The Canadian Investor - The Return of Meme Stocks and Canadians Spending Less

Episode Date: May 16, 2024

In this episode of The Canadian Investor, we dive into the resurgence of meme stocks led by the rise of GME. We discuss the mysterious return of Roaring Kitty (Keith Gill), whose recent posts have sparked excitement and speculation. We analyze the massive trading volumes of GME and what it might mean for the market and regulators. We also cover the latest Canadian job report, which showed a stronger-than-expected increase in employment, and discuss its potential impact on the Bank of Canada's upcoming decisions. We also cover the earnings from Goeasy Ltd, Stella-Jones, Canadian Tire, and Home Depot. Goeasy continues to thrive despite regulatory changes, Stella-Jones benefits from infrastructure demand, Canadian Tire faces mixed results, and Home Depot navigates a challenging market.   Tickers of stock discussed: GME, AMC, BB.TO, SJ.TO, CTC-A.TO, HD.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 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 Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

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We will only have one news and earnings this week. I think it's a pretty good one. There's a lot of stuff that happened actually in the last few days that will be interesting to talk about. We're both feeling a little bit i guess sick to some extent i'm coming out of that cold i've had for a few days or a week now and dan you're battling alberta allergies huh yeah the uh the wildfires in fort mcmurray are not good on me. I don't know what's worse, like heavy allergies or being sick, but if I sound a little bit stuffy, that's it. But yeah, I think it was a pretty slow week in the Canadian end, but there's still plenty of good US stocks and some kind of stocks today

that are really kind of highlight the state of the economy, really. Even some of the financial stocks will go over and retailers, things like that. So it should be a pretty good episode. Yeah, and I'm sure for most people, it's countdown to Canadian bank earnings. I think we're a couple of weeks out or 10 days or something. End of May. Typically, yeah, like there'll be the end of May. Okay, so don't worry for those old Canadian banks.

We will be talking about them. I know a lot of people are looking forward to that. Well, the first thing on the slate here, because we do have quite a bit, is the meme stocks that are making a comeback. So I was looking at this earlier this morning, ended up going into a bit of a rabbit hole. I thought it would take me like 20 minutes

to do this segment, and then probably did an hour, an hour and 15 minutes worth of research to make sure i had uh you know some context around it so for those who are not familiar meme stocks it happened i think it was like 2021 if i remember correctly early 2021 when that kind of all started and the i guess poster child of of the meme craze was GME. So GameStop. And as of Tuesday this morning, when we're recording as of 11.30 a.m.,

compared to the close on Friday, GME is up 199%. AMC, another meme stock. I guess it's following the GME trend here, up 228%. And our very own BlackBerry that's doing nothing. But because people are, you know, I think it's been caught up in all of this. So that one is up 26%. There's other names too. These are not the only ones.

Now, I'll go over what exactly happens. So just to provide some context, and I do encourage people, there is a documentary on Netflix that went over the whole kind of meme stock GME craze. I can't really remember what the name is. I watched it maybe a year or two ago. Was it Dumb Money or something was it called? Something like that. I'm not quite sure. Anyways, maybe you look that up while I continue here.

But essentially, Roaring Kitty, Who's also known as Keith Gill. He's the guy behind the GameStop meme stock mania. He posted on X or Twitter. For the first time since June 18, 2021. So he posted a picture of a drawing. Of someone sitting in a chair. Last Sunday. May 12th.

And the picture appears to show someone. That's relaxing back. and then crouches forward with a gaming controller. So obviously, you know, that is kind of up to interpretation. And for our Join TCI listeners, I am showing the tweet that I'm talking about. So this was his first tweet since essentially three years, not quite, but pretty close to it. And since then, there have been 14 more videos posted. That's how many I counted. And as I was counting, another one got posted. So there might be more by the time you listen to this. If you're not familiar with his videos, they're essentially short videos, typically like less than a minute, a minute and a a half and they're typically montages

from scenes of different movies sometimes there's some music in the background and it sends a message and that's my interpretation of something coming up and gearing up for battle obviously leaving room for interpretation but that's the general sense I got from them. And where things get really, really messed up, in my opinion, and where I think regulators will be looking at this, is when you start looking at GameStop volume, which started going up significantly on May 3rd. To give people here some context, in the past year, the daily volume was just a few million shares, the average. Typically, you'd see like 2, 3, 4, 5, definitely in the single digit millions. May sound like a lot, but that's the typical volume.

And if you go back to a year, you'll see some days or a few days where there might have been 10, 15, even sometimes 20 million shares. But it never lasted for more than a few days. And I think there was one instant when it went up to 60 million, but that was kind of a one-off. And on May 3rd, the volume jumped to 36 million. So if you look at that compared to the previous day, which was 8 million volume, which actually was quite higher than the day before that. So May 1st was 2.6 million. May 2nd, 8.6 million. And then May 3rd, you have a significant jump where you have 36 million in terms of volume. And then May 6th, 48 million. May 7th, 24 million. You have May 8, close to 25 million. May 9, close to 26 million. May 10, so last Friday, 36.8 million. So let's just say 37 million. And then the tweet came out over the weekend.

