The Canadian Investor - Why You Shouldn’t Panic Sell & Brookfield Keeps Growing

Episode Date: February 16, 2023

In this episode we discuss the recent US inflation numbers, look at S&P 500 returns and discuss the earnings of several companies including Brookfield, Pinterest and Canopy Growth.  Tickers of stocks discussed: PINS, BAM.TO, BN.TO, BIPC.TO, STZ Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Register for Shakepay See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Bélanger. The Canadian Investor Podcast. Welcome into the show. Hope everyone's doing well. My name is Brayden Dennis, as always joined by the presidential Simon Bélanger. We are talking earnings news as per usual on Thursdayursday release and we have actually some fun

segments talking about return decomposition and why to stay invested you know among the volatility the reasons to stay invested and the actual statistics around why you should stay invested um simone did you watch the super bowl last night uh yeah well sunday a couple nights ago but definitely uh i watched it up oh yeah it is tuesday i am in a time warp okay yep watched it until the fourth quarter then our baby girl started crying so i had to attend to her but uh did my yearly hundred dollar bet with my wife where we um we split in three ways we put 50 on the chiefs winning just uh the money line okay so one dad nice congrats on the win put 25 on patrick mahomes winning the mvp one that okay two for three and then the last one uh a funky bet 25 on the gatorade color

red it was actually purple i think i saw it was purple yeah which paid like really good odds the purple one so purple is pretty rare uh you i think the the number one like most likely the favorites like always the lime green yeah yeah and then uh and then orange uh what is your favorite gatorade color by the way just, just a computer, just out of curiosity. I mean, I really, I've can't remember the last time I had Gatorade. Usually I get these, uh, these little electrolyte kind of thingies. So, um, little kind of discs you put in your water. That's what I'll usually do for hydration.

But, um, I wanted to mention though, for the bedding, we use one of the sites, right? That's in Canada. And, uh, it was what you were saying. If you did a $1 bet, you got like $300 in free betting credits as long as you did a $1 bet. So now on top of we ended up making a bit of money, we have an extra $300 on top of it for betting. That's just their cost of user acquisition, right? It's like, let's give you some ridiculous... Like they always have this. This is their business model.

It's like, how can we get a customer in this extremely competitive space is like, just give them a freebie where they get hundreds of dollars in credit and hope that they get addicted i mean there's no other way to put it like yeah that's kind of the business model um because you know a slim percentage of the gamblers on their site like the whales will make up like all of their top it's like such a Pareto principle yeah and so they're just hoping that you become one of those power users uh unfortunately it is what it is right it's just it's gambling no exactly I'll probably forget about it so maybe I'll bet on like who wins the Stanley Cup or

something like that yeah there you go uh let's get into the news. I guess just to go around, I was betting for the Eagles. I wasn't actually betting any money because I don't really do that, but I took that one. I took that L because I was all in on the Eagles. This is my last recording in beautiful Costa Rica. It's so funny. I'm watching the Super Bowl at this bar in Costa Rica. And all the commercials are for like Latin America. They're putting on their best stuff, but all in Spanish and for Latin American countries. It's so funny. So, we got the Super Bowl commercials, Costa Rican edition, and some of them cracked me up, to be honest. No, that's funny. Well, yeah. So, we've got some news. Let's get started. A quick look at USCPI, which was released today. I'll keep it short. I know we've talked about a lot about inflation. I

mean, it's hard not to in the past couple of years. But the TLDR here is that it came in slightly more, slightly hotter than expected at 6.4 percent year over year and 0.5 percent month over month versus december most categories saw price increases month over month and year over year with used vehicles being one of the exceptions years on both fronts so declines both on the month over month and year over year basis there's actually an interesting chart that you're seeing here, and I'll explain it to people. Fairly easy to understand. I pulled it from the US government data from when they released the CPI. The chart starts in January of last year, so January 2022 all the way to now. So there's two lines, one for CPI, so the main inflation, the headline number that we

see all the time. And one is the core CPI, which is all items less food and energy, which is usually the metric that central banks will look at because food and energy are more volatile. So that's why they strip them out. Essentially, you see the trend peaking in June for regular CPI and September for core CPI and then trending down since. However, if you're looking at the chart and it's in the second or third page for anyone wanting to look at it, you'll see that there's a pretty sharp decline starting in September all the way till the end of 2022. But I don't know if it's going to continue like this but it definitely looks like it's starting to level off a little bit right now so I think the main thing to remember here at the risk of sounding like a central banker is that more data will be required and just be careful

with people saying one way or the other whether you know they think inflation will just stay up super high or you know it's going to keep going down the central banks will be cutting rates because it's going to go down too low and so on the reality is is that there still remains to there still needs to be more data to make uh you know really a firm assessment one way or another and how about the jobs report was that last week yeah for can That came in super high. Yeah, but those... For both. Yeah, US and Canada.

