4 Stocks on Our Watchlist for 2024

[00:00:00] This is the Canadian Investor, where you take control of your own portfolio and gain the

[00:00:06] confidence you need to succeed in the markets.

[00:00:10] Hosted by Braden Dennis and Simone Belanger.

[00:00:15] The Canadian Investor Podcast, welcome to the show.

[00:00:18] My name is Braden Dennis, as always joined by the capitalist, Simone Belanger.

[00:00:25] What's your two picks today?

[00:00:27] Capitalism written all. Yeah. It looks bigger than people would like if they saw my notes. It's because I do have a lot of graphs that I'll be sharing with our joint DCI listeners just to provide some context. So it does look a bit more intense than that, but I think it'll be fun. So the first one, let's get started. I'm sure we'll be chatting back and forth.

[00:01:42] So for me, it's Canadian approval on March 15, 2023. The STB provided its approval with some small conditions attached to that but generally approved like most of the transaction. Both companies not in the hundreds of billions, to build these railways, get all the locomotive, the cars, everything involved behind that. To me, I mean, it must be at least, wouldn't cost at least a hundred billion to do that, right? It's the capex outlays. Yeah, it's absurd. It's the number, whatever it is, it's in the billions.

[00:05:27] a railway. There's just no appetite, no incentive. No, exactly. And if people also want to compare, like why would it be so hard? Just think about pipelines, how difficult it is to build pipelines,

[00:05:32] and there's still a need for them and the regulatory approval, a lot of people being

[00:05:37] opposed against it. Clearly, railroads would have some issues of their own. I mean, some of them

[00:05:42] transport, well, most of them transport chemicals, they transport West, very essentially there is CP and I think pretty much a Canadian national rail that has such an extensive network and Canadian national rail goes from East to West to Canada and then all the way to the Gulf of Mexico. So I think that's just a good example and gives people an idea of why it's so important.

[00:07:01] And it really allows them to have a competitive advantage

[00:07:04] over other railways.

[00:07:06] We have more limited networks, like I just mentioned, and that is doing that locally in the US or moving supply chains to friendlier type nations for this, but so I see that as a long-term trend to continue overall. Capitalism is like water where it flows to best product at the best price, which overrules everything.

[00:09:42] But if these tariffs or whatever would be put in place

[00:09:46] does change the unit economics, into the Midwest, it's kind of crazy. No, I know, it's kind of fascinating to look at. And I mean, one thing too, to add on to the whole like China question is I was listening to an interview with someone really connected to the US politics and they were saying Democrats and Republican don't agree on much, but they agree on China

[00:11:01] and putting being tough on China, I think

[00:11:05] the only disagreement is how tough they are on China. if you're really to look into it, it's semis. Like the concentration risk with Taiwan and then the relations with China, that's to me, I don't know if I'm off base there, but to me it seems to really underpin the entire effort with what they're doing, with hoping Intel becomes great again

[00:12:21] and Arizona plant with TSMC.

[00:12:25] Yeah, well I think it's gonna be a tailwind for these kinds of businesses. Whether you're just starting your investing journey or you've been investing for years, the Globe and Mail is a great way to invest in your financial knowledge. As Canada's largest business newsroom, the Globe and Mail offers an expansive array

[00:13:41] of business investing and personal finance content.

[00:13:43] From understanding investment basics

[00:13:45] like the difference between GICs and bonds, going to be base effects before the acquisition of Kansas City Southern. So the fact that they're guiding for high single-digit revenue growth between 2024 and 2028 per year, which is that's pretty impressive for a more mature company and they do pay a small dividend currently yield 0.66%

[00:16:20] has not increased for some time now, which actually nice to see. And that's something Lindy some of these businesses are.

[00:17:41] I think for me, you kind of touched on the issue that everyone knows that they're amazing

[00:17:46] businesses, right?

[00:17:48] Everyone knows that, right? You're paying, paying up, up, up, up for quality. And I don't think that that's such a bad thing. So I don't have such a, I don't know. I'm not saying that that's a bad thing. It's just really hard to underwrite good returns. Like it's difficult to underwrite good returns on this. And they do have times where they become more attractive valuation wise. So that's why I made a point to say like,

[00:19:00] that's the one thing that's kind of stopping me right now

[00:19:02] is evaluation.

[00:19:04] And you know, if history is'll move on to something that moves, or something, yeah, I guess so, it also moves, right? Yeah, yeah, transportation kind of ish, but this is not transportation, this is a car stock. And I'm talking about Porsche, not Porsche.

[00:20:21] My dad would be so upset with me if I came on the podcast

[00:20:25] and called it Porsche instead of Porsche. One, international stocks and emerging names are incredibly cheap right now compared to the US and maybe an interesting underground. And two, I've been looking more into luxury stocks and particularly Ferrari. They're an automaker, but they're really actually a luxury business.

