The Canadian Investor - The Best Accounts for Stocks and ETFs + Why Canadian Compounders Are Struggling

Episode Date: July 20, 2026

In this episode of The Canadian Investor Podcast, we break down which types of investments may be best suited for different Canadian accounts, including TFSAs, RRSPs, FHSAs, RESPs and taxable accounts. We look at Canadian stocks, U.S. stocks, Canadian-listed ETFs, U.S.-listed ETFs and international ETFs, with a focus on tax efficiency, dividend treatment, withholding taxes and capital gains. We also discuss why the “right” account can depend on the type of income an investment produces, whether dividends are Canadian or foreign, and how ETF structure can create different withholding tax outcomes for Canadian investors. In the second half of the episode, we look at four Canadian acquisition-heavy compounders that have struggled recently: Constellation Software, WSP Global, Boyd Group Services and TerraVest. We discuss why each company has been under pressure, including valuation resets, AI disruption fears, macro headwinds, governance concerns and slower end-market demand. We also look at what could drive a recovery for each business. Tickers discussed: CSU.TO, WSP.TO, BYD.TO, TVK.TO, VOO, VFV.TO, QQQ, ASML Subscribe to our Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! 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  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai 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.

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Welcome to the Canadian Investor Podcast. I'm Simone Berengé and back with Dan Kent. We have a fun episode today, so we'll be talking about what type of investments are best suited for the different type of accounts that are available for a Canadian. So we'll be looking at TFS, RHSAs, FHSAs, our ESPs, and taxable accounts. And we'll really focus on stocks and ETF. But if it's something that you find useful, you let us know. And we can also expand that to other types of investments as well, like fixed income would be. be another type of investment that we could be looking at. So we'll start off with that. We also have some good visuals showing what actually is, you know, the drawbacks and so on for

each account. And then Dan, you will go over for what's going on with four Canadian rollup companies that are really well known from investors and quite popular. So do you want to tell us quickly which companies you'll be discussing? Yeah, so I would say three out of four well known. But yeah, just kind of a segment on three of these acquisition heavy companies that are kind of in the tank right now. We'll go over Constellation, WSP Global, TerraVest, and then probably the one that not a lot of people are familiar with besides me talking about it on the channel is Boyd Group Services. So four companies that have historically grown a lot through acquisition that are kind of getting hit now, all in kind of different ways, which is what will make the segment pretty interesting. Okay, well, let's get started. I'll be sharing my screen.

This one, it's a full episode. It's available on YouTube for those that are listening to the audio. So if you'd like to see the visuals that are going with this, make sure you just go on our YouTube channel and you'll be able to see it. So non-dividend paying Canadian and US stocks. So typically these will be suitable for any account type. You'll be getting the tax treatment in line with the capital gain. losses for each account because these are not paying any dividends and one thing people will

notice is a lot of the tax implications whether they're suitable for certain type of accounts or not I mean you can hold them in pretty much the kind of the stocks and ETFs we're talking about in any account is just you may not get as favorable tax treatment when it comes to a dividend payout and that's really what will be going over today so the non-dividend paying Canadian US stocks So that means that for a TFSA or FHSA, for example, you won't be paying any capital gains because everything is tax-free within, but also when the money is withdrawn. Obviously, the FHA say with a caveat that it has to be used to buy a new home. An important word of caution here with these two account is that if you have a loss, you'll lose the contribution room forever. So you just have to keep that in mind.

So if you're a brand-new investor, you have $7,000. You're 18. This year you have $7,000 and you will invest in a company. It goes to zero. While you have zero room for this year, you'll have to wait till next year until you get the contribution room for 2027. So something to keep in mind. For an RSP, you won't pay any capital gains taxes. You'll pay taxes when you start withdrawing money from your RSP, which will be added to your taxable income.

And for a taxable account, you'll pay capital gains. However, if you have capital losses, which is probably the advantage of the taxable account here, you'll be able to use that to offset capital gains that would be taxable. And one perk of capital losses, although no one wants to lose money, so you have to keep that in mind. But one perk is that it can be carried forward indefinitely or carried back up to three years to offset the taxable capital gains. So anything I miss here before we move on to Canadian dividend stocks? No, I guess the only thing I would say here is a lot of people, this is why you'll see, or at least, it's probably a good idea to put your more speculative non-dividend paying positions into a taxable account because of that finite amount of room in your TFSA or FHSA. I knew somebody who blew pretty much half of their TFSA room, maybe a little less than half on a very speculative stock.

And again, that room never comes back. Whereas if he had done this in a taxable account, he would have lost all his money, yes, but would have had quite a large capital gain to carry forward. So I think a lot of people, or sorry, yeah, loss. I think a lot of people when they look at the TFSA, they think, and I mean, obviously this is my opinion. you are free to do whatever you want inside your TFSA.

But people take extended risk because all they can think about is hitting that 10 bagger, 20 bagger and paying no taxes. But they're just dreaming of the money, just pouring on them, dropping from the ceiling. Yeah, that's the allure is quite powerful. So I can definitely see the attractiveness of that. And like we've talked about on the podcast before, it's also you can use allocation in terms of portfolio construction to mitigate that risk. right? So if you do want to take a YOLB bet with 5 or 10% of your TFSA and have the rest in more stable,

established companies, that's very different than putting 100%. So that's a way you can mitigate risk. But let's move on here. Stick on the stock side. So Canadian dividend stocks. So Canadian dividend stocks can work well in pretty much any account in a TFSA, RSP, FHSA, RESP, or taxable account. I know there are other accounts and just a quick caveat here when I talk RSP typically a RIF so a registered retirement income fund which you have to convert to when you have an RSP when you hit 71 it'll be treated in the same way as an RSP so just wanted to mention that for those watching here the full video they'll see RSP slash RIF that's the recent so the right account really depends on the investors goal time horizon and other investments inside registered accounts dividends and gains

