30 Stocks For Contrarian Investors

[00:00:01] 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 Braden Dennis and Simon Belanger The Canadian Investor Podcast. Welcome into the podcast. My name is Braden Dennis. As always joined by the fervent Simon Belanger

[00:00:27] Looks like we have a Mark Carney enters the chat as of today. That's hot off the press here recording Thursday, January 16th. I think we all knew this was coming, but it's official. Yeah, it's official. I mean, I think he had done, we were talking before recording, he had done an interview with Jon Stewart on The Daily Show and then he had, I think he had made some announcement that was pretty obvious that he was running for it.

[00:00:56] He said, I'm running without saying I'm running. Yeah, essentially. I think now I, I'm not an expert whatsoever in politics or liberal party, but it feels like it's going to be between him and Chris Schifreeland. That's the sense I got. I don't think there's anyone else that seems to have a shot. Yeah, it'll be Carney Poliev and yeah.

[00:01:21] I mean, I think it'll be, it will most likely be him because he can say that he wasn't part of the party. Right. I think that's a probably the biggest selling point because I, you know, everyone has seen the polls and what it looks like. Like I think running, running a US election 2.0 here, like that we already saw how that, how that went. Yeah. Yeah. Someone who was already in the party that people are sitting vice president.

[00:01:49] Yeah. Yeah. That's my prediction. I could be wrong, but I would think people want change and people in the liberal party, I think we'll see that. So they'll pick Mark Carney as someone that was not part of the party. That's my prediction. Let's, let's talk about it in three months. See if I was right or wrong.

[00:02:07] No, I think there's a very high likelihood dude. So new year and you know, the benefits roll over. So, you know, like, ah, I should go, go to the RMT, go get a, you know, use up the benefits. Right.

[00:02:22] Right. My old massage therapist, who was this like four foot two woman who like was strong as an ox and she was incredible going to her for like two years. She just like quit. I don't even know why she was a young, probably early thirties tops. If I was to guess.

[00:02:40] Oh, really? So I don't know. She said she was doing something else. I'm like, okay, good luck with your next thing. So new person today. Okay. First, first one, you know, it's a little, a little, a little on the chatty side, I would say. I'm trying to design out, not my favorite. Okay. So you're a no chat guy when you get massaged. Yeah. I'm, I'm a, I'm okay to chat to the Uber driver, the taxi driver. Sure. You know, we'll, we'll chat. We'll talk.

[00:03:10] But the massage, nah, dude, I don't, I don't want to, I don't want to talk. I want to Zen out. Right. She's like, so, so what do you do? Whatever. And I'm like, oh, like the founder of this financial data company. And I run this podcast thing, kept it really short. I'm keeping it just a few minutes. Right.

[00:03:31] She goes, oh, wow. Like with Trump coming in, do you think the market's going to go up or down? And I'm like, mid missile. This is like two hours ago. And I'm like, oh no. Like, how do I, how do I hit the escape hatch out of this convo right now?

[00:03:47] I'm just like, honestly, uh, not sure. Might go up, might go down. Like, don't know for sure. And then she's like, I think she got the hint, but like, this is the ultimate market gauge sentiment. The RMT asking where the market's going. We, uh, we're in for a big year. Load up, load up, go all in. We're going for a big year.

[00:04:10] Yeah. I mean, I think it's, there's a lot of that happening and that's a good indicator when you have people getting, getting interested in the stock market that you would not typically expect. I mean, maybe she's been investing for a while, but maybe not as well. And when you get people, you don't expect talking to you about the stock market because they know what you do. That is a good sign that the markets may be nearing the top or there's a lot. Yeah, exactly.

[00:04:39] There's a lot of euphoria. These kinds of signs. Um, I feel like they're popping up more and more nowadays. Oh, it's too good. You know, heads, head through the little hole and I'm just like, oh no, like get me out of this. Also, like, how do I tell her I don't want to talk? They need a, an option on the app, like Uber, where you can ask for no talking. I discovered that a few months ago. I had no idea.

[00:05:02] You can do that on Uber. And in San Diego, I had a particularly chatty Uber who wanted to do trivia the whole way on our 30 minute drive, which was fine. I was happy to do it. I like trivia. I'm fine to do it. But a notification came up right away before he picked me up and said like, hey, do you want to talk or not? So I guess he's known as being particularly chatty.

[00:05:55] Oh, okay. You know, we got to the inauguration and the day before the last day for a tick tock ban potentially as well too. Those are two big news items. The tick tock ban is a particularly huge news item.

[00:06:11] There is a significant amount of advertising dollars that goes into that platform and that ecosystem. You know, Mark Zuckerberg and the meta family of apps are licking their chops at the idea of a potential ban there. So, you know, I would not be surprised if meta smashes expectations over the next six months. If, if tick tock does get banned, that's, that's my opinion.

[00:06:37] The expectations will get revised up and I bet you they'll still be too conservative. That's just my anecdotal opinion on advertising on tick tock right now. I think it'll, uh, they'll sell the assets. I think they will. There's just, I think the numbers I've seen float around is like 40, 50 billion in terms of value.

[00:06:58] Polymarket, I just checked a couple hours ago. Polymarket had a, had it at a 65% chance that it would get banned. So that leaves, I guess, all the other options at 35%. This is just polymarket. Yeah. I might actually, yeah. I might actually place a little bit on that. I think it's, I don't, I think there's just too much value. There's some companies. Yeah. Too much money, too much value there that there will be some buyers. And not only that is.

[00:07:23] But this also just depends on the, the Chinese government wanting to accept that. Like, is there any amount of money that gets the deal done? I guess that's the big question. Elon has a lot of influence and he definitely, as Trump's here, at least so far, and he's got a lot of interest in China. Yeah. Yeah. So I think he could potentially move the needle there. But if I had to bet, I feel like that's a bit on the, you're getting pretty good odds.