[00:21:40] And so I was like, is there anything else that's interesting

[00:21:44] because Ferrari is like one of the most expensive

[00:21:46] large cap stocks I can possibly find right now. and Volkswagen. And so that's another layer of complication. And then there's the Porsche family office, which owns a bunch of all of the above. I need to dig more into that. The pref stack is confusing. And then on the 25% IPO, like, I think like around seven and a half't put your head in front of the exhaust. That's the only thing. Yeah, exactly. Huge, so the governance, the share structure, the prep stack, Volkswagen as a company, dude, not off to a good start.

[00:24:21] I really don't like the governance structure

[00:24:24] and the cap table, if you will.

[00:24:26] Other thing here, Porsche is luxury, owner, take care of it. It's not going to be left in public parking lots. It is not going to be repainted. There is a long list of things that make sure that it is kept true to the Ferrari brand and they don't care how much money Justin Bieber has. They'll never sell him another one ever again. And they've been true to this the entire time. So it is

[00:25:42] actual true luxury.

[00:27:05] And true luxury is beyond a priceer. It's one of the three, one of the few automakers that is a steady grower. Of course, it's a cyclical business, but it is a steady grower. It's generating 5 billion in free cash flow, guiding up a little bit through 2024 and 2025.

[00:28:21] The good news is people love these cars.

[00:28:23] People love Porsches.

[00:28:24] I love Porsches.

[00:28:25] The models are classic. who pretends like he has a Porsche and buys like a like a jacket, I don't know if you saw it, and basically like he thinks like he's pretending that this like car parked is like his own Porsche so he's like oh taking care of it and then the owner actually comes and grabs the car. Grows a car, yeah. So he builds like a silhouette an SUV company. Do not get it twisted. Yes, they sell a lot in 9-11s. They sell on like 45,000 a year, but they're selling like 200,000 SUVs in the Cayenne and the McCann models.

[00:31:00] I personally think that the electric vehicle SUVs are going to be a hit product looking forward.

[00:32:02] Is this an opportunity or is this another automaker value trap where I'm gonna be glad that I passed on it

[00:32:06] five, 10 years down the line?

[00:32:09] I think investors can probably do quite well

[00:32:12] with the stock from here, even though yes,

[00:32:15] it's not a typical business I'd like.

[00:32:16] No, I don't think it's a super wide moat,

[00:32:19] but I think it's a super, super impressive brand

[00:32:22] that is going to stand the test of time

[00:32:25] when it comes to brand. get really fascinated with that kind of stuff. Yeah. Yeah, exactly. So for those who want to look up the name on Finchette, type in P911, P911. That is the ticker on the, you'll see the little German flag and it's basically the initials and title of the original founder of Ferdinand Porsche.

[00:33:40] You can look it up there. Whether you pretty new for BlackRock, if you've ever seen an ETF for iShares,

[00:35:00] this is a BlackRock ETF.

[00:35:02] And since they're an asset manager,

[00:35:04] I think it's really important to look

[00:35:06] at some of those number. management, AUM, it's 67% in the Americas, Europe, Middle East and Africa, 25% and Asia Pacific 8%. So there is some diversification there, but of course the US is the most important market in the world and that's reflected there. BlackRock gets most of its revenues from fees charge.

[00:36:21] Although their fees are quite low on index CTF, they do have some higher fees for other

[00:36:26] types of products. flight of capital away from assets that are owned by BlackRock clearly that would have you know an impact on the fees that they generate as well but the valuation is actually pretty I wouldn't say it's the most attractive it's been but I think it's pretty reasonable in terms of what it's been historically it's kind of in the norm I wouldn't say it's cheap or high by any

[00:37:44] means but I think it's definitely interesting do, and then 21 in terms of price or earnings. So definitely, like you said, pretty reasonable, I would say historically for BlackRock. And what I like about BlackRock is it's not afraid to get into new spaces. And obviously, if you've been living under rock, no pun intended, but there's

[00:39:02] been the spot Bitcoin ETF at that launch, and BlackRock was definitely I think it is around 20 basis points. So I think it's just a matter of time that you'll actually see that money flowing to a BlackRock or Fidelity or any of the other spot Bitcoin ETFs that offer better fees. But BlackRock is definitely the number one when you exclude that because obviously GBTC had a bit of a head start here.

[00:40:21] What's the ticker for the BlackRock one?

[00:40:22] I bit.

[00:40:23] I bit.

[00:40:24] Yeah, I think it's around.

[00:40:26] I know VanEck launched theirs and it's hodl. And I do have some mixed feelings here because I first owned Bitcoin in 2013, although got rug pulled by a scammy exchange, and then I bought back in 2018. And obviously, I believe in the technology for Bitcoin itself. And BlackRock having so much control over a large swath of Bitcoin is definitely worrying from a decentralization perspective.

[00:41:42] But I digress, that's not the point here. for tokenization for financial assets. It went on, I think it was CNBC about like a month and a half ago, two months ago, right around the time that the Bitcoin ETF launched. And tokenizing a stock means that you put shares on the blockchain. Typically the token representing the shares would be back one for one by shares of the company.