received the tax treatment offered by that account. So, for example, in a TFSA, the dividend is going to be tax-free from a Canadian dividend stock. In an RSP, it will be tax-free as well until you withdraw the money from your RSP, and of course, that will be added to your taxable income. In a taxable account, dividends from Canadian corporation may also qualify for a dividend tax credit. Eligible dividends receive a larger tax credit than non-eligible dividends, and that's because Canadian companies have already paid corporate tax for the most part before distributing profits to their shareholders. The dividend tax credit recognizes that corporate tax and reduces the investor personal tax bill. And as a result, eligible Canadian dividends are generally taxed

more favorably. And it takes taxable account than interest or foreign dividends, although really the exact difference will depend on your personal situation. And of course, this is not tax or financial advice. If you want to really construct. it well. A tax professional is definitely the way to go to look at your own situation. So just keep that in mind. But these are just kind of the general rules around it. Yeah, there's way too many different types of scenarios where suggesting an individual situation is best. I mean, I got burnt on that when I first started making content period talking about the RSPs. I learned to not do that again because there's so many external factors that, you know, can change this dramatically for

you. I did end up making a video like a long time ago on the dividend tax credit. And I like it still gets views today. It's like had like 40k views because this gross up and all that stuff is so confusing for a lot of people. Like the gross up, they think they're getting tax more like they're grossing the income up. But really, yeah, as you had mentioned, it just levels it out because the corporation's already paid tax. So you get treated a bit more favorably. And it's going to be different for eligible and ineligible dividends. A gross up, all that type of stuff is a bit different. So just know generally you get taxed more favorably on dividends in a taxable account, Canadian

dividends. Yeah. And for the most part, this is more a general rule for Canadian dividends stocks. But for the most part, at least for me, if I have a whole lot of room in my TFSA and I want to invest in Canadian dividend stocks, I'll probably just look at maxing out my TFSA first and then look at taxable account afterwards. So that's the rule I go by. Again, this is not personal advice.

These are just kind of the general rules and what type of account is probably better suited depending on how the tax is done. But really talking here about dividend taxes or the distribution. Obviously, we talked about the non-dividend payer a bit earlier. Now, if you're looking and looking at U.S. dividend stocks, So the stock specifically will get to ETFs afterwards. Individual U.S. dividend stocks are generally most tax-efficient in RSP

because qualifying retirement accounts, which an RSP is, can receive an exemption from the U.S. dividend withholding tax in AATFSA, FHSA, or RESP, U.S. dividends are generally subject to that 15% withholding tax. That tax is normally not recoverable inside of these accounts. So in a taxable account, the 15% is generally withheld, but the investor may be able in some circumstances to claim the foreign tax credit. Foreign dividends are still reported as foreign income and do not qualify for Canadian dividend tax credit. That's important because they're not Canadian companies.

The withholding tax only applies to the dividend nod the stock's total value or price appreciation. So capital gains, again, that's really important to understand. Now, it's also important to understand. to put things in perspective. I think I like to look at this from a nuanced perspective. For example, withholding tax, a stock yielding 5% from its dividend, would probably be looking at total returns that get a significant portion of those total returns from the dividend plus price appreciation. It could be 50-50. It could be 75-25. The higher the yield, the more likely it is getting

like a big chunk of its returns from the dividend and vice versa. So a stock yielding 5% would experience withholding tax drag of approximately 0.75% annually, while a stock yielding 1% would experience a drag of about 0.15 annually. And there's also the same logic where a stock yielding 1% is likely, yes, maybe still a mature business, but probably a mature business that's growing a bit a bit more rapidly than the one yielding 5 or 6% again this is more of a general rule so the withholding tax just does matter

but it tends to matter more if you're looking at high yield US stocks than for a low yield growth stock whose returns come primarily from price appreciation and a little bit of the dividend on the side and this again was for the US dividend stocks

yeah they're they're definitely best held in an RSP if you have everything maxed, I guess you could say. Like the one thing I find a lot of people get bent out of shape with this withholding tax because say it's, let's say it's unrecoverable in the TFSA. So they'll get charged at tax. They won't be able to recover it.

Say they're a new investor. Their TFSA is the only account that they have. Yeah. So they'll avoid owning U.S. dividend paying stocks because of this withholding tax. When in reality, like, this is more so a situation where you have all your accounts optimized and you can choose where best to put them. Like, I wouldn't say to somebody to like go out of their way to avoid US dividend stocks in their TFSA if it's their only account.

And, you know, because then you get a situation where a lot of people are very Canadian heavy in their TFSA because they've been told not to own these US dividend pairs in the, in the TFSA. And I guess the other thing I would mention is, if you have some US stocks that say paid distributions, like they're. a make up, say you own some structured trust or a fund or something, it's only on the dividend portion, like they could pay return of capital, they could pay interest income, they could pay capital gains to you. So it is only on the dividend portion in that regard. Yeah, and that's what,

that's an important nuance. I'm glad you talked about it. I mean, we're sticking mostly for the dividend, again, for time constraint, but if this was really useful and you'd like us to do more videos like this and a podcast episode that go over kind of these general ideas. Of course, if you want personalized advice, you should look at personalized, you know, tax planner, a financial planner that specializes in that that can really work with you to optimize that for each different account. But these are good general rules to have. And also add in the show notes, the link to the Black Rock. And I think Vanguard has one too. They have a table where I was able to build that with the table that I'm showing now on the video.

I essentially used AI to make it easier to read. The one from BlackRock and Van Gogh, like you start looking at it and you really have to like read it sometimes like the line three or four times to make sense of it. So I tried to make it as easy to understand as possible using AI. And we had Dan and I actually worked on him and then had to tweak about five or six time before we got the desired result. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom.