It was the US number two, right? Yeah, those I always take with a grain of salt because they are notorious for being revised months after. So that's always something I tell people, you know, be careful because usually they get revised, whether it's up or down. But yeah, they came at way above

expectations and I think you'll see more volatility from the markets it's been a pretty good start of the year right now and I decided to pull some data which I thought was pretty interesting about the S&P 500 so far this year and the interesting thing is it's almost a complete reverse from last year in terms of the sectors that are doing well versus last year those who were doing the worst. Now, communication services is up 16% as a sector after being down the most, 38% last year. Consumer discretionary is up 16% after being down 35% last year. being down 35% last year. Tech is up 15% after being down 27%. And real estate is up 10% after also being down 27%. So it's just interesting, because obviously, it's small sample just year to date versus full year last year. But it's interesting to see that it's almost like an

exact reversal of what happened. Obviously, the percentages are different, but the winners right now were the biggest losers last year. It's crazy. I mean, it's literally a complete reversal from last year. And it goes back to reversion to the mean and reversion to the mean in terms of long-term free cash flow growth of the underlying constituents inside of these indexes. And there are lots of great businesses that are in sectors that absolutely stunk to own last year. But if you focus on the business fundamentals and thought everything was fine, maybe accumulated more shares, that's when opportunities form especially, right?

And so you and I have kind of positioned the way we were loading up on adding to positions last year more so. And look, there's always reversion to the mean in actual underlying business fundamentals of the constituents inside of these sectors. Yeah, and that's why I like that kind of data, just because for me, it's always been if you have a sector that's massively down, you know, clearly, you know, there will be some underlying reasons. And clearly, there's probably some pretty poor businesses in that sector too that you should not touch with a 10-foot pole. There's also going to be a list of dead bodies in that sector as well, right? Exactly. But oftentimes, if you start digging, you'll also find some really good businesses that have been dragged down because they were part of that sector. And that's why I think it's a really good

tool for people as a starting point. If they're looking to find, you know, valued value to different degrees, because I think you can make a case that tech is still somewhat richly valued, depending on the businesses right now, but you know, find some better value, I would say. and they'll find some better value, I would say. Yeah, totally agree. And this is why you remain invested. I'm going to go through here some statistics around big days in the market and how much they account for returns over time. So this is data from 1992 to 2022. And here we are now in 23. And so many people got scared out of stocks last year. All right, so this is the S&P 500 index from 92 to 2022. And you had a compound annual growth rate of 7.82% in the market.

And again, this includes last year's bad results. And again, this includes last year's bad results. If you missed the 10 best days, just 10 trading days, you would have had a 5% annual return. If you missed the 20 best days in the S&P, you got a 3.23%. Missed the best 30 days, you had a 1.68% annual return. Missed the best 30 days, you had a 1.68% annual return, missed the best 40 days, you basically were flat at 0.3% return, you definitely lost to inflation. And you had actually a negative 1% annual return if you miss the best 50 days in the S&P 500, if you just own the index. So in the past 30 days of the market being open, and here in 2023, you've certainly wanted to be invested. You've certainly wanted to be invested. And some of the days already this year, you were definitely really market time. If you're going to be in and out of stuff all the time, your returns will very likely suffer statistically. This is not just my opinion. This is statistics. According to JP Morgan's analysis, the best 10 days over the past 20 years occurred after big

declines, like amid the 2008 financial crisis or the 2020 pullback during the onset of the COVID-19 pandemic, end quote. So when everyone scared out of it, when everyone was like, you know, the world's ending, you know, there's huge, huge crash, world's ending, stock market crash, sell stocks. Those were typically when the best 10 days occurred in the past 20 years during these extreme periods of volatility and really, really negative performance. You strip those away and you didn't even make any money over the last 30 years. So the takeaway here is remain invested. And the stats you were talking about last year in 2022 some people were just washed out some people capitulated i don't think that many but a lot of people did

and um the math says don't do that yeah too long didn't learn uh the math says do not do that yeah and i i i think some people that got wiped out, and I think some people got wiped out. Obviously, there's some people that may have gotten discouraged, and I'm sure there's a lot of people who just got scared and pulled money out of the market because, you know, might as well pull it out before it goes down even more. I think that's the reasoning that people have. And you also have 2022.

I don't have the data. I wish i had and maybe it's something i can look for a segment at some point but um we looked at it a little bit actually with um what was it interactive broker in terms of the margin the market people trading on margin i have a feeling a lot of people got wiped out in 2022 because of the downturn and not being sufficient, have sufficient capital to cover their margins. Yeah, as soon as you introduce leverage, I mean, this conversation entirely changes. Like you can legit get wiped out, like for real. What does Buffett say?

