The Canadian Investor - Why 2023 Was a Bad Year for Canadian IPOs

Episode Date: January 15, 2024

In this episode, we talk about the stock market returns from developed countries over the last 14 years. We then look at EY’s Global IPO Trends of 2023. We finish the episode by talking about stock on our radar presented by our sponsor EQ Bank. Ticker of Stocks discussed: FICO, URA, HURA.TO, U-UN.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  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. EY IPO Market Trends of 2023See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis, as always joined by the caffeinated Simon Belanger. As you nod to that, we can agree. Cheers here to start the podcast with our afternoon coffees.

Simone, we have a dope episode today. I am going to talk about international stock market returns going through the developed markets country by country. Which countries have returned good returns for investors internationally? You're going to look at the IPO market. investors internationally. You're going to look at the IPO market. So you've got a big juicy segment here. And then the world famous, most beloved segment by our friends, presented by our friends at EQ Bank, stocks on our watch list. You have an interesting pick. I have a pick we have never talked about on this podcast, and it's almost 30 billion in market cap so make sure you stay tuned for that neither have like my picks i it's more like than one that i'm keeping on my radar right now but i think yours and mine are not we haven't talked about on the

podcast before so it'll be it'll be interesting what are we at like close to 350 episodes now. Yeah, inching closer by the week. Yeah, a couple episodes a week. 350 feels good. We'll have to do something big for 500 because the show goes on. We'll get there eventually. If you're listening on Spotify, you want to go ahead, go to the podcast there.

Make sure you're pressing the follow button on our podcast page on Spotify. You press that follow button. And then when you go into their new episodes tab on Spotify, ours will pop in there every time we have a new show. And if you're on Apple podcasts, make sure you are subscribed to the show as well as you can go on there, hit a little five-star rating. You can write something nice, make us feel good. Maybe we'll read some of them on the show this year as well. But of course, we need that dopamine. We're making all this content. Come on, throw us a bone here. So appreciate that Apple podcast listeners and Spotify podcast listeners. Simon, if I was to ask you internationally, I mean, this is tough.

This is tough if you haven't looked at the data. But do you think of any international developed markets when you think of amazing compounded returns? Do you have any specific countries that you might think be at the top of the list? Developed countries. It's kind of hard. So I would guess it's mostly Western Europe, Japan, Australia, those type of countries. I know it's not Japan, that's for sure. Australia is probably similar to Canada in terms of returns. Typically, Australia is always similar. That is quite the hunch because they are back to back in the ranking here oh there you go australian canada so i don't know maybe like israel minus last year or maybe

some smaller uh country in europe i would say yeah yeah these are good good. And I'm going to read it out. The Scandinavian countries have done fantastic. Before looking at this data, the country I would have thought of, which is actually number two on the list, is Sweden. Because I am very into studying a lot of the conglomerates grow by acquisition names. to studying a lot of the conglomerates grow by acquisition names. And Sweden has some of the best fishing grounds of serial acquirer compounder bro stocks. So Sweden has been a really good place to hunt, but it is behind Denmark. This data goes from 2009 to 2023. The Denmark stock market has had an 819.9% return during that time, which is more than double the next of Sweden. Now there is some learnings here, and I'm going to talk about why this, why this is for Denmark and the, you know, the law of tail outcomes very shortly, but I'm going to go, I'm going to rifle through the list

here. First we have Denmark, Sweden, and then NLD. What's that one? The Netherlands, Netherlands, New Zealand, interesting. C-H-E, that is Switzerland. And then we have Australia, Canada, Norway, France. E-A-F-E, what's that? That is, oh, that's the index. That's the index. I was going to say, what is that? Yeah, that's Europe, I think Africa,

like something like that, yeah. Yeah, when they say like M-S-C-I-E-A-F-E index, I just always see it beside that, yeah. Yeah, when they say MSCI, EA, FE index, I just always see it beside MSCI, so I didn't even know what I was looking at. And then what do we got here? Hong Kong, Belgium, Great Britain, Germany is, what is that one? SPG, maybe that's just there.

Singapore. Singapore. Good call. Yeah. Japan, Finland, Austria, Italy, Spain, Israel. I think that's right. ISR. Is Israel correct?

And then Portugal at the bottom. So that is the order of those countries and the reason that i actually wanted to bring this segment up is not to rifle through which countries have quite the range too in terms of returns during that time period right from 2009 to 2023 you have portugal that has like let's round it up to 40 and then Denmark, which is close to a thousand percent. Well, not close, but 890. 820. Yeah.

Yeah. Yeah. Pretty wild. There is a huge discrepancy there. The only one I missed there was Ireland, which slots between Singapore and Japan. Sorry to my friends in Ireland and my Irish listeners here. I didn't mean to skip out on you there. The main reason that I want to bring this up, Simon, is when I saw this data, my brain goes, why? What happened in Denmark?