And then May 13 on Monday, 182 million of volume. And today, as of about an hour ago recording the volume was 106 million so i don't know about you then but where there's smoke there is often five like there's often a fire not to uh you know talk about the fires up north here but something feels like quite fishy here like the fact that you have this big take up in volume essentially like a week or so before the tweet comes out and then the tweet comes out and the stock just literally explodes yeah it's pretty you're talking like a 4x day over day volume increase and then it keeps on trending up and it like stays elevated so clearly like something's going on here some people like probably knew this was gonna happen is what i would guess like i mean when you go from you know 2.8 million on april 30th to well today we're

probably it's gotta close over 200 million today probably it's a it's 1 a 1 p.m eastern and it's already at you know nearly 110 so it's probably gonna close you would think you know at a hundred times well not quite a hundred times but like 80x the volume that it did a few weeks ago something uh something is fishy it was um it was dumb money it was the movie so it's yeah it's like it's kind of like a con it's not a documentary i would say it's i don't know what are they called like a documentary type thing i mean it's like a comedy slash drama i actually haven't seen it i don't know if it's is it any good yeah it's good it's worth i mean it's entertaining like even if you're you know you're watching it with your better half i think you know she'd probably enjoy it like it's not

like i i mean i think it's more like i i definitely think it's more in the documentary category and i think it was pretty well done and after all this i think i'll probably re-watch it this week to be honest i'm definitely gonna watch it now yeah i i had forgotten about this guy to be honest but it was like i remember early 2021 it was just a gong show yeah and all these stocks yeah exactly and i mean at the end of the day some people people I had, like I tweeted something out regarding this. Someone said like, oh, maybe his account got hacked. It's possible. I mean, it's just like I cannot imagine just based on that. And we don't have all the information clearly, but just based on the volume and the timing of it,

I cannot imagine that regulators will not be looking at this. Like I 100% think they'll be looking at this like i 100 think i don't they'll be looking at this whether charges are late or not i guess that remains to be seen and clearly with the video i think the first thought that comes to mind is just plausible deniability because they are not you know it leaves room to interpretation like we said so and i think the other meme stocks are kind of just caught in the crossfire. So people are just like getting excited. And I guess the last thing I'll just mention here is I've been feeling that the markets have been quite overvalued, to be honest, for probably some time.

And it's hard not to think that there's they're overvalued when this kind of stuff happens, right? Like it's uh people are i don't know yeah it's hard to to explain to be honest i'm a bit lost for words yeah it definitely seems like frothy right now and then you see something like this which is like the last time this occurred was during the bonkers markets of 2021 which were i mean they ended pretty poorly you know later on in that year for a lot of these types of stocks but it's going to be interesting to see because he's still

posting videos like he posted one just just 15 minutes ago so i mean he's made like it looks yeah like you said like 10 or 14 videos today so i'm sure this is only the beginning yeah yeah yeah it's just it's hard to say I mean I've watched like I basically to prepare for that I watch like all the ones that were posted just to see if I could find a theme and that's what I mentioned was kind of the general impression I got but I'm sure we will probably have to touch back on it next week because it's hard to think that there were sure any developments on that. 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. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it.

When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and

haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. Now, just kind of going into a bit of the macro picture, Canada's job report comes in stronger than expected. So the headline number was 90,000, definitely stronger than expected for April. And it's important to put in context because of those 90,000 jobs, 50,000 of these jobs were actually part-time. Not incredibly surprising. I think that lines a lot with university and college students, right?

They finish university and oftentimes they'll start kind of picking up more hours and work part time. On the provincial and percentage basis, New Brunswick saw the biggest uptick with 2% increase in April. BC, Quebec and Ontario saw respective growth of 0.8%, 0.4% and 0.3%. The employment and unemployment rates were unchanged following the strong job report. And the fact that it was unchanged is because the participation rate increased 0.1%. So it kind of offset that. And that means the number of people that are age 15 and older looking for work or employed. So that's what the participation age is. And the main areas of job growth were professional, scientific, and technical services, accommodation and food services, health care and social assistance.

And then there are some other areas, but those were the three main with over 15,000 each for those sector. And, you know, I think also it's important for people to remember that it could very well be that these numbers are revised down the line. And that's always a thing that people have to keep in mind is especially these job numbers. And the U.S. is like really infamous for that, right, is there's revisions down the line. I've been digging through those stats, especially in the U.S., just because there's just so much more available to a gradual granular level. I mean, I know stats can tries to do the best job they can, and I'm sure it's a hard job, but you just have so much more data in the US, whether it's the Bureau of Labor statistic, or each of the feds have kind of areas that they focus on. So it's just a lot of a lot of stuff to draw on. And apparently some of the job numbers are,

when they come out, they're kind of part of it are like estimations. So that's why they get revised down the line. So I always find that interesting. Anything you want to add here before I go on, Dan? No, I mean, the one thing I guess that's a little alarming, but it might just be coming from me because I'm in Alberta and like our housing market is just exploding but like the decline in construction jobs yeah so I mean you like with how desperate we need like new housing construction and all that type of stuff I mean it's pretty just surprising to see the large drawdown and then I even believe like out of those 90 so i think 50,000 were part-time and i think almost 30,000 were public sector or something i can't remember that