The only way to go broke, liquor, ladies, and leverage. So take that one seriously because it will legit make a huge difference. And how many times has Buffett and famous well-known investors talked about that over time? If you have a long horizon, why mess around with leverage in equities? It is not required. It is absolutely not required to be leveraged in equities if you have a long horizon or any horizon. Many of the most famous investors have been very vocal about that, that you do not need leverage in equities to do well over time. Yeah, I think it's just, you know, people wanting to get rich quick. I think it comes down to that. People not wanting to wait. And, you know, leverage can go both ways. Yes, if you make the

right bets and the market cooperates, I mean, you can probably become you can become a millionaire in a matter of probably, you know, a few weeks or months. But you can also lose everything. So that's something to keep in mind. Whereas if you, you know, you hold good businesses for the long term, you'll have ups and downs. Clearly you will, but you don't really have to worry about them. You really have a long term horizon. And the outcome historically has been good for people to do that. And when you lever up returns on the downside, it hurts way, way more mathematically than on the upside. It's the same reason that you should never hold for a long period of time,

levered ETFs, because you have returned decay. And look that up. If it's an unfamiliar topic, you have return decay and it is not good long-term. The downside 3X on an ETF mathematically hurts way more than upside on 3X. So something to keep in mind. Yeah. 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, ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want and they charge no annual RRSP or TFSA account fees. They have an award-winning customer service

team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just

going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Now we'll move on for some earnings. Pinterest, I came out with their earnings. This is a name I like to keep an eye on because I used to own it. The reason I sold was

because revenues were growing. That was good, but there was a big red flag in my opinion. I gave it several quarters and didn't see any improvement. And that was the users were decreasing which was being offset by higher average revenue per user or our poo that was fine but at you know it's almost a user base is like the foundation and if your foundation is not good it can really create some issues and you know as much as i hate zuckerbird and you know the zuckerbird the zuckerbird the zuck as much as i hate him they have a good foundation i have to give that to them uh their user base either stays stable or increases a little bit and clearly they have margin of error it wouldn't be the end of the world even if it decreased a bit because it's so massive you you really don't like the zuck i've

never heard you say hate with him i mean you've had your opinions about him but that that's the first time i've heard the h word come out yeah i just really rubs you the wrong way yeah you definitely and it's just some of the practices they've done in the past and they seem to yeah i just don't trust what he does i'll just say that yeah yeah it is a good point though, right? Because you're talking about the active users here and it's a big reason why the like meta stock popped so much on earnings.

It's like for the first time, daily active users hit an all-time high of 2 billion. 25% of the global population was logging into a meta-asset daily. And that was remaining resilient and actually reached a new peak. Among all of the negative pessimism around the stock, it's like, look, their assets are still at all-time high usage. And that really matters because ARPU is going to go up and down with ad rates and stuff like that,

but you can't replicate usage and users, and when that starts to crack, the fundamentals also crack with it, in my opinion. Yeah, exactly. So back to Pinterest here, it was their Q4 full-year release, and my first impression was that it wasn't great. It was okay, but there's definitely some cracks that are starting to show here.

Revenues grew 9% for the year, but only 4% for Q4. That's compared to 52% and 20% respectively for the year prior. Clearly a big deceleration here. Expenses were up 29% for the year, although this was to be expected. They had guided that in their 2022 guidance that the operating expenses alone would be up 40%. Net loss of 96 million versus net income of 316 million the prior year. Free cash flow was down 41% to $440 million. Global monthly active users were up 4%, which is good. This is something you want to see if you own shares or you're interested in the company. However, and this is where it gets not so good, US and Canada,

which is by far the most profitable market for their ARPU, the average revenue per user, the monthly active users were flat year over year and on a sequential basis when you look at the quarters. So it's not decreasing, but it's not increasing. So that's, you know, it's not great there. Europe MAUs were up 2% year over year, slightly more than that on a sequential basis, which is their second most profitable market, way behind US and Canada. And then the rest of the world MAUs were up 8%. So obviously there is some good there. And why it's a bit alarming for U.S. and Canada specifically, but also Europe, is that ARPU for U.S. Canada was up 16% for the year to 2438, but was flat in Q4. So this is, you know, there's definitely some red flags happening here.

ARPU for Europe was up 7%. Was that flat Q4 over Q4 or sequential? I believe that was sequential. Yeah, my bad. I didn't put Q4 or sequential? I believe that was sequential. Yeah, my bad. I didn't put it, but I'm pretty sure that was sequential. Yeah. Yeah, I think. So you basically had no growth in the entire fourth quarter on actives. Yeah, okay.

Yeah, it makes sense. And kind of same kind of thing for Europe. Europe was up 7% for the year to $3.23. So you can see the big difference in terms of profitability for their users. So it's about eight times higher, US, Canada compared to Europe. And it was down 9% in Q4. Again, I'm pretty sure it's on a sequential basis. My apologies here.