[00:07:52] 65%. Something else. Yeah. To happen. It peaked at 75% yesterday that it would get banned. Okay. See? So I think there's probably some stuff happening. That's just my perception. Obviously, when you look at odds and probabilities, anything can happen. But if I had to place a bet, definitely with those odds, I would go on the side of. Betting on capitalism. Any other outcome. Yeah, exactly. Any other outcome capitalism coming through because there's just too much money to be made.

[00:08:20] And I feel like the U.S. will also try to, as much as Zuckerberg has been cozying up to the Trump administration recently, I think the U.S. and the Trump administration, which is a bit more free market, they'll probably value not a ban, if it's U.S. controlled somehow, to avoid having too much power into one platform.

[00:08:43] Because let's not kid ourselves. There might be on the margin people that will go on X, on Snapchat, but most of them will probably go to the most obvious platform, Instagram. Yep. That will probably take up most of the subscribers that were with TikTok. Correct. So that's my prediction. There would be the largest net, single entity net benefit would be Instagram, of course, owned by Meta. For sure. Well, you know, we're recording this on January 16th.

[00:09:12] It comes out on, I think, the 19th. Yeah. You'll know if we're wrong or not. Hey. Hello, future self. You already know. All right, let's get into the best definition of quality, question mark. So it is no secret that I have a bit of a man crush on Dev Kent Asaria. Like, let's just, let's call a spade a spade.

[00:09:38] He runs Valley Forge Capital, and he's well known for two things, in my view. One, absolutely crushing the market, of course, you know, winning helps for sure. And two, doing so by just holding a handful of high quality stocks for a long time. And I mean just a handful. It's one thing to be all stoic for us, you know, and just say, I'm cool with deep conviction, right? I'm cool with that.

[00:10:05] But we're talking about several billions of dollars with Valley Forge Capital here. You have here the portfolio that they have as of their latest 13F. So it's 35% FICO, the company, Fair Isaac Corporation, ticker FICO, which is the monopoly on credit scores, basically.

[00:10:29] 20% S&P Global, 16% MasterCard, another 13% Moody's. So those four companies are like, you know, another, sorry, 6% of Visa as well. So Visa, MasterCard, that duopoly. Moody's, S&P, that duopoly in credit ratings and everything else they do with analytics and data and stuff. And then FICO, kind of an monopoly on credit scores.

[00:10:55] It's like this portfolio is the wide moat financials portfolio, and I freaking love it. The rest of the portfolio is rounded out by Intuit and ASML, okay? Okay. So very high quality businesses. They're all large, large businesses. And it's crazy how much he's kind of crushed the market with such large market cap companies too over that time horizon. It's pretty impressive.

[00:11:26] But the big question is, what is quality? So, you know, like, when I ask you, like, what is to you a quality company? That's a good question. If I had to put it in words, there has to be certain aspects around it. I would say it's a company that will have growing revenues, at least stable margins, but again, over long periods of time.

[00:11:51] So it's able to do it over long periods of time, sustain it, growing profits, growing free cash flow, manageable debt, and a good moat where maybe not a moat, but definitely. Well, yeah, I would say still a moat where there's – it's hard for new entrants to get into there. So that would be the highest quality companies simplified. That's the way I would think about it. Yeah, totally. Definitely.

[00:12:17] It's got those, like, metrics and numerical fundamentals that tell the story of the, you know, the moat and the competitive advantages and the secular tailwinds and secular trends of their industry being behind them. And it's fairly easy to say, okay, yes, this company structurally is great and the industry leader. This one's fairly mid and a poor industry when it comes to unit economics.

[00:12:41] It's easy to kind of just black and white throw things into buckets, and I think it is a skill to get quick at that. But when I heard Dev Kansaria be interviewed by my friend Clay on the Investors Podcast, he interviewed him, and Dev said this. He said, my definition of quality is the intersection of growth and predictability. I thought that that was like, you know, because you can kind of word salad, like, about how awesome these companies are.

[00:13:10] But the predictability part, in my view, encompasses all of those things you mentioned, right? Yeah, yeah. It's basically what I said, but more eloquently. It's a lean explanation, right? Because predictable growth for long durations is achieved by great companies. Growth on its own can be achieved by any company, right?

[00:13:35] Growth on its own can achieve by any company, large companies, giant companies. But predictable growth for long periods is achieved by great companies. And so this thought really stuck with me, the intersection of growth and predictability. For example, a company that I own, and my God, I want to buy more, but every time I see the valuation, I die a little bit inside. Intuitive Surgical.

[00:13:57] Okay, this is a business where it is the most predictable grower I've ever owned, honestly, because they install a certain number of DaVinci systems in hospitals and at an accelerated pace over time. So they typically grow the installed base at around 12% to 15% year over year, which is not, you know, gangbusters growth or anything.

[00:14:27] But they've been doing that for a long, long time, these installations of these DaVinci robots. And they're going to probably be doing that for a lot, lot longer. University of Toronto just got like one of the first couple in Canada now today, right? And there's, what, six, no, almost 10,000 installed in the world today.

[00:14:54] It's not crazy over the next five years for that number to, you know, easily jump up to 20,000 and double and continue to 30,000 and continue to 40,000. And you see in the recurring revenue base that it just ticks up with that KPI like clockwork because there's recurring revenue on the business. So I think that's why it's so highly valued and why people are so sought after as an asset.

[00:15:17] It's going, okay, yeah, it's not growing 30, 40% every year, but it's probably going to compound double digits for, I don't know, the next 10 to 15 years. And there's just not that many businesses that you can say that about. And I think that's why it just gets such a premier valuation. And the biggest challenge with investing is finding those high quality companies at reasonable valuation because they tend to not trade cheaply.