exact number but there was a lot of part-time jobs and uh and government jobs as well so i mean yeah it's it kind of paints to a picture like that you know rate cuts does it really need to happen in june now i mean maybe they start talking about that it's uh it's gonna be interesting yeah i think that's a great point because whether the numbers are great or not when you start digging into it it doesn't really matter if they need a reason to not cut so people people may say, oh, like, okay, if you start digging into the numbers, it's really not good. But, you know, the reality is, whether it's in Canada or the US or any other central bank, if they can point to the headline number and say, well, look, jobs are growing, 90,000 new jobs in April. If they can point to that, it's kind of an

easy excuse to not cut rates. You know thing for the US so I think that's a really good point to be honest and I think you know Tiff had mentioned Tiff McLean of course that a rate cut was a possibility at the June meeting obviously all the headlines had like that in bold, like, you know, bolded. And that was kind of the thing that was being said after that meeting. But people kind of forget that a possibility is not, you know, a guarantee. And I always find it funny because, you know, you'll themselves ample room to not cut if they saw that as the best possible outcome. So I think it's important to remember that.

And with the strong headline employment numbers again, like it just gives them a bit more ammunition to that. So the probabilities of a cut in the US have steadily been pushed out. We've been talking about that. And it may be harder now for the BOC to start cutting. And even today, I think Powell came out and said that inflation was actually more stubborn than they thought it would be. And that the rates would probably stay elevated for longer. So it's just, I think, a good reminder for people that I think you have to be careful when you make investment decisions, especially we've been harping on BCE a whole lot. But BCE is not alone in terms of companies that I've seen their interest expense go way, way up. They're not the only company that has a lot of debt on the balance sheet

that will need to refinance part of it in the coming years. And higher rates clearly will make that refinancing of debt more expensive. And to me, it's just a reminder for people, you know, it's fine to invest if you think it's a good investment to invest in companies with significant amount of debt, but make sure you draw different outcomes. because if the only thesis is that or your thesis is heavily reliant on rate cuts, well, what if they don't happen in the time frame that you think? Or what if they happen but not to the extent that you think in your premise and so in your thesis? So I think that's really important for people to remember because unfortunately, the tweets I've seen with people that are really bullish on bce a lot of it has been anchored on those rate cuts and now those

tweet looks they look like they age like milk so um yeah yeah i mean even if you sit here like at last year say at this point most people figured they would already be cuts or at least like you know they might be starting in may or june yeah most like most predictions were like march would become basically the latest they would start yeah and it's like a lot of these people predicting these cuts are you know very smart economists and even they don't get it right so i mean that is the case like you shouldn't really make investments based on policy rates because absolutely nobody knows where they're going to go. Because if I were to have guessed last year, I would say at this point, they would have started cutting by now. But, well, remember, our bold predictions from the start of the year.

Oh, yeah. We were wrong. I called them. That's already dead in the water. Yeah. Yeah. Yeah. That is already not happening. Unless something like material happens. Yeah, exactly. So I don't think, I don't want my bold prediction to be right at this point,

even if I would probably benefit when I refinance my mortgage, just because I think if it does happen, like you said, we're probably going to be in a world of hurt. Yeah. There's going to be a big shock because I think I predicted 200 or 250 basis points. And for that to happen by year's end, there would be a material shock to the system. Something really bad would have had to happen. No, exactly. But I think that's enough for the job numbers here. So you want to talk to us about GoEasy earnings? Yeah. So GoEasy is just, I'm sure a lot of people have heard of it. It's an alternative lender in here, here in Canada. It's like exploded over the last 20 some years. They topped estimates on both revenue and earnings. It's

pretty clear that, I mean, GoEasy is benefiting from a weaker economy and rising cost of living, which ultimately leads to more Canadians needing to borrow from alternative lenders. I mean, if you think about it, most of the people who are going for financing through a company like GoEasy would typically be rejected by an institution prior to going to GoEasy, like a major bank maybe won't lend to them or something like that. So typically they go to these alternative lenders. This is the 56th straight quarter of positive same store sales growth. So you're going to 14 plus consecutive years this company has grown same store sales. Year over year revenue grew by 28%. New customer volumes are up by 17%. Operating income is up by 30%.

Customer volumes are up by 17%. Operating income is up by 30%. Earnings per share of $3.40 is up 13% on a year-over-year basis. And this is actually despite regulators. So I can't remember. It was at some point last year, but they essentially reduced the APR, like the interest rate you can charge on the loans. I can't even remember what it was at before. It was over 40, and they reduced it down to 35%. So at first, many people believed this would kind of hit go easy quite a bit, but the company pretty

much came out and said it wouldn't really be impacted all that much. And in the latest quarter, the company's weighted average interest rate on its loan sits at 30%, which is actually down 0.2% on a year over year basis. And I would imagine this is just due to the company needing to restructure some of the loans that did sit above that regulation. So it's going to drag down their average interest rate. And the company has two core segments. It has its easy home and easy financial. So the financial end is obviously loans, but its easy home segment is where people go to lease everything from furniture to electronics. The part of this business is seeing a pretty significant decline

in growth. And I don't really mean a decline as in sales are dropping. They're just not really growing at the rate they used to be. I mean, they used to grow quite a bit pre-policy rate hike, and now they're only growing at 2% year over year. I think I did. I went on to this website. This was like three, four years ago. And I remember seeing a PlayStation that you could buy on easy home. And I can't even, I'd have to run the numbers, but I think it was like $20 a month for like 120 months that you pay for this thing. And I worked out the actual cost. And I'm like, this is absolutely insane.