I should have put that into note. ARPU for the rest of the world was a 49% for the year to 43 cents so that's the issue here is that the rest of the world although it is impressive the base is really low so the percentage may look good but I don't know how much leeway you know maybe they'll get to their Europe levels at some point who knows but uh the increase started slowing down in q4 again on the sequential basis so i'm definitely seeing this i mean the good side is the users steam seem to be stabilizing if you own a position here definitely keep an eye on that but the bad side is that the monetization seems to start – it looks like it's starting to plateau a little bit.

Yeah, definitely plateauing. 24.38 ARPU for US and Canada. That seems so solid. The difference for the rest of the world. 43 cents for outside of Europe, US and Canada. Like they're hardly monetizing it at all. Even Europe. I mean it's not – it's just – $3.43 for outside of Europe, US, and Canada. Like, they're hardly monetizing it at all. Even Europe. I mean, it's not.

It's just... $3.23. That's not great. The discrepancy is just crazy when you look at the different regions. So, yeah, I think it's just a reminder for people. If you own these type of companies, oftentimes, even like a meta, their average revenue per user will vary greatly depending on the region. So just looking at the global MAUs, for example, doesn't really tell you anything. You have to really dig in a little further to know what direction they're going in. And look at the breakdown between

month, if they disclose it, if they disclose it, great. Monthly actives versus weekly actives versus daily actives, because that will massively affect monetization in the area. The more people are using it more frequently, you're going to have a higher ARPU because they're getting served up more ads. Their eyeballs are being monetized more. So if you can find that breakdown, do it. And obviously the more people that are daily versus just monthly, it's obviously a very telling sign. And of course, meta is the golden standard here. Yeah, hey, gotta give the king his due uh, is due or whatever. King Zuck. King Zuckerberg. All right. Let's talk about intuitive surgical, uh, ticker ISRG, uh, in the U S listed stock. Uh, I'll start with as a shareholder, I had kind of some mixed feelings about the 2022 results.

The fundamentals are strong. They're definitely the leader in the space and getting lots of DaVinci robotic assisted surgery systems installed. But this is not a cheap stock by any stretch and really hasn't ever been. And so when I own something that's this high of a multiple, I kind of have expectations for growth and how long it can be sustained. And I really thought the post COVID surgery boost would be a really monster year for them. They posted top line revenues of only 9%. There's another thing I don't love that was not called out in the top

of the press release. Like it usually is, right? Yeah. Like, how often do we talk about that? And so single-digit growth for, you know, something trading at like 70 times earnings is not great. But what I have been very consistent about every time I talk about this business is that I don't expect it to be some hyper growth, 50% top line, 50% on all the KPIs year over year.

I've always been very consistent about saying it can be a double digit grower for a really, really long time because it has a really long runway for growth. So maybe it's not some hyperscaler now, but it can really sustain some of these double digit growth. And so what I see it coming at 9%, I'm like that, you know, we're still early in what I believe is this story and seeing some kind of like softness in the growth trajectory. And so I'll be the first to be critical about a position I own. And so I'll talk more about the re-accelerating growth and some of

the bright spots now, but there are certainly many bright spots. Recurring revenue continues to grow double digits at 15%. There's seven and a half thousand installed DaVinci's now, which is their flagship robotic assisted surgery system. That's up 12%. So again, assisted surgery system, that's up 12%. So again, seven and a half thousand of these installed across the world is no joke. These are very intense technology. It's very sticky. Once the surgeons are using it, they're sticking with it. Almost 1.9 million surgeries were performed in the year, which was up 17.6 percent which i believe is you know such an important metric for them especially kind of coming back off of 2020 having such a slowdown in in the hospitals they have nearly seven billion dollars in cash on the

balance sheet competition is starting to heat up as expected um you know they weren't going to own this space kind of forever there's now forever. There's a list of now formidable competitors, but they're still quite far a ways back. And there's so many adjacent surgeries that they can all go for, so they don't have to all compete for the same three surgeries. They bought back $1 billion in stock just in the fourth quarter alone, which is about what they generated in free cash flow. The growth probably needs to accelerate or the multiple will keep coming down. That's kind of like the bearish case here on the stock is there needs to be some sort of acceleration on the top line. You're seeing that in the surgeries. You're seeing that in the recurring revenue. line you know you're seeing that in the surgeries you're seeing that in the recurring revenue it's they had a bit of a soft year in installed da vinci's so that probably needs to come back it was a little elevated off 2021 so it was a hard comp but that's no excuse when you're trading at 15 times sales and and uh you know 70 times earnings you're priced for perfection. And so that's kind of the bearish

case on the stock here now is they got to basically demonstrate something or the multiple comes down quite significantly. And if it does, then maybe it's an interesting buy there as well. But that is something to keep in mind if you have this one on your radar is a lot of things need to go right for this multiple to be sustained. And chances are it doesn't, to be completely honest with myself. Yeah, yeah, no, I was looking at just, I was just interesting. I was, I pulled them up on Stratosphere and didn't realize, I guess they don't have any debt, huh?