[00:15:45] And sometimes they don't trade cheaply. You invest in them five years later, you've had phenomenal returns. I think, you know, with you. A la Costco. Yeah, Costco, intuitive, surgical. The problem with that is there's also going to be a lot of instances where you buy high quality companies, but you pay way too much for them. And then as good as the company is, it trades sideways for one year, two, three, four, five years.

[00:16:13] That's pretty common, too, if you buy something extremely richly valued. And that's always the trick or the tricky part with investing in general, but especially when you're looking at good companies. It's not hard to find quality companies typically. It's just hard to find them at the right valuation. Well said. It is not hard to find them. It is hard to find them at the right valuation.

[00:16:38] I guess the thing is, is like, I really like the framework that Terry Smith has, which is just buy great companies and try not to overpay. It's like, again, another one of those one liners, because there's no perfect formula or silver bullet for valuation. But try not to pay is just try not to overpay is just directionally correct enough to work. And I like that mindset. No, I think that's good.

[00:17:05] Move on to some the opposite of moving on to some value. So where to find some value in the market, because the markets we've talked about it a lot in the last year, I would say. Markets are not cheap. You can use a bunch of different indicators, valuation metrics, whether you use P ratios for the aggregate market, the Buffett indicator that looks at the total market cap in the U.S. compared to U.S. GDP.

[00:17:34] U.S. GDP, like almost everything is either at all time highs or at the very top percentiles of high valuation. But once you start looking at different areas, there's definitely some areas where you can find some value. And I'll mention a lot of names here. Just be aware that some of the names are more familiar than others. So make sure you do you do your research for all of these names, even those that I know well.

[00:18:01] These are just some ideas of where you can look for value. And there's most likely names that I'm not mentioning in these areas that are probably even better than the ones I'm mentioning. So just wanted to mention that. But the first one that came to mind is oil and gas. It's really struggled over the last few years. It's not been terrible, I would say. It's just been underperforming the market. And there's different ways to play this.

[00:18:27] One that comes to mind, you could look at the picks and shovels play a company that you own. TerraVest, tvk.to, listed on the TSX. That is a way to play it if you want to invest in Canada. Hallie Burton would be an example with the U.S. Yeah, you want to add something that you made a good? No, I'm giving you the Dr. Evil. Come join me, the TerraVest land. I think you'd be a suitable shareholder.

[00:18:58] Hallie Burton, ticker H-A-L, is an option in the U.S. Again, you're betting on the picks and shovels. And it's a really interesting way to play it because you're betting on the U.S. with Donald Trump. I think it's pretty safe. They've been very outspoken about that. Drill baby drill. Loosen regulation when it comes to that. Now, the problem with loosening regulation is you increase production. And if when you increase production, you increase supply.

[00:19:26] And oftentimes it's going to put some downward pressure on the prices. So it's not doesn't necessarily mean that some of the oil and gas plays will become more profitable. So it's always a little bit tricky if you're looking at the producers. But if you're looking at picks and shovels, you don't care. As long as they're drilling more, they're going to need your equipment. So that is an interesting way to play it here.

[00:19:49] But again, you can look at some of the producers, whether you want to look at more petroleum or a gas company like Tourmaline. But of course, Canadian Natural Resources would be another one for oil and gas in Canada. Both of them there. Tourmaline is actually very interesting because if you start looking at the price of natural gas, which is almost doubled over the last six months.

[00:20:15] I was looking earlier as I was trying to bring up some, prepare some charts for the podcast. I like to be prepared. And I'll show this here for the joint TCI listeners in terms of the price. And natural gas has just, this is over the last six months. It is, it has more than doubled in prices. I did not. I wasn't really paying attention. This is a pretty significant move. And I've been buying Tourmaline as it was cheaper. I do own Tourmaline. I own Canadian Natural Resources. So full disclosure.

[00:20:45] And Tourmaline is just up 11% that month. And they have a history when they, the price of natural gas starts increasing and they're just pumping free cash flow. They have a history of paying special dividend. That's why I love this company is they will, they have a small regular dividend. And then when prices go up and their free cash flow increases, they will oftentimes pay down debt and then they'll do a special dividend.

[00:21:13] And they bought a company not too long ago. So I'm sure they'll be using that to pay down debt, but they'll probably use it as well to pay a special dividend, dividend going likely sometime this year, especially with these higher prices. So that's, that's an interesting play as well because Tourmaline still has not increased all that much in that time period. Some other ways to play the oil and gas space would be pipelines like an Enbridge.

[00:21:38] So ENB.TO, TC Energy, TRP.TO or Kinder Morgan, the US. There's tons of pipelines. When I talk midstream, it would be pipeline companies. Another play would be Refiner. One that comes to mind is Marathon Petroleum, ticker MPC in the US. They're, I think, the largest refining company in the US and their stock has been under a lot of pressure over the last year.

[00:22:03] So these are all companies that I've seen, you know, there might not be at the bottom of the barrel, but they've definitely underperformed. And I think the market is still not really investing in general in this area. The market is still, lack of a better word, high on AI and big tech. I think that's what we're seeing right now.

[00:22:25] So now, in my opinion, and I could be wrong, and this is not investment advice, now's the time to look at these names, even if they've gone up a little bit in the last six months. Yeah, the natural gas producers are really interesting to me if I was to dial into one of these, I think, especially with, you know, the potential of unleashing Canadian resources a little bit more freely in the next era. Yeah.

[00:22:53] Yeah, I think there's a lot of, I mean, there's a lot of promise in this space. Again, with the, when you look at commodities, it's always a bit tricky, but again, I gave a lot of different options. The pipelines, they'll make money regardless. They'll just make more money when the prices are high, but they'll make money regardless. So there are ways to play it and being less affected by commodity prices, like the picks and shovels and the pipelines.