You know, we were just talking about good old Novo Nordisk and good old Ozempic. Yeah. We're just talking about that on the podcast. This is what happens when you have extreme outlier returns. So Novo Nordisk is now what? Like a 450 without looking just off the top of my head, roughly half a trillion in market cap, close enough. And Denmark's index today, 22% of the stock market index is Novo Nordisk. And it has generated most of the compounded annual growth of the entire index. And this is what happens in portfolios. This happens time and time again of every really successful track record of investing. And in this case, moving an entire country's index forward, is you have one or two ideas

that generate all of the outsized returns. And if you don't trim them, because these are market cap weighted, the index isn't trimming it. It's only trimming it if the stock goes down. It's actually just buying more and more and more as the momentum continues. And as this thing has ridden to half a trillion in market cap, you get extreme results from just a few names. During that exact timeframe, from January of 2009 to current day ending 2023, the total return for Norvo Nordisk was 3,141%. When you consider that it was during that timeframe, 10 to now 22% of the index, the numbers start to make a lot more sense. So I think there's a lot of important takeaways here.

When you look at data and statistics, you see extreme outliers. It's not always that hard to figure out what it is when you have a glaring outlier like Novo Nordisk in Denmark. Yeah. And I mean, I think it's a good counterbalance to the argument of trimming. Obviously, if you have stock in your portfolio, some that may have done really well, it can become a big position. You always have to keep an eye on it. Whether you're comfortable with not trimming, that's fine. I think there's no issues with trimming if people have a certain allocation that they

want to keep and they don't want to exceed. That's also fine. I mean, I think it's more of a personal preference and also understanding the investment, right? We saw in 2021, and I wish I would have done it more at the time. I did trim a little bit, but I had Teladoc for those listening to, you know, you don't need to take my word for it. Look at the chart. You'll see what I mean. You just need to look at the chart and Telad dog what happened and a lot of growth companies during that time is the devaluation just got really stretch out of hand and you know i think it would have been beneficial for me to trim more obviously i think you have to look at on a case by case basis

but also on a personal basis what what amount of risk you're comfortable with because we've done episodes on that before. But allocation is one of your best tools to mitigate risk or increase it depending what you're kind of looking for. That's right. Like portfolio construction and those kind of decisions are so overlooked because it's personal, right? Like everyone's different appetite for this kind of stuff. Because it's personal, right? Like everyone's different appetite for this kind of stuff. But those decisions matter so much.

And for me, look at our, look no further than you actually. Oh yeah. Either of our portfolios, our success has been from just a few key names in the portfolio. And that's going to continue to happen. That is how this works. It's not the exception. That is how portfolios typically work and how all great investment track records typically play out is just from a few key ideas with the right amount of conviction to hold them through the ups and downs that generates these outsized returns. 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 questtrade.com.

Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host.

That is airbnb.ca forward slash host. That is Airbnb.ca forward slash host. All right, Mr. Belanger, you have a look at the IPO market. Yeah, and feel free to interject here. I think it's going to be a fun one. I've looked at this report before, so I think they do it on a quarterly basis, but obviously, before. So I think they do it on a quarterly basis. But obviously, this is for pretty much all of 2023. I think the data was as of December 4, 2023. So EY, so Ernst & Young, one of the big four accounting firm, they do this report on the global IPO market. And I'm always fascinated because, you know, especially in recent years, we've seen the IPO market being a bit of a roller coaster ride. And I think I, you know, that's almost putting it lightly, whether you're looking at volume, whether you're looking at total proceeds.

But before I get to it, in terms of investings, if you're a new investor and I, you know, and you're looking at IPOs thinking that it's it's a wonderful idea to invest in them. You know, it may be a good idea, but make sure you do your research. Personally, I like to wait a little bit after the company has gone public just because there's just so many things that change when a company goes public. And sometimes management just doesn't react all that well to the change, right? You're going from a private company where there's not a lot of scrutiny to a public one where if you mess up and you're a relatively large company, you will get investors kind of, you'll hear from investors. And sometimes you'll hear from activist investors, which will try to get a seat on the board. So there's all these different kind of dynamics. which will try to get a seat on the board.

So there's all these different kind of dynamics. And if you wait a little bit, like let's say typically my rule is about a year, I get a general sense of how the company is doing, how management is reacting on conference calls, how the business is actually doing following the IPO. So that's what I like to do. Before I go on to the numbers, like anything you wanted to add to that?

No, I think you touched on two key things there, right? Where it's being a public company CEO and being a private company CEO is very different. In both cases, you're trying to create value, but the pressure to have short-termism of performance is immense. And that can get to a lot of public company CEOs if it's their first rodeo. And then two, I totally agree. I mean, I'm trying to think if I bought any company in its first year of being public. I'd have to look through, but I don't think so. Because yeah, you have the S1 data, but I'm like you.

I'm not rushing to buy anything really, just generally as an investor. I'm looking to buy and have really low portfolio turnover. So a year here, a year there in the stock market is really just a flash in the pan. Yeah. And the S1 is simply when a company goes public, it's basically their prospectus, they issue that and it's just to show investors what they've done. It's a bit like an annual report, but it gives a more of a kind of general history and there's financial information as well.

So you get a better sense of what the company is about. Yeah, that's right. Now, the data, like I said, it goes from January 1st, 2023 to December 4th. Let's just say it's 2023 close enough. And also there's typically not that much action in December. So I don't think we're missing that many IPOs that would have happened between December 5th and the end of the year. Now, 2023 was a slow year in terms of IPO, despite it being a good year for equities. That was one of their key takeaways. And typically, a strong equity market will lead to a strong IPO market, which was not the case last year. And we can just look back at 2020 and 2021. 2020 actually was a odd year because we had the pandemic that started early in the year. The first half, like you, I remember there was IPOs that were being like paused and

put on hold. And then as things started, you know, become clearer in terms of the pandemic, governments obviously were provided businesses with support and the market actually picked back up. Companies started IPOing and the back half and it continued well into 2021. It didn't happen last year, mostly because like we've talked in recent episodes, I mean, a lot of the stock markets return were concentrated in a very few names. So it was still a very lukewarm market when it came to the IPO market. And that's something they noticed. Typically, when equities do well, when stocks do well, you see a lot of IPOs. Anything to comment there? No, no, look no further than 2021 there. Yeah. It dried up so quick, right?