Nope, no cash. The balance sheet is like one of the best balance sheets in like mid-cap world and uh actually this is not a mid-cap it's definitely a large cap but i just mean like not yeah cap world yeah i think they have 1.5 billion in cash so uh pretty good pretty good net cash position more that's what i thought uh anyways yeah really that was 7 billion roughly okay i think you're looking at the... Anyways, I'm not sure what you're looking at. Yeah, me neither.

No, I thought I saw. Maybe it didn't include it. But I pulled all of this data, every single KPI I just talked about. Oh, yeah. I actually just pulled it right from Stratosphere. So I didn't even look at their report. I just looked at the press release quickly.

But I wanted to do this entirely just from the KPIs that I think matter, which is, you know, recurring revenues, installed DaVinci's, installed base, surgeries performed, the balance sheet, and buybacks. So yeah, this is basically where I'm feeling here. It's such a wonderful business, but- You're right. The cash is 6.7 because I had separate lines for short-term investments, which are cash equivalent, but what threw me off was the cash and cash equivalents, and then I broke it down. But no, you're right. It was 6.7. That's right. Okay. Sounds good.

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

what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network.

You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. So now I'll move on to a company that speaking of bearish, this would be on one right here. So Canopy Growth Q3 2023. So let's just start with the first paragraph of their earnings release. And I think that'll tell you a lot what you need to know and where they're going. Net revenue of 101 million in Q3 fiscal year 2023 declined 28% versus Q3 of 2022. The decrease is primarily attributable to increased competition in the Canadian adult use cannabis market, the divestiture of C3 and their Canadian retail business, a decline in our US CBD business business and softer performance from Stortz and Bickels and this works.

So when adjusting for the impact of the divestitures, revenues only decreased 23%. So that tells you everything you need to know there is that, okay, sure, yeah, there's things that are, you know, one time thing, obviously, they sold the business, clearly, you have to account for that. When you do account it, it still looks terrible. So I think that are you know one-time thing obviously they sold the business clearly you have to account for that when you do account it it still looks terrible so i think that gives you a good idea on how it is now even biosteel which was one of their bright spot was down four percent over a year they announced that they will be reducing their workforce by 60 percent across the business including 800 positions immediately as they are closing a facility in Smiths Falls, which is not far from Ottawa. And I do feel for those

people. I know the community is reeling over there because it was a pretty large employer for the city. It's not a large town. On the positive side, and there's not much positive here, gross margins are now positive versus negative margins last year. The free cash burn decreased by 13%, but they still burn 146 million in the quarter. And at this point, I really don't know where they will be one year from now. And this was one of the major players.

I guess it still is. They still have close to 700 million in cash and cash equivalents, but they also have 1.2 billion in long-term debt with $455 due this year. So it looks dicey here. And the last thing I'll say is, look, Constellation Brands, for those who are not familiar with them, they own Corona Beer amongst other brands.

So they have a pretty significant investment in Canopy. I just don't know if at some point they just say, you know what, we're letting it ride. If you can't make it work with what you have right now, we're ready to just write off this whole investment. I feel like that may, I don't know, I'm just kind of guessing at this point. But I just don't see them putting more money in in canopy maybe they will um maybe they have a bigger overarching strategic plan using the knowledge or the assets for something else but uh yeah it just doesn't look good and this seems to be the case for pretty much every cannabis play right now.

Yeah, and good point about Constellation Brands. Not to be confused with Constellation Software. Constellation Brands, the Corona, Modelo brand. They, yeah, good luck convincing shareholders to burn, incinerate more money here. Their total investment investments north of five billion usd i believe um so that is not a that is not a small figure which they continue to write down every single quarter and i mean they had warrants for i think it was something like 50 a share or I don't know. It was around that range.

And, you know, to give people an idea, in Canadian dollars right now, it's $3 a share. So those warrants are not looking great. Good thing we got warrants at $50. Yeah, exactly. Geez. That's a tough pill to swallow. And I mean, many of these companies will need a lifeline. And who's giving it to them? Just their unit economics are just so unpromising. There will.

I think in the next two years, I would say you're going to see someone come in, whether it's, you know, a large private investor, whatever it is, someone is going to take advantage of this market. They're going to consolidate and they're going to be the major player in the field because reality is there is money to be made. It's just, you know, it needs consolidation and someone is going to come in, buy some assets on the cheap and make a pretty good business out of it because they won't have overpaid. The margins might not be the best, but they'll probably have a good chunk of the market. So they probably will be able to play with those margins. So that's my prediction. I mean, let's say a bold couple year prediction is you're going to see in the next two years some massive consolidation. And I think it's going to come out of left field.