[00:23:19] But again, if you want something a little more cyclical, maybe higher upside, then you can look at some of the producers. This next segment of companies, I think, is one that definitely needs a look. Some of these are just like the most unloved, least sexy, post-COVID hangover, can't grow into those 2021 growers. So yeah, this one's interesting.

[00:23:47] Yeah, so this one I'm sharing again for joint TCI subscribers. So pharmaceuticals company. So that'll be obviously in the US because what we have maybe two publicly listed in Canada or one I can't remember. It's not a big space in Canada, but in the last six months and especially in the last three months with the US, with Donald Trump being elected almost three months to the day, not quite, maybe more like a week after that.

[00:24:16] But nonetheless, there's been a lot of pressures on these company. Looking at the last six months, Johnson & Johnson is down 4%. J&J, Pfizer, obviously with the COVID vaccine, it was a poster child for that, is down 11%. Merck and Novo Nordisk are actually both down 20%. And Novo Nordisk, for those not familiar, it's a GLP-1, so the weight loss drug. So their stock really went way, way up.

[00:24:45] They're still trading like relatively high valuation, but it's come down quite a bit. Eli Lilly is down 38%. Again, they've seen some pressure, a bit more pressure with Eli Lilly, ticker LLY, because their free cash flow has gone. It's definitely gone down. I was looking, they've increased, I think, their R&D and CapEx quite a bit in the last couple of years. I don't know these companies quite well just because I find this space extremely complex.

[00:25:11] But again, I think this is a result of Trump being elected, announcing that RFK would be leading the Department of Health and Human Services. You can look up RFK Jr. He's been very vocal about making some significant changes on the influence of big pharma over regulators. He's been very critical of vaccine makers and, once overall, the public health system in the U.S. Clearly, there's a lot of uncertainty. Like you talked in your first segment, people or investors like predictability.

[00:25:41] This is not the case with this sector. So you are taking some risk. There is some uncertainty. But these companies, a lot of them are just gushing tons of cash flow. And if you're looking here at Johnson & Johnson, it's trading at very low valuations. It rarely trades this cheaply. You're looking at it on a trailing basis, 17 times free cash flow and 24 times earnings.

[00:26:08] And that's on the low end, even if you factor in the fact that they recently spun up their kind of retail segment with Canview. Even despite that, it's trading at pretty low valuation. You rarely see that for that company. Something to keep in mind. There is a bunch of different options. If you're looking to do the work, you'll definitely want to do the work for these companies. They're pretty complex to understand. There are some ETFs that you can look at.

[00:26:36] BMO is one of our sponsors. They have a broader healthcare ETF, ticker ZHU. If you're looking more pharmaceutical specific, then you'd have to look at some other option. Most of them are US listed. So you'd look at IHE, which is, I believe, BlackRock U.S. pharmaceutical ETF or VanEck with PPH. Those are some options if you don't really want to dig into these companies and just have broader exposure.

[00:27:06] If you want to dig into the companies, again, I'm not an expert, but here are some of the things that I know you have to look at and understand. Understand what drugs are driving profits, whether they still have patents on those drugs. If so, when they expire. You'll want to understand how much they spend on R&D, how much they plan to spend on R&D, their drug pipelines, what step of the process, each of those drugs, and how promising they are.

[00:27:32] You'll want to also look at, obviously, the regular financial things like that you'd look at. But it's understanding that part, especially what part of the process they're at, that I find pretty complicated. And it's definitely beyond my circle of competence here. I'm just looking at, I was pulling up Pfizer because it's just been such a dog. Revenues peaked in July 2022, kind of the peak of vaccine distribution at $27 billion for the quarter.

[00:28:03] Their June quarter, two years later, was $13 billion. And so, you know, significantly less, you know, a clean 50% cut. And it's on a 56% drawdown. So if I go to the drawdown chart here, yeah, it's on a nearly 57% drawdown for this company. It seems... It's paying a pretty good dividend too, huh? If you look at it now. It's like 6%. Yeah. Wow.

[00:28:31] I thought it would be around 4% and not 6.3%. Yeah. Yeah. It's juicy, but it's also like scumbag Pfizer. I mean, like with these companies, right? Like it is, like you mentioned, there's a lot of... Hold your nose and invest. There's a lot of research. Yeah. There's a lot of research you're going to want to do, like primary research on the products. And there's so many of them with these mega conglomerate pharma names that I agree with you.

[00:29:00] If you think the entire sector is too cheap, then probably a basket of them at low cost is the way to go. At least for me. Yeah. No, I think for me it would be as well because it is pretty complex. I'm sure there are some people in the pharmaceutical space or have studied with that. If that's the case for you, you have a hedge on Braden and I by far. Because you understand how these companies work way better than we do. And if that's the case for you, use that knowledge to your advantage.

[00:29:29] Understand whether these, you know, one of the ones we mentioned maybe has way better prospect than another. I don't know. I just don't know these companies that well. And I find that pretty complex just understanding not only the science behind it, but the whole regulatory approval. If it was me, if I, you know, had to pick one, I would pick the picks and shovels play of Thermo Fisher, the devices company. No, it's not as cheap.

[00:29:57] You know, no, it doesn't pay a 6% divvy. But, you know, it's a 210 billion US market cap company. Trades at 24 times next year's earnings. So that's come off a lot. This was a really, really pricey stock. I think you can get it a lot more fairly here. And this is kind of a best in class business in my opinion.

[00:30:21] Yeah, another one that would be maybe not quite picks and shovel that I had looked at a while back and I'm just going on memory here is West Pharmaceuticals. WST. They do a lot. Yeah. So they do medical devices. Yeah. And it would be another company that could be interesting for people looking at this space.