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ETF. So I think a lot of people do own ETF, so U.S. listed ETF holding U.S. stock. So you'll see this exactly on the cheat sheets that I have here. So these ETFs are generally most tax-efficient in an RSP because qualifying retirement accounts receive an exemption from the U.S. dividend withholding tax.

Now, it's important that if you are buying any U.S. ETF, that's really gross. focus and plays a very little to no distribution because the names within it don't pay a dividend or very little. Then, of course, you know, if you're thinking about a TFSA, TFSA might make a whole lot of sense. You always have to look at what kind of dividend you're actually getting here. We're just assuming here that you're getting a decent amount of dividend. And most ETFs will pay some kind of distribution unless they're really, really kind of growth

heavy at all cause, but most of them will pay some kind of distribution. In a TFS, FHSA, or RESP, U.S. dividends are generally subject to that 15% withholding tax. That tax cannot normally be recovered inside of these accounts. And in a taxable account, the 15% is generally withheld. But the investor may be able to claim a foreign tax credit. So, again, not tax as wise, but this is just a general rule. Anything to add to that one before I move on to the. Canadian listed ETFs holding U.S. stocks.

Oh, that's it because I think this is probably the most key one, the Canadian wrapper funds for sure in terms of taxes. Yeah, so this would be a Canadian ETF that's listed in Canada, but holding U.S. stocks. So the withholding tax treatment is generally the same as the U.S. listed ETF holding U.S. stock except in RSP. So that's really important. And you see it on the chart here.

So when you're looking at an RSP, definitely if you're looking at U.S. stocks, you should be looking at U.S. ETFs because then you'll be looking at that withholding tax because the investor owns a Canadian listed ETF rather than the U.S. investment directly. The withholding tax applies only to dividends. Again, not the capital appreciation. So that's really important. So if you have the choice between the two and especially sometimes because the Canadian listed ETF may even be. denominated in USD. Of course, you have to factor in, you know, there's some foreign exchange, a risk that you're taking on and so on.

But you'll have that kind of exposure any way you look at it. It doesn't really matter in the end. But the US listed ETF holding US stocks for the RSP specifically will be better. The TFSA doesn't matter. You'll get the withholding tax in both cases. Yeah. So when you hold the US domiciled ETF, like just off the top of my head, let's say, V-O-O, you own that fund, whereas if you own something like VFV, which just owns VOL, you don't

own V-O-O-O, the fund manager does, right? So the taxes are not recoverable. This is probably the biggest slip-up that a lot of people go through. They think of just because they own an S&P 500 ETF, that's Canadian, they'll get that tax treatment, but it has to be U.S. domiciled, meaning it's in the United States. It's not a Canadian rapper fund. that's holding a U.S. fund. Yeah, yeah, exactly.

So, U.S. listed ETFs holding foreign stocks, so excluding U.S. So let's say you want an ETF that holds like European stocks or anything outside of the U.S. So XUF, so these ETFs can face two levels of withholding tax if they're not, you don't pick the right one here. So first, the countries where the underlying companies are located may withhold tax before dividend reached a U.S. ETF. Second, the U.S. may withhold 15% when the U.S. distribute the income to a Canadian investor. And in an RSP, the second U.S. level is generally eliminated. However, the first level of withholding tax from the foreign countries still

apply. In a TFC, FHSA, or RESP, both levels of withholding tax may apply and are generally unrecoverable in a taxable account the U.S. withholding tax may generally qualify for a foreign tax credit. Again, I think that will vary from, you know, that will vary so you have to make your due diligent. Don't assume that it does. The RSP is generally the most tax-efficient registered account for this type of ETF, but it does not eliminate every level of foreign tax withholding tax. Yeah, this is where I've never really looked into the international ones, excluding the U.S., So this is kind of where I, this is all new to me as well. So yeah, I don't have anything to add about this one.

Yeah, exactly. I think it's just making sure you're aware of it. You definitely, you know, want to avoid having both the U.S. and the foreign withholding tax. So if you're looking here, you know, in terms of option, I would say based on, you know, the research I've done is you probably as much as possible. And I know there's not as many offerings, but it may be. make more sense in a lot of accounts to look at Canadian listed ETF holding international stock directly. So you kind of bypass that potential U.S. withholding tax. And that's the last, I guess, the second to last one here. So the tax treatment depends heavily on how the ETF is structured

when it comes to international or foreign stocks. If the ETF holds a foreign stock directly, there is generally one level of withholding tax imposed by the countries where the companies are located. If the Canadian ETF holds a U.S. listed international ETF. There may be two levels. That's what I was talking about. Tax withheld by the foreign countries and the U.S. tax withheld before the income reaches Canadian ETF. So you could be looking at like 30% withholdings with now it can start making a pretty big impact,

especially if you're looking at European countries where they'll have more mature businesses. You can look at some of these international ETFs that have like one, two, three, four percent dividends. payouts. When you're starting to take a hit of like 30% in terms of withholding taxes, it can hurt. And registered account, though, these withholding taxes are generally unrecoverable. That includes the RSP in a taxable account. Some foreign tax credits could be reported and may qualify for a foreign tax credit. Tax paid within the underlying foreign ETF may not be recoverable by the Canadian investor. And no Canadian account completely eliminates the withholding tax imposed by non-eastern tax imposed by

non-US countries and all else being equal a Canadian listed ETF that holds foreign stock directly is generally more tax efficient than one that invests through a U.S. listed ETF. So you just have to keep that in mind knowing that you will likely have less choice when it comes to that when it comes to Canadian options. Yeah, I would say very little choice I guess like I can't because most of these Canadian funds just own a U.S. fund which owns international stocks. I can't remember if BMO, I think, has a few that own the actual underlying holdings. I'm pretty sure their emerging market fund does.