You're going to see a player just come in like, yeah, either private equity or something like that, yeah. Yeah, it's probably a pretty good prediction. And there is opportunity. It's just that all of these businesses came out of the woodwork, all went public, and never right-sized their cost structure because they came right into a time of cheap money, land and expand,

build as much capacity for growth, pun intended growth, um, of, of cannabis and never once right-sized the cost structure or never once were told to right-size the cost structure or never once were told to right-size the cost structure because it didn't matter. And so maybe there's an opportunity there,

but they're just not set up to have to pivot so hard to making money. Someone's going to have to come in with a completely different methodology. Yeah, they're going to be efficient. That's what's going to happen. They're with a completely different methodology. Yeah, they're going to be efficient. That's what's going to happen. They're going to buy assets on the cheap and it's going to be efficient. They're probably going to end up producing a good product. It's just going to be the opposite of what these businesses did. They use their high stock price.

We're talking about the $50 for Canopy, but it went higher than that. I mean, they were doing acquisitions and just saying, okay, we'll pay you like, you know, part cash and with shares because our shares are sky high right now. So you saw massive dilution and they just overbuilt and now they have to downside massively. But yeah, I still think there is a good business there, but it has to be well managed. And I think that was the issue is they did not manage it well. They it was horribly managed by these companies. Horribly.

And all of them. Yeah. Yeah. All of them. I mean, like pretty much all of them. Can you imagine if a player actually last thing is if there was a company that started smaller, did everything very conservatively, that company may be the dominant player right now. There would have been one outlier and people laughing at them because they're not investing enough. And then now, you know, they just kept their cash, right-sized everything, grew slowly.

They'd be probably like scooping up some assets right now it's the same in tech uh for the companies that went crazy venture capital infused cost structure never right sized you have some of these smaller like bootstrapped or like very conservatively managed businesses taking advantage um and maybe there is a collection of bootstrapped type of companies in this space. I just think that they're mostly all drug dealers and not set up to take advantage of this in a very corporate way. But what do I know? I'm sure there's lots of wonderful entrepreneurs out there in this space. Let's talk Brookfield. It is Brookfield time.

I'm going to talk about Brookfield Corp and Brookfield Asset Management. You're going to talk about infrastructure. As if it wasn't complicated enough, Simon, we now have yet another listing to discuss. But it gives us some additional disclosures. Now that Brookfield has spun out the asset management business, which has low key gone up 30% since every shareholder, including myself was like, Hey, this math ain't mathing in the first week of the spinoff. Um, let's start with the asset management spinoff, which is BAM itself now. The ticker BAM, Brookfield Asset Management, and is owned by ticker BN, Brookfield Corp. I know we've gone over this several times. Many of you know, but just to kind of reiterate that, BN owns 75% of BAM. owns 75% of BAM. And BAM, their first letter to shareholders said, welcome to the new BAM, a pure play on our asset manager. And this was really the goal, right? It was to kind of give

investors an ability to own the pure play asset management business, and as well, unlock some value by disclosing the number specifically of the asset management business under its own listing. And so they have a couple bullet points they put here. One, we invest in the backbone of the global economy. Number two, we leverage our deep operational expertise to create value. You and I have talked about this extensively. They're not only an asset manager, but they're an operational expert of said assets. Very unique relationship. It's not very common. Number three, our scale and track record over a long period of time means we're a beneficiary

of the capital that is increasingly gravitating to the largest multi-asset class managers in period of industry consolidation. I'm not going to lie, that was way too much jargon, Bruce Flatt. Give it to me like I'm five. That was a lot. Our business is positioned around the leading secular global drivers of capital across renewable power, energy transition, infrastructure, real estate, and credit. We're highly diversified. And across Brookfield, we have $175 billion of our own discretionary permanent capital to invest with in our funds. And so, yeah, it's an interesting little breakdown. They raised a record $93 billion of capital in 2022, bringing their fee bearing capital to $418 billion. So simply put, they have $418

billion that they manage and collect management fees on. That's their business. They're an asset manager. People give them their money so that Brookfield can invest it on their That's their business. They're an asset manager. People give them their money so that Brookfield can invest it on their behalf in their funds and operations. And they have 418 billion of it collecting fees, which is a leading indicator for fee related earnings to come in the future. But even backwards looking fee related earnings grew 26% in 2022 to $2.1 billion at a net 58% profit margin. How's that for a business you own? It's growing fast. It has nearly 60% net margins. It is very sticky because they're managing permanent capital. It's software-like, but with 60% net margins and growing fast. Brookfield is a growth stock, dude. How often do I have to get this through people's

head? This is a freaking growth stock. The numbers are incredible. Looking at the big picture here, total assets under management for Brookfield Corp is now $800 billion, up 16%. Distributable earnings of $5.2 billion, which was actually down 15%, but it fluctuates a lot on distributable earnings. And this number has grown at a compound annual growth rate of 22% over the past 10 years. I pulled a quote here from Mr. Flatt. Over the next five years, we plan to grow our free cash flow at a compound annual growth rate of 25%, which should generate about 35, no, about 30 billion in excess cash flow during that period to just our corporation's balance sheet. I mean, what's not to like here? And it still trades at like pretty decent valuation.