[00:30:44] The life sciences basket, you know, the Boston, the Edwards, the Thermo Fisher, Donaher, which is the big roll up WST. That's where I'd primarily want to live. And they've come off quite a bit, most of them anyways. But yeah, the pharma, if you're looking at pharma and you have that knowledge or you're ready to put the work into it, it looks like there's value there. Just looking at it without being an expert.

[00:31:10] The next one here, same reason, I think similar reason than pharma that it's down. So defense stocks. Again, if you're wanting, you don't want to invest in these type of companies, that's fine. It's your money. But again, these are looking pretty cheap.

[00:31:25] And the reason why I'm saying it's similar reason is because there has been some pretty critical words by the Trump administration, Trump himself, by accusing defense companies of overcharging the U.S. for military equipment. I know Elon Musk has also been pretty critical as well, saying I think the F-35s are not as good as some manufactured in China or some other countries that have their own fighter jets.

[00:31:55] One name, speaking of the F-35, Lockheed Martin, ticker LMT, has seen a 20% drawdown in the last three months, which essentially, again, lines up with Trump winning the election. It is one that is trading quite cheaply right now. If you're looking at it just on a P basis, Lockheed Martin rarely trades this cheap. So it's definitely towards the bottom of its evaluation.

[00:32:22] If you're looking at the P ratio on a trailing 12 months, again, some uncertainty with the whole Doge department. Maybe they'll try to be more efficient or at least in the procurement space for the fence contract. Maybe they'll try to trim some of the margins that are given to these companies. So clearly there is some uncertainty in the space. Lockheed Martin is not the only one that's been seeing some drawdowns, but it is a pretty well known name in a company that is rarely this cheap.

[00:32:51] So someone that'd be interested in these type of stock. Defense stock has definitely been on a drawdown, especially since the Trump election. I think it's mostly trading with historicals in terms of valuation. I mean, I think it's on the bottom end of the historical for sure. Yeah, it's trending lower. Maybe I'm interpreting. There's definitely more. It's not high. That's for sure. Yes. I mean, it usually trades mid double digits, I feel like, which is kind of where it is now.

[00:33:21] But does it ever trade cheap? Does it ever trade expensive? No, not really. It is a high quality company. The fact, let's be honest, there's never been a single president in history that has spent less on defense than his predecessor. So, yeah, I don't see that trend changing in America anytime soon, honestly. Yeah. And add that to the fact that Trump has been pretty vocal about allies increasing their military budgets.

[00:33:48] And where do you think allies get their equipment? They're not getting their military equipment from China. No. They're getting it from U.S. defense companies for the most part. So, if Canada increases its budget, which will likely happen because I'm sure Trump will be putting some pressure on Canada to do that. My prediction is we'll probably see that in the next couple of years. What do you think they're going to be buying for fighter jets? They're going to be buying F-35. They're not going to be buying something else. No.

[00:34:17] The big primes will be the benefactor there. Yeah. Yeah, exactly. Now, one that's interesting, I heard on another podcast a couple of weeks ago. I'm sorry. I should have written down the name of the guest that was happening. But he said what they look at for value, and it was really, it was true. I started looking at it, is wonderful businesses outside the U.S.

[00:34:43] Because a lot of businesses and railways are probably the best example here. Railways are wonderful businesses. They are not trading cheaply in North America. It's not just the U.S. The Canadian railways are not cheap. They're definitely trading on the higher side of their historical valuation. They're cheap compared to big tech. Don't get me wrong. But in terms of railway, they're not trading cheaply. And then if you start looking at, let's say, Japanese companies. Japanese has some publicly traded railway companies.

[00:35:13] And they're looking pretty good. They're not looking bad at all. So you have East Japan Railway Company, ticker 9020. And on the Tokyo Stock Exchange. Never understood why they use number, but they use numbers there. It's trading at 13 trailing P and forward P. So compare that with Union Pacific, for example. I think the Canadian railways are in that same vein. Union Pacific is trading at 20 P. So there is a big gap.

[00:35:42] And these type of companies have moats in Japan as well. You can find a ton of great businesses outside of North America with deep discount. The problem is they're not without the risk. So you can take on currency risk by doing that. You're obviously going to take on currency risk. You are taking on currency risk if you invest in U.S. stocks as well. That's always going to be a risk there. Of course, it's worked out pretty well for you if you're Canadian, that currency risk. But it is a risk, right? It could go the other way as well.

[00:36:12] You can also take on some political risk, country risk, depending on where the company is located. I'm talking about Japan. So clearly, I think the political risk shouldn't be too bad there. But again, it's also not that far from China. We don't know what's going to happen in the next few years. It's not that far from Taiwan either. They're in that region. Of course, they're a close ally to the U.S. What I'm saying here is there will be some additional risk.

[00:36:37] So yes, you will likely be getting some discount on a lot of great businesses outside the U.S. Basically identical businesses, but they're located outside the U.S. Even just look here in Canada, right? There is so many businesses that trade at a deeper discount if they don't have a U.S. listing. Yeah. Yeah. But you just want to have a bigger margin of safety for those companies. So it's not because you get a slight discount that it'll be worth it.

[00:37:04] You want to have a pretty significant discount compared to their U.S. counterpart to make up for that additional risk. But I thought that was a great idea, and it is something that I'm starting to put a bit more on my radar. And it gives you diversification geographically as well. There's just so much more de facto flows as soon as these companies have a U.S. listing or at least domiciled in the U.S. I mean, look at Constellation, right?