But yeah, you got to do some digging on this because you're, yeah, Canadian to U.S. to international is kind of a middleman that might end up costing you more. Yeah, yeah, exactly. So it's just something to be aware of. I know it can be a bit more complex, but these are just kind of general rules. And, you know, I think that chart we created along with that was based on Van Gogh, but also BlackRock, I think it's, it's pretty useful. It's definitely much simpler to use than their chart. So feel free to use that as a bit of a reference point.

But again, if you really want an in-depth study of like your own portfolio, how it will impact your taxes and possibly optimize that, then looking at a professional financial advisor is likely. the way to go. Now the last one here, Canadian listed ETFs holding Canadian stocks. So these are probably the simplest. These ETFs don't face any foreign withholding tax for obvious reasons. They can work well in any account with the best choice really depending on the investor's goal and available contribution. In a TFSA, the distribution earn capital gains are tax free. NARSP, no tax is paid while the money remains in the account. Of course, the withdrawals are eventually added to taxable income. In a taxable account, Canadian dividends. distributed by the ATF may retain their eligible or non-eligible dividend status and qualify

for a Canadian dividend tax credit. Capital gains distribution are taxable in a taxable account while return of capital distribution reduced the investor's adjusted cost base. If the investor has a TFSC room available, the TFSA will generally be the most tax efficient than a taxable, well, the most tax efficient account or at least than a taxable account because the investment growth and distribution are completely tax-free. Yeah, I mean, the TFSA is pretty much the best account in the country. I would say the FHSA is also as well. Well, it's probably the best, but you have to use it for a specific purpose.

And whenever we talk about TFSA, like, I would say, like, I believe, and with 99% certainty, that FHSA kind of mirrors the TFSA rules because it's not a retirement account. So I believe it just, it pretty much falls into that category. I think they're still slowly updating that in those various day tables because it's still a relatively new account. Yeah. Yeah. Yeah. Yeah, it's a good overview.

There's a lot of different avenues and go to not necessarily on the stock front, but on the ETF front, I think is where it gets quite complicated. Yeah. And I think it's important, especially, and we were talking before we started recording, like, I think it's especially important if you want to get international diversification just to know what you're getting into because I think the reality and I haven't seen any stats, but that's my impression because a lot of brokers make it harder to purchase international stocks. I think the only one that makes it pretty easy, I think is interactive brokers, if I remember correctly. But aside from that, if you're going outside of Canada and the U.S., oftentimes you have to call in if you want to

purchase a security that's outside the Canada and the U.S. So I think for a lot of Canadians, investors, it just makes a whole lot of sense to look at the ETF route to get that international exposure, but then you get into more complex withholding tax situation. Some people might say, oh, I don't really care. But at the end of the day, like I've said, if you're getting a pretty decent portion of your total returns from the dividend payment, you have to be cognizant in that and try to reduce it as much as you can. Yeah, definitely. There is an old saying in investing. It's not about timing the market, but time in the market.

The most successful investors aren't usually the ones trying to catch every top and bottom. They're the ones who spend the most time in the market. I've been a quest trade user for over five years, and the reason I stick with them is that they remove the friction of regular investing. With no commissions on stock and ETF trades, you don't have to wait until you have thousands of dollars saved up, to make a move. You can contribute small amounts regularly and keep your portfolio growing consistently, removing the stress of trying to time the market. And they keep making it easier

to build a well-rounded portfolio. Soon, you'll be able to trade precious metals through Questrade, giving you even more ways to diversify. Quest trade makes the whole process seamless, allow you to focus on what really matters your investment strategy, not trying to avoid fees. Ready to invest, head over to questray.com, open and fund your account with code TCI and receive $50. Conditions apply. We've booked a cottage for early July, and I'm already picturing the kind of trip where the days are pretty simple. Mornings outside with coffee, my daughter running around with our new puppy, afternoons by the lake, and those quiet evenings with my wife watching the sunset with a glass of wine after everyone else has gone to bed.

And while we're away enjoying that time together, the timing also made me think about our own home back in Ottawa. Early July is such a busy time in this city, with Canada Day and Blues Fest bringing so many people in. That got me thinking about how our home could be put to good use while we're out of town as it's just sitting empty. Listing our home on Airbnb could create some extra income to help cover part of the trip, while also letting another family enjoy our neighborhood during one of the best time to visit Ottawa. They could walk over to a local coffee shop, spend the afternoon at a nearby beach, and use our place as a comfortable home base after taking in everything happening downtown. Your home might be worth more than you think.

Find out how much at Airbnb.ca slash host. Smart investing doesn't have to be complicated or time-consuming. With BMO All-In-One ETFs, you get a complete, diversified portfolio wrapped up in a single ticker. It's easy. Whether you're conservative investor or more aggressive, BMO has an all-in-one solution for you. And now, it's even more cost-effective. BMO has cut management fees to just 0.15% on select asset allocation ETFs, helping you keep more of what you earn.

Simplify your investing today at BMOetFs.com. Let's move on to the next segment here. So I think it'll be fun. What's going on with Canada's top? Like four of Canada's top roll-up companies. Yeah, so I would say, I guess, first disclaimer, is I own all four of these, because I do believe that they are all solid companies, but it has definitely not been the year for the, a lot of people call these like roll-ups acquisition heavy companies, compounders, all that type of stuff. It's a lot of these are suffering quite a bit in price. So I figured it would be an interesting segment because each of them, as I mentioned at the start, are kind of struggling.

for different reasons. Some of them are AI, some of them are macro, some of them are governance issues. You can probably, you know, guess the one I'm going to talk about in that regard. But I would say that probably three of these are heavily owned by inside or, sorry, listeners.