You're going to pay over $2,000 for this $600 PlayStation. And like furniture, electronics, anything you could think of, that segment of the business sold it. And I just like, I just kind of thought like who is doing this but clearly a lot of people are now not so much because you know it's probably an easy expense to cut out you don't want to finance a couch over 10 years well i would also over 10 years thing that buy now pay later is eating into those as well right because it's so yeah because those are often yeah it's right at the checkout free too exactly interest rate out and sure it's not going to be 20 bucks a month for a

playstation but let's say 150 for four months a lot of people i feel like will probably be like i can make it work like 150 bucks so i would think buy now pay later definitely would be a big competition for them yeah and i would say if you have to finance a PlayStation at $20 a month for 10 years, you probably shouldn't be buying one, but I would agree with that. It only makes up a pretty small portion of GoEasy's revenue. I think it's around 10%. So I'm pretty sure they're at like $366 million on the quarter and the Easy Home is like $30 million, maybe a bit more. Net charge off rates came in at 9.1%. This would be loans unpaid. It's in line with the company's target ranges and is actually

below pre-pandemic levels still. So a lot of the issues that people projected with these alt lenders is times would get tough, default rates would rise, but this is still a relatively high charge off rate. It is high, but they're like, this is still a relatively high charge off rate. Like it is high, but they are like, they're at alternative lender. I mean, they, they have quite a few people who are probably in tough shape financially coming in and getting loans. And I mean, especially now, like the weaker the economy gets, I believe the more popular a platform like go easy becomes. So So they record loan volumes and new applications for credit, 41%. So they're seeing a 41% increase in applications for credit, which is just, it's insane. Return on equity, 24.6%. So it's probably a thousand basis points higher than

most of the major banks. It's uh they just it's a pretty crazy business i mean again like go easy aside when we look to these earnings it kind of paints a picture of the state of the canadian consumer it's a place you go when you're rejected from another financial institution because the interest rates at these institutions are just i mean they're horrible a lot of people see it as like predatory lending like borderline predatory lending i would say it's i would qualify at subprime that's essentially what it is yeah it's some yeah they're a subprime lender yeah and those will do well as long as the economy is doing well but i would say this is probably it's probably entering the riskiest phase of for like cyclicality for this

company because people may like be tempted and you know maybe it'll be a good investment i'm not saying that but you know it's just cyclicality right as you have people that are really not in the best financial situation going that they probably have a job. That's how they're being able to get approved. But if the economy takes somewhat of a downturn and you start seeing layoffs tick up, that's where the write-offs could really start going way, way up for a subprime lender. Yeah. And it's, I mean, I don't really think it's unique to Canadians either because there's a pretty popular Canadian company as of late. It's called Propel Holdings. So it trades, I think its ticker is PRL, but it's gone

up. I think it's gone up so much. I think it's gone from like 10 bucks a share to like 26 bucks a share in pretty short order. And they're like more US focused and they're seeing huge activity as well. So I mean, there's definitely a flood of consumers that are going to these B-grade subprime alternative lenders. And I mean, it's good for shareholders right now, for sure. But I mean, it's not really a good look in terms of consumer financial health. But that being said, GoEasy has been around for quite a while. I think they've been publicly traded since the 90s. So they've gone through quite a bit of different environments. They've typically come out unscathed. We'll see how it goes at this point in time. But I was just shocked by the new applications for

credit, the loan originations, how much they're dishing out right now, especially when Canadians are supposed to be scaling back a bit, you know, not borrowing as much. That's essentially the objective of higher policy rates. But these lenders are not seeing any type of slowdown right now. Yeah, exactly. And just showing the charges to show people like you can clearly tell like exactly what I'm saying. Right. So it's very cyclical. And this is the kind of company like over time it's performed very well.

I'm not gonna deny that but you can see that once you get into these economic cycle and the economy slows down or we go into recession the results go follow right so it's kind of it kind of goes on the way up i mean it's pretty clear right it goes on the way up. I mean, it's pretty clear, right? It goes on the way up as things are going well. And then I would be willing to bet that, you know, if we get into a recession or there's a significant downturn, those results will start being hit just because, you know, people start losing their job and they can't service those loans. And chances are, if they're getting these loans, they're already getting stretch. And it's not surprising. I mean, we've talked about it before.

People can look it up. The feds in the U.S., the different feds, like I've said earlier in the show, they will focus on different kind of economic data. But you can, I can't remember which one, but I think it's the New York Fed that does like a household indebtedness survey. And the credit card data in the US. And I imagine it's the same in Canada. I mean, we've seen it with certain businesses is not looking great. People are fueling their, you know, their spending with credit and not cheap credit. And at some point the party stops, right? The music stop. It's like musical chair. And I feel like

there's about five chairs and 10 people. And once the music stops, there's going to be a lot of people left without a chair. You know, I don't mean to make light of this, but it's just the reality. I mean, credit is great while it's ongoing. I mean, we saw it in 2008, right? And the US was doing 2006, 2007. Everything was great. Credit was fueling this housing bubble. All these other people were spending because they had equity and so on. And then when the music stops, bad things happen, unfortunately.