[00:37:31] Like Mark Leonard has specifically said, no, we will not do a U.S. listing because we want basically the least amount of eyeballs on it so that the employees can continue to acquire shares at the lowest price possible. Not that it trades at a deep discount or anything, but I think it would have an even more rich multiple if it was on the U.S., like on a nice year, for example.

[00:37:59] The only thing here is like it's not a fundamental risk, but it's a risk of returns, which is I got caught with this a lot as a less experienced investor saying, look at the discount it trades at. You know, if I hold this for several years, it'll eventually catch a bid and eventually trade like its peers in the U.S. Uh-uh, uh-uh. That is not how this works.

[00:38:27] It doesn't magically all of a sudden have some intrinsic value where it's going to get bid up to the same multiples that its U.S. counterparts may trade at. So, I just really resist having that as part of the thesis because you'll be waiting, you'll be waiting, you'll be waiting, and it never catches the bid that you're thinking it will. Yeah, and that's where the having a substantial margin of safety is important.

[00:38:51] You really want to have a steep discount, and that's why you – these are typically companies you want to follow for a little bit of time so you get a better understanding. Okay, what's the kind of range of discount that I'm getting compared to their U.S. counterparts? And then when you have a good idea, you can really pounce on it when it gets lower than it normally is trading in terms of that discount, which leads me to a subsection of that, one that I've talked about before, and it's Chinese big tech.

[00:39:21] So, a lot of Chinese big tech companies, you can make the case that they're high-quality companies, but because they are trading in China, you know, there's some issues with that. And I'm just going to share here the Crane Share. It's a pretty well-known internet ETF. It's down 24% since September. The reason why I use September is pretty strategic because I did talk about it on the podcast in late August. I was saying, oh, you know what?

[00:39:49] Chinese big tech is looking super cheap right now despite all the issues with investing in China, investing in big tech in China, the unpredictability of the Chinese government and how they can act unilaterally. And I think it was within a week after that they announced some stimulus, some pretty major stimulus, and then Chinese stock and especially tech stock really went up. And since then, it's down 24%.

[00:40:15] So, it's almost back to the level that it was when we had discussed that during the summer. So, that's the reason why I wanted to look at that. I mean, these companies are trading incredibly cheaply, but there is risk. So, I talked about some of the risks there. There's also the risk that you never fully know whether their financial statements are accurate. To be fair, you never fully know if any company is going to be 100% accurate, but there is much higher risk when it comes to investing in China.

[00:40:44] If you take Alibaba, take your Baba. I was just looking at Baba. Yeah, it's trading at a 17 PE on a trailing basis and 9 PE on a forward basis. And compare that to Amazon, which I know it's not the exact same comparable, but the closest comparable to the US. And that's trailing at a 47 trailing PE and 37 forward PE. Clearly, there's different growths, I understand. But it's just to illustrate the discrepancy between the two.

[00:41:12] That clearly, there's a big, big discount. Could it go lower for Chinese big tech or Alibaba? Of course it could. Of course it could. But it's an example of some deep discounts in other countries. And that's why I chose Alibaba as an example here. So, Baba is one of those things where it's like, they can't keep getting away with this. It's like, how is it still sliding lower and lower?

[00:41:40] Okay, so since March 2021, revenues have continued to climb higher. You know, this is not in USD. This is in yuan. So, 717 billion, or I guess trillion, and I guess, holy moly, this currency. To, these are such big numbers. I'm just going to convert it to USD here. Yeah, that's what I do. Handy toggle on FinChat. So, you know, 109 billion to 131 over that time.

[00:42:10] So, growth did slow, but it's really high margin growth. And the forward multiple has compressed 45% during that same time frame. It's crazy. Yeah. Can you guess what their forward EV to EBIT is? Like forward operating income multiple? I'd say maybe 8, 9. Oh, you're close. It's at 7. Okay. That's a good guess. Yeah, I was going to say, yeah.

[00:42:35] Well, I looked at the Ford P earlier, so I figured it would be in that range. But my God, that's like, man, it's just, is this the biggest value trap of the last 5, 10 years? Or the best opportunity in front of us that we'll be looking 5 years down the line and be like, my God, why didn't we pounce on it?

[00:43:04] Even if it was just a percent of our portfolio, it could go, I think it could go both ways. If sentiment shifts a little bit towards China, who knows, right? Trump is a bit unpredictable, but who knows? Maybe there ends up being a bit of a detente that happens between the US and China. And then all of a sudden, you start seeing the prices of equities in China reverting

[00:43:30] back to a bit more normal valuation, at least on a historical basis for them. Nothing's impossible. That's what I'm saying. It may not look like it at this point, but it is. Look, it's trading cheaply. So whether it's a value play or value trap, I think you'll have to decide. But it is trading cheaply.

[00:43:49] So their cloud business is now generating nearly 400 million of EBITDA per quarter, based on this number. And top line revenue is nearly 4.2 billion per quarter. So it's a pretty healthy, you know, call it close to 20 billion USD a year run rate.

[00:44:13] Is this just like the premier slash only option for cloud computing there? Like, that's what I would want to know. If so, then this is at some point going to be a slam dunk. The cloud business is doing almost 20 billion in run rate, right? Like, it's no AWS. It's no Azure, but it's pretty close to Google Cloud in size. Yeah, yeah. It's hard to say. But again, we're talking about where to find value.

[00:44:43] You have to decide whether it's a value trap or value play. Clearly, it's some kind of value. It's some kind of value. Well, just some kind of value. Yeah, it's going to be one of those two. Okay, we got two more. The next one here, precious metal miners. So gold miners return, have lagged those of gold over the last year. Typically, gold miners, you're looking at it on a bit of a leverage play on gold. The reasoning is that their costs will stay relatively the same regardless of the price of gold.