And the fourth is kind of an under the radar option that I do own. But let's just get right into it. The first one would be consolation software. And I do think that this one, so I'll go over why they're struggling. I'll go over kind of a catalyst to what I think anyway would cause to share. price to to kind of start moving upwards instead of sideways or down. I do think that consolation has out of the four of these, the biggest what ifs attached to it. I guess the path to recovery

with the other three I'll talk about kind of have a clear catalyst with consolation. It's just way more difficult to quantify. And one of the reasons it is so difficult to figure out is operationally nothing has really been impacted when it comes to consolation. The drawdown is pretty much purely from a valuation multiple re-rating by the market. They've just kind of decided that they no longer want to pay the premium valuation for consolation anymore. It is the same quality business as it was two years ago. It's just all valuation.

Whether or not that valuation ever comes back is difficult to say. If I were to bet, like if we were to return to free AI, let's say valuations, which is probably like 40x free cash flow or something. something even north of that. I would say no. I would say these valuations are never coming back for a lot of these software companies. Just because coding and advancements in development are constantly being pushed out by, I mean, Anthropic would be one of them. Claude has been one of the main reasons for the downfall, well, downfall and price of a lot of these software companies. And I just think there's going to be a consistent headwind of AI-related developments that could

never go away. I mean, no matter how well Constellation performs, and we've seen it in the earnings, they perform quite well. They're growing free cash flow just as much as they were free AI. It will just be a situation where the next headline is just waiting to come out and kind of impact these companies again. So they're down around 45% from highs. And evaluation multiples stay the same. Like, let's just assume they stay where they're at right now. You'll need around a 12% compound annual growth rate on free cash flow in order to get back to all-time highs over the next five years. So, yeah, it's, I would have little doubt that Constellation would be able to post this level of free cash flow to the cost to sell for investors who bought it at those highs is the fact that,

you know, evaluation multiples don't expand. You're looking at, you know, a pretty long pathway just to get back to all-time highs. So again, the catalyst, I think we need to start seeing Constellation and potentially even other software companies because obviously they all react kind of the same news, but just leveraging AI to develop new tools for clients. We need to start seeing AI profits probably reflected in results, and we need to pretty much see virtually no churn from other VMS subscribers. I would imagine if we see any of that, it's just going to kind of confirm the bear case. If that happens, there's a chance we could see some recovery and valuation multiples, which obviously accelerates

the break-even scenario I mentioned above. But on the flip side, I mean, if you're adding here, you're buying a pretty consistent compounder at a much lower valuation. I think at this point in time, the stock price is probably, like, if I were to guess, it's probably going to grow in line with free cash flow growth unless we see, you know, what I talked about earlier. And for a company that has routinely grown at a 15% plus pace, that's really not that bad of a proposition. But the market views the mode of these software companies as gone. And it's kind of price them as such. And there's a lot of people kind of hollering from their rooftops about out.

cheap software companies are, not just consolation, but just the industry in general, you know, nothing has happened to the business. Yeah, but the market just doesn't want to pay as much. That's just kind of the way these re-ratings work. And it's definitely hit the software space. Yeah. And I mean, at the end of the day, if you think the market is wrong, then that's your thesis, right? You think the market is wrong and that these businesses will continue to thrive in the future. But the reality is the market right now is pricing uncertainty regarding those business models and that's why it's coming down. So until there's more clarity, it will, those multiples will probably remain around where they are right now. And then where there is, when there is more

clarity, the multiples will either increase or go down, depending on what outcome it is. So these are essentially the two outcomes, whether, and then you have to decide what probability you place on each of them. But that's essentially what the premise is here. Yeah. And will we, will we ever get more clarity? I mean, we've been waiting for clarity for a very, very long time and it just, it hasn't happened. But yeah, that's, that's it for consolation. That was that, that's the more like unknown one, I would say. The next one we're getting into is WSP. I just wanted to mention a quick anecdote here. So we were using, and I'm happy to say the name of the platform, because at the end of the day, they're the ones that I think are not

adapting quickly enough. So we were for video recording and the podcast, we're using platform called Riverside. Some of you may be familiar. some not. And it's really a platform optimized for, yeah, a lot of podcaster streaming and stuff like that. We've had a bit of issues and we were looking to upgrade to a business plan, but we only needed like certain aspect and they were not flexible on the price and they were like, you know, asking significant amount of money for the higher subscription when we only wanted one little thing. We didn't want the full suit of perks. So we're like, okay. So we met with them. We started looking at other options and we found out another option that is probably more efficient, better for

a use case, and is coming about 20, 25% of the cost. And that's just to show that these streaming company, like Riverside, these are software companies. Like I can't imagine that it's that difficult for someone who has coding experience using AI to build a platform from scratch. So if you're not flexible on your pricing, then you're, you're not flexible on your pricing, then you can probably see like a year or two down the line, you'll probably find more and more people that are doing like us and say,

okay, you didn't want us to, you didn't want to be flexible with us. We're actually, we found something more efficient and we're switching. It's actually lowering the cost. And then I wouldn't be surprised if they come back to us a year or two down the line and say, oh,

well, you know, now we're willing to do that and now it's too late. You lost your customer. Yeah, I mean, competition is ramping up in that space massively. Constellation a bit sheltered in that regard because of the vertical market area, but still a known factor for sure.