Yeah. And these are like this loans through a company like GoEasy are typically going to be at higher APRs and even a credit card. So, I mean, a lot of these loans are, again, like a lot of people feel this is like borderline predatory lending, like just 30% plus APRs, which are like crippling financially, like it's almost impossible to get out of that, especially if you're stretched to the point where you're going to go easy because you have no other option elsewhere. Like it's a,

it's a pretty tough, you know, a lot of people don't invest in them just because of this type of, of situation. But I mean, it's posted good results right now. We'll see how it does moving forward. No,

definitely. As do it yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer

myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly

something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information.

So let's move on. You're going to go over Stella Jones earnings. Haven't looked at this company in quite some time. So I know it's an interesting company. They went through a seven-year period. I believe it was 2015 to 2022, pretty much doing nothing. It just returned next to nothing. And that was even with dividends reinvested. But I mean, it's absolutely exploded as of late. It's been one of the better performing Canadian stocks over the last years because of its low residential lumber exposure. And I think Stella Jones, it's labeled as a lumber company, but it actually has very little residential lumber

exposure compared to its entire business. But because of this low residential lumber exposure, when lumber skyrocketed during the pandemic and house building, residential house sales, all that type of stuff, they didn't really see the big run-up in price like, say, a West Fraser Timber did because of that. But the gap has certainly closed. So since Stella's low point in 2022, it returned more than 158%, while a company like West Fraser is just 8%. So they reported earnings that topped expectations in a pretty big way. So earnings per share came in 26% higher than estimates, and EBITDA came in around 20% higher. So again, surface level, they may just look like a typical lumber stock, but it has a lot of

products that kind of shelter it from the cyclical nature of the lumber industry. So I believe they're around 20% exposure to residential lumber, but their bread and butter is things like utility poles and railroad ties. So these are products that, you know, they're typically needed regardless of the state of the economy. I mean, there's going to be more infrastructure expansion, no doubt, like when the economy is doing well, you know, they're going to need more ties, more utility poles during good economic times. But even in a weak economy, I mean, they're constantly replacing existing utility poles, existing railroad ties just as a maintenance thing. So sales do tend to be relatively stable. They reported 9% sales growth. I mean, pretty much all due to the increased sales

of its infrastructure related products. Residential lumber sales actually declined on a year over year basis. And I mean, it's not surprising. I mean, even during that job report, construction was the biggest net loss of jobs. So that's definitely slowing down. Profit margins increased by 300 basis points, operating margins by 260 basis points. So when you have margin expansion combined with the increased demand, it resulted in a 32% year-over-year increase in earnings per share. They had 16% organic growth in railroad ties, 7% in utility poles, and 8% in pressure-treated lumber. And then again, on the flip side, residential lumber, 3% decline in organic growth. But residential lumber only accounted for around 11% of the

company's total sales on the quarter, whereas typically it's in the 20% range. And they issued guidance. It plans to grow its infrastructure segment by 9% annually. It aims to have it make up, again, around 75-80% of sales, with residential lumber picking up most of the remaining 20%. And it plans to grow EBITDA by around 9% through the end of 2025. So it's had a couple really, really strong years. I mean, 32% earnings growth on single-digit revenue growth, big margin expansion. It's killing it over the last few years. Yeah, no, it's definitely... It's not the sexiest company, but I like the fact that there's a lot of it.

Most of its revenues are kind of tied for industrial uses, right? So I think it just gives them a bit more stability. Their margins must, they must vary with the costs and the price of lumber, right? And I'm assuming they must have some kind of agreements that, or maybe not, I don't know, the price of lumber, right? And I'm assuming they must have some kind of agreements that,

or maybe not, I don't know, with the big railway companies where maybe there's kind of inflation adjusted or a premium base, like almost a gas surcharge, right? How, you know, Air Canada, CN Rail, CP kind of charge, maybe they have like a lumber surcharge. I don't know if that's anything like that they might i mean it's the one main thing that i would say is like on the the bearer side of things is like will they get away from using wood ties yeah for like i don't know exactly what they

replace them with but i mean something that's longer lasting because you gotta think like i bet you those ties get absolutely beat down like there's probably so much maintenance on that end of things like yeah if they could find an alternative it would obviously have a big impact on stella like i don't really imagine that's coming anytime soon but it's probably something that's being investigated for sure because yeah the maintenance on those those wooden ties would be crazy. Yeah, I would imagine. I mean, I think it's something we'll probably have to dig into.

It's pretty interesting just to see that. But, no, I think it looks like an interesting company, definitely. And a company that we probably should talk a bit more on this podcast for sure. Yeah, it's had a few good years. I figured I'd bring it up because probably, yeah, not a lot of people look at it. Not a lot of people probably even know that it exists. But yeah, there's actually a plant very close to my house where they make, well, probably like a 15-minute drive. And same thing, it's pretty much all utility poles that they make there. It's a pretty crazy operation. Oh, that's pretty cool. That's pretty cool. Well,

anything else on Stella or we'll go to, I guess, more of a bellwether stocks for the economy now? Nope, that's it. Okay. So while the next one on the slate is Canadian tire, so nothing gets more Canadian than this, I guess, for on the retail side was really not great in terms of results for Canadian tire not surprising I mean the stock was a bit up on the day but I think it's probably more of a reflection of people just expecting maybe even worse not quite sure but as joint TCI listeners can see so you can see the quarter of last year, this is just total revenues. And, you know, it's not been great essentially for the past year. Canadian Tire has definitely been struggling.