[00:45:09] Although in the last few years, we've seen that there has been some cost pressures for these miners because of inflation, higher input costs, whether it's fuel to extract these metal with or its labor costs. There has been higher cost pressures. But having said that, the more prices of gold increase, the more they will be profitable. That's inevitable. It will happen. And there are some play that are not as leveraged. For example, the one I own, Franco, Nevada, ticker FNV, dual listed.

[00:45:39] Same thing for Wheaton Precious Metals. WEPM is a ticker here. There are tons of options on the TSX. So if you're in Canada, you don't really need to look elsewhere. If you want to invest in precious metal mining companies, mostly gold mining, you have Agnico, ticker AEM.TO, Barrett Gold, ABX.TO, Newmount, and GT.TO.

[00:46:04] If you want to look at ETFs, then ZGD, the BMO Equal Weight Global Gold Index is one. And VanEck Gold Miner ETFs are pretty well known. GDX in the US and GDXJ for the junior miner. So there's tons of options. Those are just a couple of them here for people looking to just have some broader exposure. But it's clear that it has underperformed gold. And if we look at historically, it's likely to catch up at some point. Will it?

[00:46:34] I don't know. But it is an area where you can get some pretty good value. And especially with these miners, you'll typically get a dividend to go with that if you're a dividend investor as well. This isn't even publicly announced yet, but screw it. VanEck. Oh. VanEck invested in the FinChat. Shout out, VanEck. Yeah, I mean, I knew that. I didn't want to mention it. They're on the cap table. Yeah, so Jan will be happy I mentioned a couple of their ETFs. You should let him know and maybe he'll come on the podcast.

[00:47:04] Yeah. I mean, that's probably a pretty easy task there. We can get him on. He's a pretty big bull on Bitcoin. Big, big Bitcoin. Yeah. I've listened to him quite a few times and he's not shy about it. I mean, I can respect people who are in that position and willing to go so far and deep into what most of ivory tower asset managers in New York won't touch.

[00:47:35] In terms of being early. And, you know, if you're right, you get to be one. One, you get to make a lot of money. But two, you know, you get the respect you deserve after being right for when no one wanted to touch it. And he also does it with his own portfolio. I've heard him on podcasts before as a guest saying that it's also he puts his own money in those assets too.

[00:48:04] But the last one here, I think is a pretty good one here. It's the Pandemic Darlings. But it's specifically talking about companies that did very well, not because they were selling software and all the stimulus money was going after them like a light speed that got a crazy run up. I'm really talking about companies that were offering, for the most part, physical products that were in high demand during the lockdowns. I've talked about it before.

[00:48:32] I'm a big mountain biker. It's the mountain bike industry is struggling quite a bit. The bike industry in general. There's been tons of bankruptcies. And that's an example. But another one that comes to mind is BRP. So do.to. D-O-O dot T-O. And or another one, again, listed in Japan, ticker S7309, which is Shimano. And they make bike components and fishing equipment. They've been there forever.

[00:49:02] It's when it comes to bike components, whether you're looking at road or mountain bike, and I do that pretty well. It's essentially a duopoly. So you have Shimano and you have SRAM. These are the two companies. There are some smaller players, but they have, I don't know the exact amount, but they must have about 90% of the market share together. So it's a very interesting play. They've been around for a lot of time. But these are just two examples.

[00:49:25] I'm sure you can probably think of other examples here that a lot of these companies ended up overproducing because there was massive demand, right? There were lockdowns. So people who never biked before were like, okay, well, I can't do anything. I might as well buy a bike and go bike outside and get out of my home where I feel like I'm in jail the whole time. So these companies just ended up overproducing because they saw the demand.

[00:49:49] And then as demand started waning, there's always going to be this lag effect where companies realize that. Yeah, exactly. They realize that. And then it takes time to slow down that production. We've seen Aritzia was victim of that a little bit during the pandemic because they really saw an uptick. And there's always going to be a lag. So they see the demand increasing, they ramp up production, and then they see demand decreasing, but they're too late to slow down the production.

[00:50:19] And then they can get into trouble. And maybe not even on a production issue, but just the fact that, okay, the demand for the product is still higher than maybe it was two, three years ago. Like it's a nice growth rate on a two, three-year stack. But no good deed goes unpunished where you had tremendous growth and then, oh, you actually didn't grow compared to last year. You had a 20% decrease in sales.

[00:50:46] Like it's a really tough comp to go into when you pull forward demand. The market expects you continue to grow off that new base when it's just not realistic, especially when you're selling physical goods. Exactly. And the most important thing I have to stress when you're looking, especially at these companies, you have to go to quality. Yes. Because I talked about mountain bike bankruptcies. When you don't go towards quality. Because it's cyclical. We're talking about cyclicals. That's why.

[00:51:17] Exactly. You have to go to quality because they'll be able to survive and do okay when the cycle is down. But then they'll thrive when the cycle goes up. And these companies are definitely beaten down right now. There's a lot of value to be had. And then you compound that with the fact there's been some macroeconomic headwind. A lot of these companies are consumer discretionary. So it's like a double whammy that's almost happening at the same time.

[00:51:46] But if you look at quality for these type of companies, I guarantee you, you'll be able to find value. But again, it's finding the quality within there. Because if you pick the wrong company, it could end very badly for you as an investor. Without saying the same thing again, but it could end up in some pretty significant loss of capital. Yeah, I like that kind of basket of post-pandemic darling cyclicals that just no one wants to touch.

[00:52:16] That like, there's no way you're going to compete with the comps that you put out in 21, 22. You're still trying to grow into that. And the stock just has no momentum. It's flat to negative on a five-year basis type of thing. I'm just thinking of like another names that come to mind, a stock that I don't know at all really. But I'm looking up here. It's actually smaller than I thought. It's only like 1.3 billion in market cap. Winnebago, for instance, the RV manufacturer. Oh, yeah. Right?