Next one is WSP. So they're down around 41% from highs back in 2025. And I believe that was made late in 2025. So we're near 52 week lows. Valuation multiple pretty much cut in half. And it's pretty much just a cliff downwards from I think it was September. is less than one. So that's, yeah, that's usually Peter Lynch, right? That says he wants a peg of below one. And a peg is essentially the price of earnings growth. So if you're growing your earnings at a

15% clip per year and your P is 15, then you have a peg of one. That's essentially what it is. Yeah. Yeah, exactly. You have forward earnings. Yeah, foreign earnings. So essentially we are looking at one. So anything below one, it's starting to be, at least according to Peter Lynch, but generally it's starting to be very attractive in terms of growth slash value. Yeah. And I guess the one thing quickly before, with PEG, just remember that it's based on forward analyst estimates. So it's, you know, if there's, I'll give an example like the AI trade right now, a lot of analysts are super bullish on AI because of the KPEC spend. So PEGs do not look that bad because analysts are so. And theners are so, bullish on forward earnings. So you kind of got to take that with a grain of salt, that valuation

ratio, because let's just say KPEX pulls back, those forward earnings multiples are going to come down and it doesn't start to look as good. But for WSP, not really, well, I guess they would be exposed a bit to that because they are dependent on forward infrastructure spending for sure. But the company is, it's the cheapest it's been for a very long time. So in terms of trailing price earnings, I think we're the cheapest we've been since 2017. So you're getting pretty close to decade lows outside of the COVID crash. It got cheaper during that March, like very short crash we had when the pandemic started, but 14.5x forward earnings.

And this one I actually have a difficult time pinpointing why it has fallen in such dramatic fashion. I mean, operationally, things have slowed down a bit, but the market gave it absolutely zero leeway before it just thrash the stock. Organic growth is trending down to the lower end, but it's also a very short time span where this is happening. So it could just as easily rebound. And the second headwind, I think, is hitting it is kind of the uncertainty around public or private spending because of elevated rates in the U.S. I mean, there's a lot of noise right now in regards to interest rates in the United States that they actually could increase. I think there

was something on Pauley Market that said the betting on a rate increase in the United States. that States was like nearing 70% in 2026. So it is. But at the same time, I think if you remember, if we look at Polymarket or even the CME Fed Watch tool, remember how many times they were like pricing a cut and it took like a year or two before I actually started cutting. So they have a tendency to have been, they don't have the best track record. So that's the only caveat I wanted to mention. Like Dan Foch and I have talked about that on our Friday lives where the markets have You know, the markets know, but they also longer term, sometimes they're completely off the mark. Oh, yeah, they can be way wrong on something like this.

It's even the best economists in the world can't really predict when this is going to happen. But the market will probably price in what they think is going to happen. So higher rates is going to lead to probably more uncertainty around private spending, even public spending to a certain degree. you know government spending inflation all that type of stuff all of this could put into question whether or not w sb's bookings will continue to be strong their backlog is mostly contracted but the question would be forward bookings if they continue higher rates could slow spending from corporations they're going to wait for a better or less expensive environment to spend in so i think that's one of the things and then the third would be the i i i disruption so this one in my opinion is a little

more clear cut than something like Constellation. The theory here is that AI could replace a lot of mundane tasks that WSP performs for clients. And as a result, you could have lower billable hours, which would ultimately hit sales, because a lot of these engineering companies are just time and material in terms of what they charge. Whatever the hours they book to do your job is what they're going to charge you. And because of the other two situations causing a drawdown in price, it is hard to say how much the market is actually hitting the stock for the AI situation, but I think, I generally think this is the wrong way to look at it with a company like WSP because they've had multiple years now where they pretty much said they cannot hire enough people to execute the backlog. There is a finite amount of quality engineers available and they're competing with so many other firms for talent. So they actually come, they actually came out. Like in terms of quality engineers. quality control late wouldn't she need a human to validate what that's why i think it's very

overblown yeah i think a situation like wsp there's going to be AI integrated there's almost no question but i think you're going to go from humans to AI back to humans there's just no way people want liability in terms of like they're not going to if they construct a bridge and the engineering fails like they're not what are they going to do go to the lLM like they're going to want human human liability on this. And even then, like, would you be all that confident using a piece of infrastructure that's been engineered by AI? There is a lot of, I don't want to say, well, there's a lot of tasks that it could tackle easier. But I think in this regard with WSP, it's just kind of a situation where they might end up not just billing by hour, but billing by

completed job. So if this is a case, I mean, any level of AI efficiency, added to the business simply means lower operational costs and higher margins. I think it would be very easy. And we're seeing this with a lot of software companies that are going from seat-based billing to completion-type billing, where you're not billed for owning 10 customer service seats anymore. You're billed for how many tickets you finish in that month. So I think this would be probably an easy transition on the engineering front as well.

Catalyst for a turnaround, I think it's quite. simple. We do need leverage ratios back down to a comfortable range. They made some massive acquisitions in power and energy recently. The company is thinking well ahead in terms of grid expansion, but they did take on a lot of debt to do so. They've done so in the past a lot, and they've always got leverage ratios back down. So I'm not really all that worried about it. Second one would be the tariff economy, rate environment, less uncertainty, need private spending to ramp back up. Private spending tends to ramp back up when the macro backdrop is a little more stable. Right now, it is about as far from stable as you can get. And then finally,

organic growth. If they can get that back to the 6 to 7% range, give the company turns into a low single digit organic growth company. It goes kind of from that compounder to one that consistently needs to make acquisitions to move the needle. And that is a much more capital intensive way to grow. And the market is probably not going to pay as high of evaluation for the company. But I've been adding this one faster than usual recently. I don't have any worries about the future. I think a lot of it is either macro related or just kind of overblown on the AI front. Yeah. Yeah, I think I agree. I mean, I also own the WSP Global, so it's hard to disagree there. I mean, the reason I bought it when it started going down, I'm still, I'm underwater a little bit, but that's why I really like it. And

it's, it's looking really attractive right now. So I think this is one I'll probably look at adding soon. So what's the next one of the list here? So Boyd group services. So long time listeners will probably have heard me talk about this stock quite a bit. And the animal shut up about it, but for good reason. It has done nothing but go down. I, I know that. People tell me that the odd time, but I, I definitely know that because I do own it.