Yeah, exactly. So 2022 was also not a great year for IPOs. And they also believe that investors were more attracted to blue chip mega cap stocks, like we mentioned, the magnificent seven in the face of macroeconomic uncertainty over unknown commodities in terms of IPOs, because a lot of IPOs are not necessarily big companies. companies. Obviously, there are some large companies that do IPO, but for the most part, as you all mentioned, the data, it was definitely smaller companies, at least in 2023. They also said aggressive monetary tightening policy also had a major effect. So rising rates had an effect because there was less investor demand when they can get 5% from US government bonds, US treasuries. get 5% from US government bonds, US treasuries. That IPO that might be exciting is a little less exciting when you can get some really safe returns at very little risk. And there was also a mismatch in the valuation expectation from potential IPO candidates and investors. So I thought that was really interesting takeaway. So you have companies that, Braden, you're quite familiar with this space, right? You're doing seed rounds as a startup. And we saw companies raising at billions of dollars and they're seeing that the valuations are actually less than their latest seeding round or funding round. That's right. I mean, there's no two more scary words for a venture backed startup than down round.

down round. Down round is basically death unless you have enough momentum and enough traction where investors are willing to back you and give you the capital you require. A down round just means you raise more money at a valuation less than your previous funding. So no one's happy. Everyone hates you once that happens, right? Like no one's happy in this scenario. And one thing you're talking about, this is a bit of a side note, but I wanted to bring it up as you were saying, this is the reason why I've never been super, I've never really wanted to own the exchanges or even a TSX, like a TMX group,

which is ticker X on the TSX, is this is very cyclical. And I know that a lot of these businesses are far more diversified than just listing fees, but investment banks and these exchange businesses, pure play, are very cyclical when it comes to IPO listings and exchange fees that they're going to be generating off of that. It's a tough business. It's a great business, but it doesn't come without its flaws. come without its flaws. It's like a geographical monopoly, but still highly cyclical, which is a very rare combination of a company. Yeah, exactly. And also like investment banks, I always think about Morgan Stanley and Goldman Sachs that are very heavily in that kind of investment banking. But I totally agree with that. I think we're seeing that, yes, there's a lot of factors affecting that. They also pointed to geopolitical tensions that would have had an impact. And typically, investors will get more conservative when there's a lot of geopolitical

tensions, which, of course, we've been seeing. You can only think about, obviously, the conflict in Ukraine, what's happening in the Middle East. there was 54 of plan ipos in 2023 that were postponed which is a massive increase compared to 53 53 yeah of ipos that were planned got postponed so more than sorry. I was off by one percent, but so more than half. Wow could be multiple reasons, right, that an IPO gets postponed. But 54%, that's an anomaly compared to what we've seen, at least in the past decade. So I thought that was really interesting. I mean, 2023 was just a really strange year. So there's other key takeaways here, looking at it globally. And then I'll drill down a little bit more by geographical regions. Obviously, I'll touch down a little bit more by geographical regions. Obviously, I'll touch on Canada, which was not a good year for IPOs in Canada.

But globally, 2023 saw 1,298 IPOs, which was an 8% decline from 2022. I'm talking about volumes here. And the total proceeds from these IPOs were $123.2 billion, which was a 33% decline in total proceeds. And keep in mind, 2022 was not a good year compared to 2021. So it's down from 2022, and 2022 was massively down from 2021. Now the Americas, this includes North America, Central America, and South America. There was 153 IPOs, which was 15% increase from last year. Needless to say, most of these came in the U.S. It was 12% of the global volume.

Total proceeds were $23 billion, which was a 155% increase from last year. percent increase from last year it was 18 percent of the global proceeds and again was dominated by the u.s market both in volume and proceeds canadian exchanges saw a decline of more than 50 percent in ipos going from 42 to 19 there was only one ipo on the ts, which was lithium royalty, which is down 50% from the IPO. I know the guys who started that. Really, huh? Yeah. They run a really well-known fund in a management shop in Toronto. They run a really well-known one.

It's called Waratah. And I think they have 5 billion AUM, assets under management. And then they have this lithium royalty corp as a separate business, same ownership group. And then they also have this huge real estate company that has like cottages in Muskoka. So they run these three separate businesses together. And the guy who runs all of it, I'm playing golf with him. And I just got paired up with this random guy on like a Tuesday afternoon. Really? Okay. He hands me his business card. It's like Warta Capital Management. I was like, oh dude, I tried to like pitch you guys to buy like Finchat recently. Like I didn't really

know what he did or whatever. I was like 5 billion AUM. I finished the round of golf and I was like, now I know why this guy has like six or seven golf memberships. Like, holy spot. Take his boat over from Lake Joe. Like, oh yeah, he's doing all right. He's going to do all right despite the IPO not being that good. But the proceeds were a whopping hundred million for the Canadian IPO market. And people might be saying, well, you said there was 19 IPO, but only one on the TSX. Yes, there are other exchanges in Canada. There's the, I think they changed name, but there was the NEO exchange because they got bought, right? NEO exchange, I think the venture is probably separate from the TSX, the way they count that as well. But very meager year for Canadian IPOs.