So revenues came in lower at 4.9% on the year-over-year basis. And you have retail sales that were down 2.1%. Canadian Tire brand revenue was down 6.9%. Sport Check was the worst of their brand. It was down 7.9%. Mark's Warehouse was down 2%. Helly Hansen down 7.8%. And gas revenue was down 2.8%. So I could have made this shorter and just say it was down across the board, but I wanted to show the differences between all of it. It was to be expected, I think, with Canadian Tire. Net income was up 83% to $122 million due to lower SG&E expenses. Earnings per share was up almost 10x to $1.38. Now,

I would take this with a grain of salt since last year's results were impacted by a fire at one of their main distribution centers. So clearly this year will look better, but they have made progress at least on the expense front. Now, where it gets interesting, at least from my perspective, is when you start digging into the financial services segment. And they also have a real estate segment. But I just have more interest and I think it's a good barometer for what's kind of happening for the economy here. And that financial services segment is important because they have a large credit card business, as most people who have been listening to this podcast for a little bit probably are aware of. And this gives them insight as to

how Canadians are spending. Now, credit card sales declined 0.6% compared to an increase of 6.1% the year before. Gross average accounts receivable, so GAAR, which is the amount that is owed on those credit card was up 4.5%. So it kind of goes to what we were talking about here with GoEasy where the balances are going up on credit cards and accounts with a balance grew 0.6%. So that's basically people that are carrying a balance month to month. Net credit card write-off rate increased 110 basis point to 6.4%. It was up 30 basis point from the previous quarter. So the 6.4 is on a year-to-year basis. Clearly, this has been creeping up over the quarters.

Past due credit card receivable increased 50 basis point to 3.6%. And that's unchanged from the previous quarter and these are all things I think it's important to keep in mind because I think it does paint a pretty good picture on what the consumer is doing and clearly I think a lot of people right now are trying are using debt to make ends meet i don't think i mean you're seeing all over the place is just credit card debt is going up and go easy is doing well that's an alternative lender but um you're seeing that in the u.s as well so i don't know if you had anything else to add there no i mean it's not really surprising to see like sport check being down that much like they're

pretty much all discretionary i don't know if there's any necessities you need to buy at sport check and i mean it's already ridiculously expensive in there well we're canadians so hockey sticks hockey yeah i guess yeah but even then like it's so expensive there i mean even when i used to uh i used to play hockey like but it's i wouldn't go to sport check. I would go to like a more like niche hockey place that we had in Calgary here. Just because sport check was so expensive. I mean, even Canadian tire,

like that. I'm actually surprised to see Canadian tire down that much because I mean, they do a lot of like automotive stuff. They have a lot of like, I mean, I guess they do a lot of seasonal stuff that people are probably also, you know, trimming down on, but I mean, it's not really, the numbers aren't really that surprising at all. This, I think we've covered them every quarter and every single quarter that charge off rate and the, uh, the receivables unpaid, like continues to tick up every single quarter.

the receivables unpaid continues to tick up every single quarter. Whereas surprisingly enough, a company like GoEasy has kept the charge-off rate relatively stable over the last few years. So it's pretty interesting. Yeah. Yeah. And I mean, I think it's important, something to keep in mind off, especially for those investing. And it's not only Canadian Tire, right? If you're investing in any kind of consumer good business, especially discretionary consumer goods, something to keep in mind. Because if it's discretionary, I mean, people at some point, if they have to make hard choices, that might be spending that they actually cut. Maybe now they're still spending there because they can use credit to do so. But credit is not infinite. At some point, you know, you're not going to be able to get credit wherever you go, right? So

companies will just say like, no, we're not lending you any more money, you already have enough debt, we're not sure if you'd repay it. If we you lend, you know, we lend you and even more. So I think it's just a good reminder for people to understand that, you know, it's, it's hard to say, I think, especially with credit card, if you have a company like Apple, right. I'm sure a decent amount of their iPhones are sold on credit, but I, who knows on to what extent. So it's really hard to say because oftentimes, you know, you can pay, you can buy an iPhone with your credit card. And the only thing that Apple sees is just, paid for it they're not you know the the loan is not with apple it's with a bank right so you don't really see that but just something to keep

in mind for discretionary spending especially as people are getting more stretched you know the i'll say it again you know at some point the music stops right if you you can keep your level of spending but you know if you just you use at some point, you won't be able to. And I don't know about you, like kind of a personal anecdote, but I see people like sometimes people I know and, you know, people out and about. And, you know, I think my wife and I have like a pretty good household income, but we're not, you know, we're definitely not in the top 1%. And I mean, we've been cutting back on some things and i just see people spend and i'm like