I followed it probably since 2015. And for a very long time, it was one of the best compounders in the country. Like, that is not an exaggeration. It was, I pretty sure it was. 9,000 or 10,000 percent returns from the early 2000s based on this would have been pre-drawdown price. So the company is the largest auto body shop in North America, yet it only has a single-digit market share, the entire market.

It might be double digits now because it bought Joe Hudson, which is a very big U.S. Auto Body shop. Strategy pretty simple. They acquire mom and pop repair shops, merge them into the fold, boosts their margins, and they ultimately profit down the line. they can cut out a lot of recurring costs from these. And it's, it is, it was a very good business model, low margin, but lots of volume business model for, for a long time. And unlike WSP and Constellation, there's really no AI fears here.

This one is just getting absolutely thrashed because of the macro environment. So coming out of the pandemic and rapid inflation, we faced in 22, 23 claims volumes in terms of insurance pretty much collapsed. because insurance, well, I don't want to say collapse. That's probably an exaggeration. But because insurance was getting so expensive, consumers were increasing their deductibles or just outright avoiding insurance altogether. It's actually pretty wild. Right now, it's is the highest level, I think, in history of uninsured drivers in the

United States. Yeah. I think it's like 13 or 14%. Like, in case you're liable? I think it's illegal to drive. without insurance, but people are, you were allowed to not have insurance if you, like, on your own vehicle, but you needed some kind of protection to, like, if you ran into someone and then do damage to their vehicle, you need insurance on that. Yeah, and there, these are people without

insurance on either. So, yeah, here's the piece. This would have been, this was from July. So recent data confirms that uninsured driver rates are. nearing record highs 15.4% of U.S. motorists driving without coverage. So just kind of shows you how expensive insurance has got, how it was effectively, you know, unaffordable for a lot of people. So they were either increasing their deductibles or just avoiding insurance altogether. And on the on the deductible side, a $250 deductible makes a $1,000 or $2,000 repair pretty routine for a lot of people. But if you raise your deductible to a thousand, fifteen hundred, whatever it may be, you're not going to pay a fifteen hundred dollar deductible to make a two thousand dollar repair.

It's, it's just not going to happen. So it puts a lot of these repairs into the bucket of probably not worth it. So for a few years, claims volumes were, we're taking a hit from this. And on the other hand, automobile prices started falling. So OID generally benefits when prices are higher because the insurance companies will get more vehicles repaired versus writing them off. Total loss rates, which would be those right-offs were accelerating coming out of COVID because the prices were settling. So Boyd needs the cars to be damaged, but not damage to the point where in the insurance company just kind of sends a car to the record. Yeah. They need the car damage, not total.

Yeah. And the other, the other thing is, is they need accessible parts because these insurance companies, sometimes the vehicle is well worth repairing. But if the parts are too expensive or a long ways out and it's going to increase the cost that they have. to give you a rental for say three, four months or whatever it may be. They might actually write completely write the vehicle off for less than a, you know, even though it's still worth more than the repair, they'll still write it off. So, so they had claims volumes falling by double digits. Strategically, Boyd really hasn't deviated at all.

They're still acquiring at a similar pace as they have been throughout history. But operationally, things have been a bit slower, which is all that claims volume. So in this one in terms of a catalyst, and I guess in my situation, like buying this company and covering it for so long, it's pretty clear that I was early in this regard. This is kind of my thesis here is that the claims volumes will improve. So over the last year or so, they've went from going down 9 or 10% to down 6 or 8 to down 4 to 5%. And now we're at the point where they're actually flat. So I think the catalyst that would turn this one around, the claim volumes need to flip positive. the insurance cost headwind is generally gone now.

We've seen insurance costs rise a lot, but now they're effectively flat. And yeah, if claims volumes start to turn positive and same store stales start to trend back up, I think you're going to be, I think the market will reward this one. The interesting part I think about this company, and we've seen it a lot over the last few years, is these small cap Canadian stocks tend to get hammered like this, and then they get taken private, or they get bought out. I don't know private equity's kind of appetite for owning a company like this,

but if we look to targets, so they have long-term guidance to hit 700 million in EBITA by 2029. That would be a little less than double what it posted in 2025. So if we get that, plus the valuation goes back to what the market has historically paid for the company, that would give you a share price, assuming no dilution of around 450. $50 by 2029.

So the company is cheap and we've seen it with Park Lawn. That would have been a few years ago. They got really cheap and then they got scooped up. We've seen it with Andrew Peller just like two weeks ago. They got really cheap. Parton is funeral services company. Yeah. And then Andrew Peller is the winemaker.

Winery? Yeah. And we've seen it with Jameson Wellness. That one's not confirmed, but there is a behind the scenes buyout offer for this company. So you've seen this a lot with these small cap or mid-cap Canadian stocks. They get hammered down in valuation. They're not as popular. And then, you know, they get taken private, often for pretty poor premiums.

So that'll be interesting. This one is a lot bigger than I believe Andrew Peller and Park Lawnwer and Jameson is, but not by much anymore because of the drawdown. But I'd be interested if there would be an appetite for private equity to own a company like this, or if there's too many moving parts, maybe it's too niche. But yeah, that's the third one. Okay. And now let's go on to your last one before we wrap things up.

So, TerraVest Industries. Yeah, so last one will be quick. Yeah. Last one will be quick because we talked about it just recently. It's kind of a unique one. Blend a macro issues plus major governance issues in regards to insider tipping allegations. I won't go into the tipping one because, I mean, you can probably just scroll back through the last podcast episodes, we kind of talk about it in detail.