[00:52:45] Like those types of companies. I like the smaller ones too. Here's an example, okay? Here's Winnebago. I'm going to pull up and share my screen, Winnebago's. I've looked at them before a little bit. Okay. I was just curious to, yeah, mostly in the earnings and news. I think I did it with Dan. He's like, oh man, I completely forgot about this company. But for that same reason is I wanted to see how it changed with the pandemic and afterwards.

[00:53:13] I'm going to pull up LTMs. Actually, let's go annually. So from 2015 to the trailing 12 months, you know, the top line revenue has tripled, right? It looks like a rocky mountain. Yeah, it does. It does. It grows nice and steady. It's a little chunky. I don't know if it'd be the Dev Kentus area predictability growth.

[00:53:41] But in 2022, they did 5 billion in sales, okay? Which is- It's crazy. Yeah. You know, two and a half times higher than it was in, you know, 2019, for example. For Winnebago. For Winnebago. 5 billion in sales. And this is a, you know, 1 billion in market cap company at this point. Mm-hmm. Now they're doing roughly, you know, 3 billion on a trailing 12 months in sales.

[00:54:11] Which is still higher than 2020. Still higher than 2020. And, you know, three times higher than it was 10 years ago. So, on a compound annual growth rate, you know, you do all the math and it's 12.2%. And so, off this new base, you could see them kind of growing at that rate for a little while longer. But it's just left for dead. Like, the stock is, who's bidding? Like, who's buying this thing?

[00:54:37] Like, I bet if you look at the ownership structure, it's like a few funds and some insiders at this point. Like, that's what happens with these companies. Yeah, the CEO owns 1.5%. That's a lot. Yeah. Yeah. But I had fun doing this. It's funny because it started with three areas and then ended up with, I think, seven now that I talked about. But it just goes to show that there is probably more areas where you can find some reasonable

[00:55:05] valuation and even some value in these markets. I know we have a tendency to focus on the big tech, the mag seven, what's really pulling the market higher, the NVIDIAs of this world. But there's a lot of companies that are generating a lot of cash flow and they're just not really loved right now by the market for various reasons like we talked about.

[00:55:30] And if you're willing to do the work and find the companies in those areas that we talked about, the good ones, nothing's guaranteed. But you probably will have some decent returns going forward. Of course, nothing's guaranteed. It could still go down. But if you do the work, these are some areas where you can find some pretty reasonable valuations. It's just, I think I've kind of mentioned this to you many times.

[00:55:56] It's just with these, with the international emerging markets play or the trying to value somewhere else or just looking for value in smaller market caps. You just got to have one of two things to an extreme example, in my opinion, which is one, an immense, undeniable margin of safety.

[00:56:19] Or two, an amazing growth rate that you can justify that's four or five times higher than mag seven. Because these mag seven names are still growing so fast. It's just such a hard hurdle rate. I think that's what's so difficult. And you're seeing that in the market. You're seeing more and more concentration into just a few mega cap companies because those companies have such a high hurdle rate. And it makes sense. It's not like the market's dumb or anything.

[00:56:48] It makes sense. Yeah. I mean, I would push back a little bit to that with the index fund inflows. Fair. Where people buy systematically the index without thinking exactly about it, which is pushing the biggest companies because the money is just flowing in automatically. But it's not like they're in bubble territory. You know what I mean? They're richly valued.

[00:57:13] I hear that argument, but it's like, yeah, Meta is trading at 24 times next year's earnings estimate. Yeah. It's not a tech bubble. It's different. Yeah. It's not the tech bubble. There's definitely a lot of hype. I would say my reservation with big tech right now is just evaluation is still getting quite high where there's a lot of scenarios that you don't have fantastic returns over the next five years.

[00:57:42] And that's my biggest issue with it. There are some that you have. It continues. But the fact it's just evaluation has a lot baked into it already. And granted, it's not the tech bubble. I totally agree. It's not the same thing. They're actually very profitable businesses. But that's where I think for me, there's a bit of reservation where this, you know, these companies we looked at, it's almost like the polar opposite, right? There could be some struggles, but you're kind of looking at it from the other way around.

[00:58:11] You're looking at it because the valuation is so attractive. Well, you can come join me in TerraVest. That's not cheap value stock anymore though. Should have bought it when you said it, but I think it'll help a lot of people. There's going to be a lot of tickers to add in the description, but that's okay. I think people like having ideas and then use them. Put the transcript through AI and tell them to spit out the tickers. Yeah, that's usually what I do. Oh, good man. Chaget Petit. Chaget Petit.

[00:58:41] Ah, that's good stuff. It's like Tarjay. Yeah. Thank you for listening to the podcast, folks. We really appreciate you tuning in. We are here in your ears Mondays and Thursdays. It's going to be a jam-packed couple weeks here at the start of the year with a lot of big news items coming online that we'll have lots to talk about. And, you know, our list of topics is never ending.

[00:59:09] And I'm looking at our document here now, which is getting slow again. And it's page 749 again now, Simone. I guess Google's infrastructure has improved because usually we're capped out around 300 pages before it frees. Yeah. So. Yeah, all that investment in the cloud is paying up. Should we tell Maya, Maya's like the one who edits the show. She used to be an intern co-op student for us at FinChat and the podcast for those who don't know.

[00:59:38] But we should say, we should get Maya to take all five documents, which would probably be around like 2000 pages and just get like Canadian Investor Podcast GPT. Train it on that. That'd be funny. Yeah. See all our hot takes. No, but thanks. Seriously. Listeners, we couldn't do this without you. We appreciate you a lot. And we'll have lots of content for you this year. Take care.

[01:00:05] The Canadian Investor Podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.