my god i guess everyone's richer than us like i i just don't understand like it's just i the only answer is people are in debt and they just keep like delaying the inevitable inevitable and they're just you know know, they just keep spending and extend and pretend until you can no longer extend anymore. I just don't know. Like, what are your thoughts on that? Yeah, I would, I would definitely agree. I mean, people living, living off, you know, finance money pretty much. And it's not like you can rack up a credit card and you know, the minimum payments are really not that much. You could live off something like that for quite some time, especially if you even have, you know, something like a line of credit where typically sometimes it's only the

interest that's due. So times get tougher. I mean, people continue to live the same way. They don't have the money to do it. And then it eventually just, it comes back to haunt people after a while because eventually it does need to be repaid. And I mean, we're clearly seeing it right now with, you know, the alt lending growing, the credit cards growing, all that type of stuff. It's not a good situation. Eventually the music does stop. Or they could navigate themselves out of this to the point where, you know, it doesn't really get that bad, but there is a possibility that it could get that bad yeah or i mean government bailout right why not yeah they allow your own citizen i mean the u.s you've seen it in the u.s like people are you know i

think it's a lot of people it's contentious right whether you agree with it or not but student loans yeah you know obvious i know like i have family that have some pretty steep student loans and I know they can be quite burdensome. But when you think about it, OK, it's great. But what about the person who worked their butt off and didn't spend at all so they can try and pay off that loan as quickly as possible? And then they see their neighbor that just took on more debt, didn't pay off and then they gave it forgiven but i don't know i was just kind of throwing that out there just uh as uh maybe a non-zero possibility yeah there's a lot of uh the student loan thing

is quite controversial i i don't know don't really want to get into that too much on this but no no i just want to move on to home dealer yeah yeah okay dan doesn't want to get political it's all good no it's more like i was trying to show both sides right like because sometimes people kind of think it's just good or just bad and i think there's always you know most things there's kind of benefits to both sides exactly yeah so do you want to tell us about another bellwether stock so home depot yeah a big bellwether stock for you know u.s consumers primarily but they do have exposure in in both countries so they delivered earnings that were relatively in line i mean nobody really expects home depot to perform well right now the expectations are to kind of just tread water until the economy improves, people start spending more. So I own Home Depot. It's actually outside of my crypto exposure. It's my largest position.

So I believe the tailwinds that will be provided by Canadian US housing markets moving forward should allow it to continue to grow for a very long time. I mean, particularly in the US market where a lot of residents have, you know, rock bottom pandemic mortgages, which, you know, at that point, you're really incentivized. You know, if you sell your house and move, you're going to lose that rate where, you know, if you spend some money to renovate, you might be able to keep that rate because again, their mortgage structure is very, very different than ours. I mean, you can get that rate.

You can keep it for the entirety of the mortgage, whereas here you have to refinance. One of the big differences though, on top of that, it's not portable. So a lot of Canadian mortgages are portable. So if you were one of those rock stars that got a 10-year fixed mortgage, which are pretty rare, but you got them at 2% at the lows, you can actually buy, depending on your mortgage, but in a lot at like, you know, 2% at the lows. You can actually buy, depending on your mortgage, but in a lot of cases, you can buy a home and port your mortgage onto the new home where in the US, that's typically not something you'd be able to do. I think there is a few of them that are able to, but it's like few and far between. So, you have to think if you're sitting there with like a 30 year fixed rate at

you know 1.8 percent and you don't like your kitchen like are you gonna sell that house and go somewhere else or are you gonna be like all right let's just gut it and redo it the way we want tv it yeah yeah exactly like if you think of the because what are u.s rates at right now they got to be like over six percent so like that is a huge increase. More than that. Yeah, I think they're hovering around 7%. Yeah. Yeah. So I mean, that's like, that's huge.

So I think a lot of people are going to be incentivized right now. But like, you know, right now is probably not a good time for anybody to do renovations. They're obviously with the Home Depot's results, they're slowing down quite a bit. But they, so sales are down 2.3 and earning seven percent uh the company said results were impacted by the fact there was a late start to the spring so i mean spring typically brings on a lot of new projects whether it be yard work deck new shed i mean i just i just redid my entire well not redid but just did my entire front lawn this weekend i couldn't walk for like a day afterwards because we only had like, I should have went

to Home Depot and bought like a full length shovel, but we only had like little, we only had little halves. Sonder or just seeds? No rock. Oh, rock. We rocked our whole front. Yeah. So I'm wheelbarrow on rock and I'm have to bend over like 90 degrees to get this shovel

to put it into the barrel. It was uh I should have invested in a good shovel should have went to Home Depot and helped them out but yeah I mean spring is like huge with renovation projects so obviously if they did feel that it was a late start it's probably going to impact results if we look to same store sales they fell 2.8% company 3.2 in the united states as i mentioned before the difference between total sales and same store sales would be the company will isolate and leave out new store revenue like new openings to give a better picture on how it's growing without the need to add new stores a couple of weeks ago i talked about starbucks and their average ticket per customer dipping and how this is kind of an indication of people scaling back a bit on spending,

maybe opting for cheaper alternatives. Home Depot is seeing the same thing. It's not as amplified as Starbucks. I think they were like 4% decline in average ticket, but it did report average decline of 1.3%. So this kind of leads me to believe that people are putting off larger projects, I mean, especially ones that need to be financed and are instead waiting for probably a better opportunity to pull the trigger on that,

