assets on the cheap making them way more efficient than they were adjusting the pricing you know I still think there's money to be made there, but not in the form that we saw where these ridiculous projections of how big the market would be and these profit margins. I mean, it was just not realistic. They were basically pulling these numbers out of their rear ends in terms of projections. There was nothing concrete to base it on.

They were just estimates because it was an illegal market. How can you know what the market will be when it's illegal and how do you even if you had the data for sure there is this amount of sales each year in Canada for cannabis before it becomes legal. How can you determine the percentage of those purchases that will translate to the legal market? That's the other variable that they seem to not have or they were just being too optimistic on. I'm talking way long term when the increased adoption, you have more states legalized. It's basically pseudo legal in the US. What do we have? Two states there now. Just needs to be legalized on the federal level in this state.

Federal. Yeah. You have Europe. It basically decriminalized and legal in some places. So let's say you have those major markets. Every G20 country has it legalized on a national level and now commercialized. You have a few, maybe two, three high volume. They print the bottom line when the price of the commodity goes up. And you have the distribution. My prediction for the distribution is actually VC stores. I think just like tobacco, you have C stores being the ultimate convenience, Paco, you have C stores being the ultimate convenience, no pun intended, in terms of distribution.

Not these silly Apple store looking retail stores that basically are boom bust here in the city. I don't think that's the long term play here. I think they eventually all fizzle out. I think that it's ripe for a new product line like Alain Bouchard Elementation Couche Tarde or the 7-Elevens to take the opportunity in terms of distribution. That is my long-term prediction for both the production on the grower side and the distribution if I look out 20 years. If I'm right, who knows? Time will tell, but that's that's what i think yeah it's going to be a scale business um i totally agree with that i think the only thing i think i foresee potentially is you'll see a little bit like alcohol where you may have again two three big players in the space and then they may have each like one subsidiary where it's kind of their luxury kind of lifestyle brand right like you

can buy premium beer like you can buy Coors Light and then they bake make a bigger margin on those more premium product it's still a very small portion of the business because most people will get it because they want to you know get high and smoke weed and just get value out of it but you'll have the you know people are willing to pay more for uh you know a higher quality and the margins are higher i think i totally agree with you i think this is what i think we're seeing it in real time right now the transition to hype and consolidation and then a couple massive players that will probably do quite well when they have the distribution and it's legalized in the US and Europe. And yeah, just having just savings on scale. That's what it is.

To me, the businesses I'd be happy owning is basically the Kushtar of this supply of this value chain. It's people who can actually make, you know, 25 to 50% gross margins on the actual point of sale. That's the good business. And from my view, that's how I think it'll play out. Yeah, because right now it's still too hard to identify who's going to be the winner in the producer side or, you know, the product side. So, I mean, it could be some of the existing player.

It could be even like a company like Constellation Brands, for example, or Annoiser Bush. It could be one of those that just say, say okay it's been kind of there's blood on the street we can diversify our business we can get it pennies on the dollar uh now it's a good time to come in and scoop in and maybe they'll lose money for us for the next five years but we paid you know chunk change for that we don't care if we lose a bit of money in the short term, we got some good value out of it. I just don't think the Anheuser-Busch's of the world are at this point willing to take on cash burn until the eventual legalization. There's going to be this as a terrible, terrible capital allocation destruction. Investors lose money for a long time still to this point.

And then there's going to be a sea change at the regulatory level. And then there's going to be a rush back to acquire these assets at a higher price again. But it's worth it for those companies to wait. Even if they have to pay more down later you know net net if you look at out the cash burn that these businesses have today who's who's going to want to take that on so i think it's going to be mostly a shit show until there's a sea change at the regulatory level and then there's going to be a rush to acquire those assets yeah no that's fair yeah at this point yeah it's all prediction it's all prediction. It's all. Yeah, exactly.

It's all just what do you think is going to happen? Because no one knows. All right. Thanks for listening to the pod. So if you heard at the beginning, our event, just a reminder, the link is in the show notes now. The tickets are 30 bucks. That includes everything.

You don't need to bring anything. We'll feed you. We'll make sure you have some uh some drinks and that is going to be downtown toronto on friday july 7th if you want to come lock your ticket in right now and you will be good to go yeah and and for the uh for those uh you know that are also interested we have joined tci If you want to see our portfolios, I will be updating this week the quarterly dividend portfolio in terms of more retirement income that I do. So I started working on it.

There's about five names that I'm changing. Obviously, it's not to encourage any trading or anything like that. I'm just doing a snapshot every time I do it as if I were to start the portfolio now. And then depending on what's yielding, some of the business results, I kind of adjust the holdings. I didn't know you were doing it like that. I like that. Yeah. I try to do it like that just so I bring some additional context and it also gives people more ideas at the same time. And I you know, I also appreciate the patience for existing Joint TCI members because I'm still working on the videos. So I have taken a day off this week

from my regular job so I can spend about like four hours straight and watch a full course on being able to edit videos because it's very different than audio editing. There's a lot more moving parts to video. Today, there's 198 patrons on joinTCI.com. So who wants to be 200? Yeah, exactly. Yeah, go on over there. You can put that in the back pocket at the meetup.

I was number 200. That is at joinTCI.com. We'll see you in a few days. Take care. Bye bye. The Canadian investor podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.