And Canada also had some poor performance from its pandemic IPOs as a whole, which has resulted in them being taken private at values lower than our IPO plan. So they actually had a note specific to Canada regarding that. And they said that this is influencing companies that are potentially exploring going public in Canada because obviously the recent IPOs have not done that well. And, you know, as a company owner, if you're looking to go public, this obviously would influence you. 86% of IPOs from the Americas were U.S. IPOs. from the Americas were US IPOs. Smaller IPOs continue to dominate IPO activity in the US, with nearly 70% of them raising less than $25 million, which is crazy. They said in previous decades, these small IPOs average only 10% of the overall volume per year. So a really big shift in

terms of the type of IPOs. So like really 2023, the more I read this report, the more I'm like, wow, 2023 was a very weird year in terms of IPOs. Technology and healthcare definitely dominated IPOs for North America. The top three IPOs, people probably know all these companies, ARM holdings or ARM holdings, the chip making company or the semiconductor company, which IPO'd from the Vision Fund, right? That's what... That's right. Yeah. Yeah, that's right. The SoftBank one.

SoftBank, there you go. Yeah, that's the name I was looking at. Canview, which is the consumer division, consumer product division from Johnson & Johnson. So obviously, clearly a big IPO there. And last but not least, if you like sandals, Birkenstocks was the third biggest IPO in terms of proceeds. Now, Asia Pacific, and I won't go into that much detail for Asia Pacific in the next region, but still high level numbers. This is actually where the action was as a percentage of the global IPO market. It declined compared to last year, but still very high percentage. So 732 IPO, which was a 18% decline, but it still represented 56% of the global volume. They had 69.4 billion in proceeds, which was a 44% decline. But again, that was 57% of the global proceeds. China surprisingly still dominated

here despite a sharp decline compared to last year in both volume and proceeds and one of the areas that really stood out when I read it was Indonesia. The IPO volume increased 32% to 79% and the proceeds increased 60% to 3.6 billion. So that was an interesting takeaway. And the last region here is the Europe, Middle East, India, and Africa. 413 total IPOs, which was a 7% increase, represented 30% of the global volume, generated 31.1 billion of proceeds for a 39% decline. generated 31.1 billion of proceeds for a 39% decline. However, it was still 25% of the global share. And India, obviously here, dominated with 220 IPOs and 6.9 billion in proceeds. And I do have an interesting chart that I took. And I bet you'll be interested in this one, because it kind of contradicts what we were saying at the beginning.

You know, you may want to wait a year for IPOs. Well, looking at all the 2023 IPO returns, so as a whole versus the benchmark index for the different regions. So the regions you have U.S., Europe, mainlandong kong japan india and indonesia well the ipo market surpassed the index in every single one of them except one market and that's the u.s and in some of them i mean it's pretty wild right indonesia nothing was beating the magnificent seven last year so So, yeah. Yeah, I thought this chart was just really interesting to look at. Like, you look at Indonesia, obviously, clearly it's smaller,

but 251% returns for the IPOs, 4% for the index over there, the IDX composite. Wow, that's quite the difference. In India, same thing. Japan had some strong performance from some of these. Same with mainland China and Europe. So the IPOs had strong returns from what you're showing here. I still think it's never a bad idea to do more research on a company before you own it. Just blanket statement. Yeah, exactly. And the last couple of things I wanted to touch on. So in terms of IPO pipeline by sector, that's really interesting as well. So 27% technology, 16% healthcare, 14% consumer, 12% industrial, financials 10%. And then it's just like basically it's others and real estate energy and materials

that are in the low single digit technology was clearly uh one of the biggest areas like it is and and the most recent years energy was pretty interesting a bit of a surprise here but renewable energy battery commodities and e-mobility companies led the charge in the energy departments, especially some of the top deals were in China, India, Indonesia and the Philippines. And in North America, IPOs in the energy sector were mostly in the oil and gas exploration and logistic equipment. And the last thing I'll read here, because I, as people know that I've been listening for a little bit, I've been very critical of private equity and how they calculate those returns. And they have a section on that. And I thought it was really interesting. So essentially one of the exits for private equities when they own a business is to bring it back and do an IPO. And they said that for private equity, IPO exits have been muted for P-backed companies over the past 18

months as the IPO window has been mostly closed. Other exit options have also been challenging. So what they're saying here is that there's really, you know, it's going to be challenging from some of these private equity funds to realize the gains. Obviously, there are other ways for them to exit their positions. But again, they are saying that in terms of realizing those gains, it's significantly dropped. So essentially, they're on track to return 9% of invested capital back to their limited partners. So investors in these private equity funds. That's compared to an average of 15% in 2022 and about 20% to 25% in a normal average year. So essentially what that means, it's not the total returns, it's just the number of the percentage of deals that they're able to exit in terms of the IPO markets, which I thought

very interesting because they have to exit the deal to be able to realize returns. So anything before that, that a private equity fund does, it's estimated return. It's never realized until they actually exit out of the position. So I thought that was really interesting that they put that in there as well. While you've been talking, I've been in a rabbit hole on TSX listings. Okay. It's been drier than the Sahara Desert for the TSX. It's been worse than I thought. I didn't realize that the lithium royalty was the only ipo of 23 i didn't know either when

i saw that i'm like that has to be like that has to be a mistake or something i was shocked to see that and you know now i'm on this rabbit hole it's it's been worse than i thought the tsx is not produced there hasn't been anything like there hasn't been anything notable like at all for a long time now yeah so they're you know i mean it's it's a really interesting report i will put it in the show notes so i didn't do the whole report right i i took the points that i thought were really interesting but um i encourage people to look at it really i like doing this report every year just because it's it's so fascinating i find just to look at what happened and the different changes and definitely 2023 was a strange year it solidifies what we say time and time again on this podcast. I see so many listeners of this show,