But the majority of the share price recently has kind of been from this. A smaller impact would be U.S. Tanker trailer demand. So the acquisition that caused the insider tipping was Entrans, which does rely heavily on the sale of tanker trailers. So the company took on a lot of debt to fund the acquisition. I believe it was their largest in history. So the market probably doesn't like the fact that a couple of years after pulling the

trigger they are seeing some softness there. But despite the demand, the soft demand, the company's performing very well. Engine underneath of it, definitely still firing on all cylinders. They're still making, you know, more smaller, smaller acquisitions. I'll just kind of dump right into the catalyst for this one. I think the governance issues need to be resolved and resolved quickly. Keep in mind, this is still unproven. Like, they've never proven any of this insider tipping yet. Pellarin is still on the board. Terravist is still running their internal investigation and no charges have been late. So. Yeah, but for for Canadian regulators to look at something like there has to be a lot of smoke. Yes. There's that. Oh, there is a monumental amount of smoke here.

Yeah. But obviously the best case situation would be as if all this was false. Because Pellarin owns like 15% of the company, he's, you know, chair of the board, head of governance, I think, which is kind of ironic. But the company is still better off with him still being in. evolves. So I think if the situation turns out to be nothing, it would really restore positive sentiment. However, I would put the odds of this. I don't want to say zero, but it would be very low because as you mentioned, there is, there is a lot of smoke there. And I think they also need to do so without any collateral damage because say he is guilty, he's removed from the board, whatever it may be. Any increase to the cost of capital for the company ultimately hits the engine that has resulted in it performing so well. I mean, they take on a lot of debt to fund acquisition. So the higher the cost of that debt, the lower amount that flows to the bottom line. And this is a situation like a lot of people said when I spoke about this before, that it's not going to happen. I mean, if these banks think anything is off, they will compensate for risk, for sure. Whether it be, you know, a quarter point, a half point hit to a line of credit

that they're paying, even a tenth of a basis point, whatever it may be, they do factor in these governance issues when they're issuing credit ratings and when they're issuing loans. So yeah, that's what I have for this. This was my, I've owned the other three for quite a while. This was my most recent buy. I bought it on the, on the dip due to the governance issues. I do think it'll be a non-factor moving forward. But yeah, that's the four. Yeah, that's, I mean, it's pretty interesting. I think, I guess AI does play a little bit in all of this, right? I think more some names than others, consolation looking at WSP global to some AI risk, but you have to think the hype around AI and all the money flowing to like especially the semiconductor space. There's a whole lot of

FOMO there right now. You have to think that it's probably putting pressure on these kind of roll up companies that are not as sexy. I mean, not just these roll up companies, but just value companies in general. I think there's still a lot of people that are just chasing the hottest trade right now, whether it's, you know, memory chip makers or you name your, your hypers, or SpaceX, although SpaceX is seen as a pullback, but I think these kind of value plays, roll-ups are still not extremely favored right now, and that can definitely play in part of it, aside from the obvious AI risk of like a consolation, for example. Yeah, and you could even look to something like Boyd in regards to AI if you really had to

reach is the fact that it could potentially reduce vehicle collisions in the future. I mean, it already newer vehicles already are reducing collisions. It's only around one and a half to two percent a year, I think, right now. So there's definitely plenty more room there. But I doubt the market's pricing in much of that right now. But I wouldn't doubt if we get some sort of AI systems down the road that do reduce collisions. But a flip side just makes the parts more expensive when they are in a collision, which again, it's kind of give or take. But yeah, there's there's not a lot of positive sentiment for a lot of these companies right now and most all of them are well actually all of them are in the gutter i would say yeah i think maybe a

fun topic for a future episode is just looking at some value etifs and just looking how they're trading compared to more of the high ttifs right now even if you're looking at the qqqq the smp 500 which is almost like now half of it is like a tech etf pretty much and comparing that to more like value ETFs, how much you're trading, the inflows, outflows. I think that would be really interesting to see where a investor sentiment is. Obviously, it's not a perfect proxy, but probably give us a good idea. So let us know if that's something you'd like because I don't know about you, but I know enough about your style that you tend to also steer a bit more on the value side of things.

And I'm definitely, I'm definitely like that too. I do have some more growth investment, but for the most part, especially in this kind of environment. I am trending more towards value, the overlooked areas of the market, even though it's easy to think that the markets as a whole are overvalued. I still think you can find some really interesting pockets of compelling plays. And I mean, we looked at a couple of them. I mean, the peg ratio of WSP and looking the other one was, was it TerraVest? No. And Boyd was well below one. So those are just example. Yeah. Boyd is the cheapest that's been in a very long time. It's actually, and I'm not really, I wouldn't say I'm value. I would say mostly growth at a

reasonable price. I mean, it's very hard for me. And I, Peter Lynch. There you go. You're Peter Lynch. You want, you want value and growth. You want best of both worlds. I think that's, like I, I own ASML, which I think is a high quality company, but is very difficult for me to buy more shares of AFSML at 50x expected earnings or whatever it is when WSP is 14.000. and a half. And I mean, I could be completely wrong on WSP. You heard it here. First, dump ASML and buy WSP. That's what Dan is saying. He's going to radio you. But no, I'm just messing with you. Totally understand. But I think we'll wrap it up here. It was a fun episode. Hopefully you found both of these segments interesting. Let us know. We appreciate your feedback. If you'd like more

of the content in terms of looking at different accounts, what type of investments might fit best in different accounts in terms of general kind of, you know, tax efficiency and things like that. And possibly looking at more Canadian companies, roll-ups or U.S. companies, like we focus a bit more on the Canadian content, but we do cover U.S. content as well. So thank you a lot for listening. Hopefully you enjoy this full video. We will be back with a news and earnings episode on Thursday. You can catch that one on the podcast feed.

We're publishing one of the two episodes every week. Maybe eventually we'll publish both. but for now that's what we'll be doing for YouTube. Thanks for listening. The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guest featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.