or waiting for some cash. They confirmed their 2024 guidance in which they expect earnings and revenue to grow by only 1%. But this is actually due to the fact the company has an extra reporting week in 2024. So it said it's going to add around $2.3 billion in revenue and $0.30 per share during this week. If we factor that out, pretty safe to say they're going to see declines in 2024 relative to 2023. They plan to add around 12 new stores and total interest expenses will come in at $1.8 billion. So financing expenses have gone from $1.3 billion in 2022 to $1.8 billion. So financing expenses have gone from 1.3 billion in 2022 to 1.8 billion in 2024. And this is kind of highlighting even a company with pretty rock solid balance sheet debt structure. I mean, I think Home Depot has around 44 billion in debt, but the thing is they generate,

I think almost 20 billion in free cashflow. So I mean, the debt is not huge relative to the cash they generate, but you're still seeing like a, what would that be? More than a 40% increase in financing costs since rates started elevating. So I mean, it pretty much hits most all companies at this point. But yeah, it wasn't like a bad quarter relative to what was expected for Home Depot, but it's definitely like they're clearly feeling it from a softer consumer for sure. Yeah. And just to show people what it looks like for free cashflow. So definitely, you know, they're generating the last, you know, the last few years in excess of like 10 billion a year in terms of free cashflow. So like you said, they definitely have the room to pay a dividend. And if they wanted to, they can definitely pay down that debt. But I think it's just a good reminder. I think Home Depot is a good example of a company that can do fine with higher rates. If rates were lower, it probably would do even better. And that's the kind of company for me, it's okay. Your thesis is not reliant on rates going down. It more likely would just be

a boost to the business. And I think that's where, that's the point I wanted to make earlier is, you know, it's still, you know, going to be a great business. I mean, they're probably going to be fine. Even if rates go up a hundred basis point from here, I'm not saying they will. I think it's who knows whether they go up or just stay or go down. We'll see. But I think Home Depot is a great example of that. Yeah, for sure. I mean, they're definitely going to see slower sales when rates are this high. Even if they were to stay elevated for long, I think they would see a return eventually of activity. And then when they go down, people, they're tightening up right now, but they're eventually going to get back to spending, especially in terms of like any sort of projects, renovations, lawn projects, anything you can think of.

And like in Canada, even Canada and the United States, I mean, they have way more hardware stores down there, but I mean, it's either Lowe's or Home Depot here for the most part. I think we have Rona. Yeah, we have Rona. Yeah, mean, it's either Lowe's or Home Depot here for the most part. I think we have Rona as well. Yeah, we have Rona. Yeah, they bought the assets from Lowe's when Lowe's exited from Canada. But yeah, and I think you're right. At the end of the day too, even if rates stay higher for longer,

there's just so many things that you can push back for maintenance, right? There's certain things you just have to do, right? If your refrigerator breaks, I mean, there's a few different things you just have to do, right? If your refrigerator breaks, I mean, there's a few different places you can get a new refrigerator, but you're going to have to get one. You don't have a choice, right? And there's certain things, there's certain things obviously you'll push back. And I think that's probably why there's a little bit of softness in the results as people are kind of pushing that back and waiting until either rates are lower or maybe

they have a bit more money to spend and, you know, kind of the rate of inflation slows down and their salary catches up, right? Yeah, exactly. And there's also the element that like new home builds, like a lot of people don't think of Home Depot as like where you would go to buy, you know, lumber for a new home construction, but they do deal with plenty of contractors in terms of new homes. So it's not just renovations, which are fueling their results. But I mean, they're kind of like a Walmart, I guess I would say. They have a big advantage over, you know, smaller department stores in this part because

they're just like a high volume. They can just generate so much cashflow just by pushing through high volume. So prices generally get lower. It's more favorable to shop there. And I just think they're in a pretty good position even though like how weak it is right now. I think they've got a pretty good,

it should be pretty good for them moving forward once things tame down a bit here. Yeah, no, I definitely agree. I own it as well. It's a small position for me, definitely smaller, but I think that kind of wraps it up for today. I had Shopify I wanted to talk about, but you know, the roaring kitty came roaring. So that kind of had to talk about it. Had to talk about that. So we'll keep Shopify for next week. You know, I know there's a lot of people that listen that own the stock. I own it.

It's a relatively small position for me. So I'll go over why, you know, the stock kind of had a big drop once earnings were released. And I think Shopify is starting to become a little bit of a bellwether stock in its own way, right? Because you really see kind of smaller businesses that use their online e-commerce platforms. So a company like Shopify that may be, you know, slowing down the growth a little bit, it may be an indicator that, you know, things are slowing down for the economy as well. But we'll touch more on that next week. Thank you everyone for listening. If you haven't done so, if you can just take a few minutes, give us a five-star review on Apple Podcasts, Spotify, whichever platform you listen to us on. You can find me on x slash Twitter at fiat underscore iceberg. Dan at stocktrades underscore CA. Still got that?

That's it. Yep. Yeah, perfect. And stocktrades.ca if you're looking to see Dan's work there as well. And yeah, we'll see you guys next week. The Canadian Investor Podcast should not be construed as investment or financial advice. The hosts and guests 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.