Canadian investors who contribute online, own 100% of their portfolio in TSX listed stocks. I see this, there's been basically no new IPOs coming onto the TSX. TSX. That is not a way I would suggest anyone invest is only be 100% wholly invested on the TSX. This is the Canadian Investor Podcast. We love this country. We love the businesses in this country, but we're here to make money. And that is an insane way to invest. So I know some people are getting called out right now and they're feeling a little uncomfortable. I stand by it. Yeah. And I mean, obviously, for a self-directed investor, you choose what you invest in. I mean, we're pretty vocal on it.

You know, I think we look at it from a numbers perspective. And also, what is Canada's total, the stock market compared to the global stock market, it's what, 3%? I think it's a very low single digit. So you have to take that into account and how much exposure as a whole in your everyday life you have to the Canadian economy. Yeah, well said. 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 money sense and with them you can buy all north american etfs not just a few select ones all commission free so that you can choose the ETFs that you want.

And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty,

it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. All right, let's move on to stocks on our watch list presented by our friends at EQ Bank. By the way, EQ Bank's, I think 20 straight years of quarterly growth. I was looking at the stock

there today. It's like very attractively priced. This is not a comment on anything because they're a sponsor. I've been a shareholder for a long time before they sponsored the show. sponsor. I've been a shareholder for a long time before they sponsored the show. Attractive growth stock, attractively priced growth stock. All right, let's talk about my pick here. I'll go first. We'll go on to you. You have an ETF, a funny ETF. Yeah. In a kind of company as well at the end. Yeah. Oh, do you? Okay. I didn't see that. Okay. I have a stock, I don't believe, correct me if I'm wrong, nearly 30 billion in market cap that I don't see that. Okay. I have a stock, I don't believe, correct me if I'm wrong, nearly 30 billion in market cap

that I don't think we've ever talked about, which is shocking to me. I don't think we have. I think it's the truth. So it's no surprise to anyone and to you that I like these wide moat financials, companies that are like bucketed as financials, but they're not banks. Basically, companies that participate in financial transactions and stuff and credit,

but don't take on any credit risk. It's like long credit, but short credit risk. And sometimes those companies are even spun out of the banks, like Visa, for example, which is a story probably for another day. Businesses that are entrenched in the financial system for multiple decades, S&P, Moody's, for instance, they're involved in credit, but they don't take on credit risk. Visa and MasterCard, they facilitate transactions and credit, but they don't take on any credit risk. Fun fact, Henry Poore, where the name Standard & Poores came from after the merger of those two companies, he started the publication of the financials and credit risks of railroad businesses in 1860.

164 years ago, the inception of this business. We're talking about companies that have been so entrenched for so long, and they usually have regulatory capture monopolies. Like after the Great Depression, they said, okay, you have to get your bond rated by one of the premier credit rating agencies, Fitch, S&P, or Moody's. Nice margins and above average growth because they have capital allocation and optionality to grow other businesses, spin out new software with the data, all this stuff. The pick today on our stocks on my watch list is the Fair Isaac Corporation, aka FICO. Ter FICO. People have probably heard your FICO score, like your credit score. It is pretty much a royalty monopoly on credit scores by running

data from the three national credit bureaus in the US, Experian, TransUnion, and Equifax. Side note, Equifax is another fantastic place to hunt. I love these businesses. So what does FICO do? And instead of me, you know, writing it out, I literally got FinChat to write this for me. I said, what does FICO do on FinChat? Fair Isaac Corporation FICO is a software company and a analytic company develops software analytics, data management products and services through their two segments, scores and software. The scores business, which I think is the crown jewel of the business, they have this credit score business and it is a regulatory capture monopoly. And then the other segment is software where they have, you can basically use the software to make credit decisions for, you know, taking on credit risk of customers you may have.

So that's basically where they exist. It's helping these institutions and these banks make decisions around credit and credit worthiness of their customers or potential customers. And that's done through this FICO score that you've probably heard of. Now, the company has grown revenues in that score segment from around $180 million to $750 million over the last 10 years, which is a compound annual growth rate of around 16%. The stock over the last 10 years during that time has returned 1,800% total return. It's been one of the best performing stocks in the entire S&P 500. And annual recurring revenue from that software division is now up at a run rate of nearly $700 million.