What's not to like here? It still trades at pretty decent valuation. $6 billion in free cash flow on a $65-ish billion market cap company growing extremely fast. What's there not to like here? I'm really glad I upped my position when it looked ugly late last year. Yeah, I don't know. It's kind of funny looking because I guess Brookfield, you can kind of compare them a little bit to Blackstone because they're both asset managers, right? Alternative asset managers, most importantly. Yeah, yeah, exactly. So I think Blackstone has slightly under a trillion of assets on their management and the company. And Blackstone is quite complex to understand as well but I think they're 116 billion market cap yeah and you have Brookfield in USD

that's like pretty much half of that almost exactly half so it's an interesting it's interesting to see the discrepancy there when Brookfield also almost have 800 billion of assets under management. So I don't know, you know, there might be underlying reasons for that. But I was just kind of as you were talking, I was like, Oh, just interested in comparing the two quickly like that. It's very surface level. No, but that surface level is exactly what derived them wanting to spin out the asset manager. They're coming for that Blackstone multiple. You know, like in terms of unlocking value, that's exactly like a simplified version,

but it is the real version that Flat and Co are coming to try to unlock value by spinning this thing out. It's because exactly what you said, look at the Blackstone comp. It's night and day. Yeah, and it's, I don't know if it's night and day yeah and it's i don't know if it's the canadian factor like i just don't know because blackstone i guess it's well known in the u.s and

i know brookfield's double dual listed and i think pretty much all their subsidiaries are as well um yeah but i don't know i feel like it's just maybe it's not as well turned off by how complicated the structure is that's fair that's fair it's not like well known. People get turned off by how complicated the structure is. Yeah, that's fair. That's fair. It's not like Bladstone is that easy to understand either. Yeah. It's not.

No, I actually emailed Investor Relations today for Brookfield. And I said, hey, I keep up to date. All of the motherships, ownership, like just all of the asset managers, sorry, all of the motherships, ownership stakes, and all of the subsidiaries. Can you confirm this is correct? And I just put the number for each one. And I'm like 99% sure it's correct, but they're going to get back to me. They answered my email, so that's a little tip for you guys.

No matter if you own one share or $10 billion worth of the business, you can email the investor relations and you will be surprised how often it is the CFO, CEO, or head of the investor relations who are there to answer your questions. Their job is to answer to shareholders. It doesn't matter if you own one share or 10 million of them. And at the end of the day, they don't know, right? You could be a pretty significant shareholder just using a random email because you don't, you want to see what they're going to answer, right? So they have to approach it, you know, the good companies just have to approach it and answer you the same way they would answer if they knew you had you know a 20 million dollar stake in the company for example yeah and i'm asking a legit question like okay here are all the submitted subsidiaries this is what what i think all the ownership stake is can you just confirm it's right or just you know redline which number is wrong and

and let me know and it's a completely legitimate question and they usually get back to you within like two three business days depending on the company. So just a pro tip, you know, don't feel like you're too small of a fish to email or try to talk to the management team. I feel like most retail investors feel like they're too small of a fish in the pond to reach out. Don't feel that way because oftentimes their mandate is to answer to shareholders, regardless of size. Yeah, no, exactly. And now on the Brookfield theme, we'll finish it here. Probably my favorite subsidiary. I mean, I do like I know you love the asset management side, but I love the infrastructure part of the business just because it's such a necessity and it's very resilient, regardless of how the economy is doing and you'll

see it with the results here so funds from operation so ffo is what they they use because it strips out a bunch of different things that don't really impact the business was up 20 to 2.1 billion dollars the ffo breakdown per segment, utilities was up 5%, transport up 13%, midstream was up 51%. However, I've mentioned this before, but keep in mind, it may look impressive, but this has in big part to do with the acquisition of Interpipeline that extra revenue, but clearly they also had an organic increase as well. Data was essentially flat, the data segment. This is mainly due to currency exchange headwinds. Data segment would be their data centers that they own. And that's why I like this infrastructure play because, you know, you don't even need to invest in a pipeline basically you have it they have a pretty good chunk of their revenue coming from the midstream which would be pipelines here they deployed five billion into new assets in 2021 and 2022

they continued their capital recycling strategy as well selling their their Indian Toll Road portfolio and their stake in a free old landlord port in Victoria, Australia. Capital recycling just means that Brookfield tends to buy assets on the cheap. They, you know, prob them up or, you know, make them more efficient. I think that's a better word to use. And then they either decide to keep them for the long run or they decide to sell them when they're highly valued. That's where the recycling comes in. So they do that actually quite well. They will buy assets. I mean, the interpipeline is a perfect example. Go back and look at the prices of either oil stocks or pipeline companies in mid-late 2021. They were not what they are today.