Now, does this company grow like a weed? No, but it has a regulatory capture royalty monopoly, and it is a fantastic business to be in. It is not cheap. The stock trades at a forward PE ratio of 38. It trades at 27 times next year's EBITDA, 35 times next year's free cashflow. So these are multiples that you're used to seeing for really high quality, steady growers. It's a rich multiple, but it's been rich. It's been pretty rich for a while. This is a name where it's on my watch list because I don't see it getting past the workbench. How do you justify the multiple based on the growth? I get it. It's so high quality,

but kind of everyone knows that it's high quality. So this is a kind of a name where you wait for a fat pitch. You wait for bad news. You wait for a broad market downturn to get a piece of, you know, a company that's been around for a long time and probably going to be around for a lot longer. the name was Fair Isaac Corporation. Because when I saw it, I'm like, I saw FICO. I'm like, is it this company that does a FICO score? But I wasn't sure when I Googled their name. But what I pulled up right now is their free cash flow per share, which been pretty impressive. I'll just say that. Yeah, it's just basically almost a straight line to the right. You know, little dips here and there, but nothing pretty consistently to the right. Yeah.

little dips here and there, but nothing pretty consistently to the right. Yeah. They have really poured it on in the last five years. September 15th, I guess, getting closer to 10 years. But in the last five years, they've really poured it on. You're looking at six bucks in free cashflow per share five years ago to trailing 12 months of like 19 bucks of free cash flow per share so a clean a clean 3x basically yeah i mean since 20 since 2018 they've grown the free cash flow per share at a compound annual growth rate of 24 so that's that's really impressive and And done so very steadily. Yeah. And so you know I like these kinds of companies. They have very wide moats.

They typically have regulatory capture. They're involved in credit, but they don't take credit risk, which is like my favorite business. And I have a segment for next week's show. business. And I have a segment for next week's show. I found an investor managing 5 billion in the US that just owns these names. In my research, I was trying to figure out if anyone has been on my wavelength. And oh, buddy, I've just been on this guy's wavelength because he's been doing it for 25 years and made a ton, a ton of money. I'm going to do a segment on this investor I found that manages $5 billion with these companies. Nice. No, no, that'll be interesting. And I think that's a really good pick. So for me, I'm going to be looking, I definitely have it on my radar.

So uranium ETFs, but also there's a Canadian company as well that I have on my radar. So I'll just give a bit of background as to why I have uranium ETFs on my radar. So, I mean, it all comes back. And obviously, like, you know, I think the differences in our approach are kind of shining here. Why I'm looking a bit more at the macro world in this investment so clearly you know this is just a kind of quick summary but the world needs energy that does not emit any direct carbon emissions which nuclear does not the world needs like energy that's also constant not intermittent so solar and wind for example are great but they're intermittent sources so when the sun doesn't shine, no energy is produced by solar.

And the same goes when the wind is not blowing. And obviously, solar works better in certain climates than others. Solar doesn't work all that well in Ottawa at this time of the year. I'll just say that, right? Like the sun is just even when it's the sun is shining, it's not very powerful. And the on the other end is true right solar can produce too much power where you know you can't use it all when you need it sure you could use battery storage but there's already high demand for the material to make these batteries

like cars like all you know laptops pretty much anything that has a lithium battery. So at some point, you know, I don't know the exact data on that, but there is a lot of demand for that. And extracting those material is not carbon neutral, to say the least. So that's another issue. The reality is that nuclear is a great option for places where solar, wind, hydro, for example, are not available. And it seems like 2023, we finally started to turn a corner on nuclear power. Is that your sense as well? It seems like now the discourse around nuclear power seems to be shifting a bit more, where a lot more countries seem to be open to it and embracing it. I have two thoughts.

I have the first thought, which is i i sure hope so because that's just the logical thing to to do here i i have spent a lot of time in in this area as you know professionally with with clean power and working at the nuclear plants here in ontario and it is the best. You have base load clean power at scale and now modular with some of the new technology that's coming out. So I hope we're turning a corner, but I thought we were turning a corner, and then I see a net decrease of active reactors in Europe.

You know, Europe said, oh, we're so clean. You know, we're so forward thinking here. Watch what they do, not what they say with these kinds of things. And so I'm a little pessimistic, but I sure hope you're right. I mean, this is the only problem with nuclear is not the waste. I'm not going to debate the waste on the podcast here. I know it inside out. I'm happy to chat with people offline. If you don't go modular and you go full scale, like full multi-gig, like four gigawatt reactors and stuff like that,

the engineering time and lead time and construction time and refurbishment time is extensive. The capital outlay is extensive. And so that's the real drawback from getting financial incentive. So I'm hoping that we see real uptake from more modular solutions that don't have these gigantic engineering lead times, giant risk assessment studies, approvals out the yin-yang, and not to mention the actual construction of them taking sometimes up to a decade. So that's my only kind of beef with the energy source. with the energy source. No, and that's good. That's great.

And obviously, I think also Europe is starting to get a bit of a reality check on terms of nuclear and why they like, you know, and the consequences of decommissioning some and thinking about Germany here and also not investing enough in nuclear power compared to other sources of energy.

And I think, you know, in the next, I'm hopeful that in the next five to 10 years, there's going to be a shift because I personally think like the more I read on it, the more I think it's part of the solution. And it offers a lot of very good qualities. And even when people think about hydro, right, I'm from Quebec. We learn in school about northern Quebec around the James Bay area, all these massive dams that were put. I think it's La Grande, and there's several of them for Quebec. And that's all nice and dandy, but it's trade-offs, right?

Yeah, sure, it's carbon. It doesn't emit any carbon. But it's very disrupted to the environment around these areas that the dams have been put in place. So it is definitely trade-offs. And I think there's a lot of focus about carbon emissions and rightfully so, but there are other environmental impacts with this kind of solar power, wind power, hydro that I think also need to be taken into account. And oftentimes I find they're like just kind of brushed off to the side, even thinking about solar power, right? A lot of people think it's great. Well, what happens if you have golf ball size hail that hits a solar panel? There's a good chance it might get damaged. And if it gets

damaged, you have to repair it. There's additional costs and it's not necessarily cost effective, you know, as cost effective when that happens. so there's all these different things you have to factor in yeah i'd have to look at what the actual life play life cycle replacement is with weather and that kind of stuff i don't have any data on that what i do know is that when i first my first business ever i did a 85 kilowatt photovoltaic system on the roof in the university town that I went to as a business. This is a complete fake it till you make it business that me and my roommate were doing. We had the chops, we had the know-how and we knew what we're doing and we got it done. But during that time, I think like during that like eight to nine months from like start to finish of the project, the same size panel went from 280 watts to like 385 watts and output in like less than a year.

And we're just like, oh, shit. We just gave them like, you know, it's like when you it's like in the early technology yeah yeah when you buy a computer and it's like oh you're still using that piece of junk get this new 3000 uh it's it's like that with the with the panel so i i don't know how fast uh the efficiency is still moving i think we were maybe in hyperspeed at that time, but I'd have to do some more research. Yeah, no, exactly. And, you know, and to prove the point a little bit that it's becoming more and more, I think, at least on the forefront, and you have various countries considering it more and more as there was the COP 28 meeting, that even as a statement, they said nuclear was part

of the solution to slow the world's carbon emission. And even the Canadian federal government changed its stance in 2020 and is now more open to nuclear energy as a way to help us reduce our carbon emissions. So my thesis here is that there will be more and more demand and more and more appetite for nuclear energy which requires high-grade uranium obviously you know this but it's not all kinds of uranium that can be used for that it's high grade and there are two I guess three main option maybe a fourth one here so I was looking at ETFs because again I do like ETFs for things that I may just want like kind of more broad exposure to a specific sector, geography, whatever it is. And that kind of fits the bill here.

So there's three big ETFs. There's the Global X Uranium ETF, the Horizons Global Uranium Index ETF, and the Sprott Physical Uranium Trust. So the first one, URA, HURA are the tickers, and then U-UN.TO. I will put them in the show notes if you wanted to have a look at them. Now, the Global X Uranium ETF has fees of 0.69%. It's in US dollars. And the largest holding is Cameco, which is a Canadian company at 25% Sprott at 11% NextGen Energy at 7% and then Nakkaka Tumprum I'm probably butchering that but it's basically the largest producer of uranium in the world it's in Kazakhstan HUR either Horizons Global Uranium Index so the fees are higher let's just say 1% fees because it's 0.99. It's in Canadian dollars.

That one I don't like as much because the Kazakhstan company is at 21% here. Cameco is 18%. And Sprott, which is the Sprott Physical Uranium Trust, is at 17%. The reason why I don't like this one as much is Kazakhstan is very close to Russia. And I think there is definitely some geopolitical risk that could potentially be possible there. Kazakhstan, without being a geopolitical expert, has been kind of on and off, kind of cold, warm relation with Russia. So I think it's a non-zero risk to take into consideration. And then the last one, the Sprott Physical Uranium Trust, which again, by the way, it is part of these two other ETFs. This one has fees of 0.72%. It's traded in Canadian dollars and essentially it owes physical uranium.

The one thing I wanted to mention here is Cameco is ticker CCO.TO. It is a Canadian company. It's the world's second largest uranium producer after the Kazakhstan company. I will not try to pronounce it again because I'll butcher it once more. And Cameco has a market cap of $24 billion, an enterprise value of $23 billion. So they are cash positive. So they have a net cash position they have a fantastic balance sheet and of course it's a commodity business but they actually generate a surprisingly nice and pretty consistent cash flow and they pay a dividend but uh we don't see this very often it's a yearly dividend so once a year annual yeah Yeah. It's a very small dividend too. They are based in

Saskatchewan. They have operations in the US. They also have some in Kazakhstan and Australia. And along with these ETFs are definitely on my radar to get exposure to uranium. If I had to choose one ETF for my personal portfolio, it would probably be the URA, Global X Uranium ETF in US dollar. Lower fees, I like the allocation that I see compared to the other one. And I also like that it has the Sprott ETF within it as well. So that's what I have on my radar. Kind of the bullish case here is that, you know, geopolitical leaders around the world kind of wake up and realize that nuclear power can be part of the solution. Cameco's production volumes of uranium has picked up quite significantly. They're doing 28.4, I guess that's a million, 28.4 million pounds of uranium production.

This is on FinChat KPI section here for Cameco. on FinChat KPI section here for Cameco. And that dropped really low through 19, 20, 21. And it's now picked up to close to half of what it peaked at there in 2015. So in terms of actual production volume of uranium has picked up quite significantly. They have other aspects of their business in terms of- Fuel services, right? Yeah, fuel services and that kind of stuff which i'm wondering if that's actually the fueling that they're doing as contractors at the physical

plants i think it is yeah i think it is yeah yeah for yeah if for those not super familiar with this it's not like gas fuel it's definitely like fuel for nuclear. Yeah, they're uranium rods. Yeah. And they give them in bundles. They're pretty cool looking. An actual reactor face is a really cool looking thing. It's got all these holes. It's this, I'm trying to visualize here on the screen what it looks like,

but the top's kind of like a trapezoid, like a pentagon. It's got all these different holes that they yeah i think i've seen picture of those yeah yeah in this scene a bunch of clothes what's that yeah in a sense uh dude i wanted to show you a really cool website and for those who are uh listening here they can go check this out. It is called the gridwatch.ca. Gridwatch.ca. You can pull that up. And this is Ontario's live electricity grid. Now, you can also track the electricity grid on the system operators. For Ontario, it's the independent electricity system operator. Quebec and Manitoba have their own. I know BC Power Authority has one as well. So you can track all of those, but gridwatch.ca does this live up to the minute.