I'll just say that. And Brookfield is the best at doing that kind of stuff. They kind of identify certain assets that they see tremendous value and they turned them around. And like I said, keep them either for the long-term or sell them at a profit and then reinvest that money into new assets

that they think are undervalued and they have a really good track record. They said that they are at the advanced stages of their next round of assets sell, which they believe should generate another $2 billion in net proceeds. There is significant interest because of the current economic environment. So I'm assuming these are probably assets that potential suitors can have a decent amount of, let's say, profitability, certainty, maybe a type of assets that are indexed with the cost of living, for example. And the last thing I'll mention for you dividend lovers, it already pays a pretty decent yield, but they were true to themselves and increased their dividend by 6%, which is

within their 5% to 9% dividend increase range that they target for every year. Yeah, good overview. And this is why it's just so easy to own the corp, because you're going to get exposure to this. You're going to get exposure to the real estate portfolio, and you're going to get exposure to the renewal portfolio on top of the asset manager. And that's why I like it to own it so much too, because of all the reasons you just said, this is also a really good business to own. And infrastructure is lindy in the fact that it's it's not going away if it's going away humans have a bigger problem than uh than your your investment portfolio because like i said in the first you know mandate of what they do is we invest and operate in assets which make up the backbone

of the global economy it's true look at the like toll roads uh you know midstream and utilities like these are core core assets and globally too yeah yeah and one thing i uh renewable partners also reported not too long ago i wasn't gonna do them but one quick note, you know, just I, I didn't prepare this. So just something I've been thinking about is I'm actually thinking about trimming my renewable partner stake, and reinvesting the proceeds, most likely in the corporation, and keeping the infrastructure as is because it's not as big of a position. It's just it's become quite large, the renewable stake. So I want to trim that down, just dial that down a little bit and then gives me more exposure, broader exposure to the whole business by doing the corporation.

The infrastructure one, I actually added to it in around the same time you added to the corp. So it was quite low in December. It just felt like a good opportunity to add to my position there. Yeah, good point. And what's the yield on the spin out now? It's like a 3.5% yield. They must have announced the payout, yeah.

Let me see here. Yeah. Yeah, it's a 3.5% yield. Which me see here. Yeah. Yeah. It's a three and a half percent yield. Which is not bad. Yeah. For something growing like that and, you know, expect to grow free cashflow at 25% a year. I mean, look, if management team says that,

usually I'm like, that sounds aggressive. But when Bruce Flatt says it, it, he can say what he wants. He's done it long enough, right? Some people just have the track record to do. It's like sports. If some rookie comes out and says, I'm going to be the best ever and hasn't done anything and prove anything in the big leagues compared to you know literally a hall of fame first ballot hall of famer they're able to back up the statements by you know past performance and so uh that's why i'm i'm holding value to him saying

those kinds of things um but of course you and I are shareholders, full disclosure of some of the subsidiaries, the Brookfield. We are obviously very bullish on the company, but do your own research because it's a very complicated structure. This is not, this is not an easy business to understand. It is very diversified, which is, which is nice, but that comes with complications of trying to understand all is very diversified which is which is nice but that comes with complications of trying to understand all of the inputs so make sure you do your own research obviously we sound extremely bullish on this because we like the results i still think the cheap the stock is

relatively cheap um but of course do your own. They also have some legendary figures. I mean, well, legendary, some very well-regarded figures working for them. So Mark Carney, the former Bank of Canada governor and also the Bank of England governor is part of their Brookfield asset management team. You also have Howard Marks who was part of the, well, when Brookfield acquired controlling stake in Oak Tree Capital Management. So they have people. So, you know, you're wondering, OK, how will Brookfield navigate these higher rates? For example, they do have a decent amount of debt. Well, they also have people that are, you know, pretty qualified at navigating these different market cycles. I think that's something to me that I find very reassuring as a shareholder. And also most of their debt, when you look at it, it may sound big, but a lot of their debt is just backed by assets. So it's secured debt. So that's important.

They don't, a lot of the businesses that people will look at, oftentimes you'll see debt on the balance sheet, but it's unsecured. So for Brookfield, the vast majority of it is secured debt. And a lot of it is also fixed rates. So it comes for several years, it won't be changing. And not of that majority as like variable rates, for example, that's something that can be alarming if you're looking at different corporations. Bruce, Marks. They're a very significant insider ownership, which is always nice to see with long-term performance is that you have the management team aligned with shareholders. That does it for today's episode.

Thank you so much for tuning in. This was a regular Thursday release of the podcast. We are here twice a week with you. Thank you so much for a lot of the new listeners this year in 2023. The pod is doing better than ever. And that is all because of you. And it can continue to grow if you just share with a friend. If it has gotten one useful tidbit, one tidbit uh from the show we wouldn't mind if you you shared it with a friend you know a buddy a pal a family member whatever it is uh you know send them the old link on the podcast someone on the street someone you cross on the

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