Oh, very cool. Yeah, it's awesome. And you can see right now, so as of recording this, 4 p.m. in the afternoon, there's a big storm here right now. There's a big snowstorm happening. p.m. in the afternoon. There's a big storm here right now. There's a big snowstorm happening. 45.5% of the grid is done by nuclear. 21.7% is done by hydroelectric. 17.2% is done from gas. 15.3% is from wind, which is much higher than normal given how windy it is out there right now. Biofuels at less than a percent and solar at zero. So pretty interesting. Simon, if you click on each of those things on the left, you can actually drill into which plants are producing which by the actual unit. So if you click on, I'm clicking

on the hydro one here. I've been to all of these places. It's pretty, Arnprior, Aubrey Falls, Barrett Chute, the backstations in Niagara Falls, Cheneau up near you. Yeah, well, Arnprior is pretty close to Ottawa. Arnprior is pretty close, yeah. Earfalls is in the most northwestern part of the province, like population zero. These places are very remote

and almost all of them are operated remotely from a command center locally. So yeah, it's pretty cool. Yeah. It's at gridwatch.ca and make sure you can kind of drill into the different things and check it uh you know throughout the day if you click on the the map there too it shows you if we're importing or

exporting power uh into nearby power authorities like new york michigan minnesota manitoba that kind of stuff we're not importing much that's basically uh yeah. Or importing from Quebec, I guess. Right, PQ, I think that would be it. Let me look here. I don't know. Dot AT, I'd have to look at what that code is. Yeah, or not, I guess. But it's a fascinating website. I mean, power generation is obviously extremely important.

The Manitoba through to Quebec, and I'm biased here, of course, but I've done a lot of work on this. From Manitoba to Ontario to Quebec has the most robust, impressive electricity power generation system in the world. system in the world. And I mean that because, yes, we have some gas online in Ontario, which it's all hydro in Manitoba and Quebec. We have some gas online here in Ontario. They built way too much capacity for gas here in Ontario. But nearly half of the baseload power is done by nuclear. It's very clean. These reactors run smoothly all the time. And we just have such a larger population and density that you can't run just 100% off hydro.

There's just too much demand. Quebec would be what, like 90% hydro, I would say? Yeah. 100%. Is it 100%? I know Manitoba is. I'm pretty sure Quebec is as well. Yeah. A hundred percent. Is it a hundred percent? I know Manitoba is, I'm pretty sure Quebec is as well. Yeah.

Okay. Yeah. I think it's a hundred percent hydro. I'm going to have to fact check. If it's not a hundred percent, okay. It says here, hydro Quebec's is 99% of their basal power.

Okay. Pretty close. We'll round it up to a hundred. Oh, and then it says here close to a hundred yeah we get it so 99.9 maybe but it's fair to like you know i do understand the other provinces right like not all provinces have the same you know ability to produce electricity in the same fashion as like you know quebec for example like it's just their geography. It's like that Alberta is, is not able to, you know, invent, you know, waterways. Like,

I think you have to keep that in mind whenever there's that energy conversation. That's why I think nuclear is so interesting because you can do it regardless of where you're at, as long as you have that technology and the political willingness and the investment to do so. 91% of British Columbia's power comes from hydro. So that's more than I thought. I didn't know they were that high. I knew they had a pretty clean grid, but that's really high.

No, I mean, these people have, say what you want about, you know, government decisions around this kind of stuff. But the transition away from coal in a place like Ontario serving that many people in a major city like Toronto is no small feat and pretty difficult to do. The only mess up, the only thing that I'll be critical, and I don't work for them anymore, so I can say whatever I want. They obviously built way too much gas capacity. Yeah. They overbuilt the shit out of natural gas capacity.

It was a complete waste of money. Well, you know, what would be, wouldn't be government without a little waste of money. Just a little waste in there. Thanks for listening to the podcast, folks. Lots of good ideas coming out of here. Some names we haven't talked about in a long time. And of course, the Canadian science investor here with power generation, uranium and nuclear power, baby. I'll give the same reminder

that I did at the top of the show. If you're on Spotify, hammer that follow button. You can also give us a five-star review there right on the homepage of our podcast on the application. And then on Apple Podcasts, Apple Podcast listeners, we need you. You guys are the most important segment in terms of our analytics for ratings and listens. So if you can press that subscribe button and leave leave the review you can also write something nice to to make us feel great that'll yeah just just do it just yeah and if you have an android phone you know steal your friend's phone who has an iphone and give us a review on the that's right yeah yeah just steal their phone say sorry, I just need to do a review.

It's not my decision. It's just something I have to do. Exactly. And you're just going to have to understand that. So steal their phone. Thanks for listening. We'll see you in a few days. Take care.

Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.