[00:43:00] If we take a stock, for example,

[00:43:02] and the shares would be held by a custodian

[00:43:05] and the token would be traded on a blockchain,

[00:43:08] whether it's actually two days before that because if they buy it on the date of record, the trade won't be settled for another two days and they won't be the holder of record for the dividend. So that is one you have to do two trades, it's actually T plus four, and you gotta wait and do that whole process. So if I can do that in one swift brokerage session, hey, whatever you gotta do, Larry Fink, whatever you gotta do, pal, I'm good with it. Yeah, I mean, I think he was in Davos

[00:45:40] for that World Economic Forum.

[00:45:43] That's when-

[00:45:44] The World Hypocrite Forum?

[00:45:45] The World Hypocrite Forum?

[00:45:46] Yeah, that's it.

[00:45:47] And it was doing three and a half billion in revenue. Now it's almost six billion. It peaked six billion in 2021. And it's been solid through like a market of 2022, which was rough for equities, fund flows and fees in this business were still great.

[00:47:02] So they're still capturing that.

[00:47:05] I've always said the asset management business,

[00:47:08] if you can't build a hydro dam on a hydro dam. Like there's only one, there's only so much water power available. And so that's just like a core example of if I wanna own the asset manager,

[00:48:21] I want them to also have some non-commoditized edge.

[00:48:24] I still think you'll do quite well with BlackRock,

[00:48:27] but that's just job to turn over rocks. And so I'm sharing that information here on the podcast. Maybe they'll be leveraged by a private equity fund. I don't know. When do they get, when's, okay, I don't want to, you know, steal the thunder here.

[00:49:45] But on that note, when is Zuck, they should have just sold this to Zuck a long time ago. And now it's on a huge drawdown to $11. It's been an absolute roller coaster. They reported their Q4 earlier this month and it was rough for the stock. I think it was down like 30 odd, 40%. And investors are basically saying, what's it gonna take? What's gonna give?

[00:51:00] You know, like something's gotta give.

[00:51:03] The cost structure is out of whack. Active users for a large scale platform, I don't know if there's anything better than Snapchat today. See what, just share the doc, cause I got the stacked group, I got the stacked bar charts that show average active users

[00:52:24] for North America, for Europe and rest of rocking. It's going from 186 million to 414. The rest of world segment has exploded. It's gone from basically zero to over 200 million active users. The North American segment is not going as fast,

[00:53:41] but it's been a really sticky initial cohort,

[00:53:44] and Europe's been rocking as well,

[00:53:46] about to hit 100 million actives. for that segment for Facebook. And that's not even the bold thesis here because it's really hard to be like, oh, they can get it as high as Facebook. No, Facebook is a unicorn in terms of average annual per user. It's out of this world, it's so good, and their ads platform has better metrics than anyone else.

[00:55:00] It gets its tentacle and sucks you in

[00:55:01] and then you're never gonna get it.

[00:55:04] Exactly, exactly.

[00:55:05] So of course, I've talked to insiders and marketers. They've said that the ads platform,

[00:56:20] yeah, sure, if you're specifically catering to that niche,

[00:56:23] it's good, but like, you can go find them on Instagram

[00:56:26] for less cost and better attribution. So it's like you're waiting for your degenerate friend to finally grow up and become an adult. Next thing you know they're 37. Life comes at you pretty fast. Next thing you know you're 37 years old. It's like me 17 years old in high school, my friends are growing beards and I'm like

[00:57:40] puberty is going to come for me eventually too, right?

[00:57:43] I was a late bloomer, don't you worry.

[00:57:46] What's gonna give?

[00:57:47] What's the catalyst here? answer is. Yeah, yeah. And one of the other issues I pulled out of sub from finchad.io is, so you have two bars. So you have the total shares outstanding. And then you also have the repurchase of common shares. And they essentially have been issuing a lot of stock, I'm assuming

[00:59:00] it's all stock based compensation and then trying know. But you know how you stop issuing more stock? You're right size the cost structure. Yeah. You know, look, I get it. There's gonna be stock based compensation, part of this story for a little longer. I get that. And I actually think that that's the right move to do here.

[01:00:21] Getting tech talent is very difficult in this day and age

[01:00:24] for these large tech companies.

[01:00:26] I don't know if they can fulfill that with... It's not like they've been public for a year, right? It's been some time, the platform has been there.

[01:01:40] At this point, I had to expect them to be profitable on the ads platform, or figure out monetization that neither of us are gonna be able to brainstorm on this podcast. If whatever they do, those two avenues, whether it's ads or other services, our poo goes up and to the operating expenses and the SG&A come down,

[01:03:02] what are they spending money on?

[01:03:03] I don't know, like I really don't know.

[01:03:06] So if those two things can happen argue with that, that's for sure. Okay, well let's wrap this up. Thanks for listening to the pod, guys. That's four stocks on our watch list presented by our friends at EQ Bank. I personally really like doing this style of episode. We get easily carried away with these kind of episodes. Yeah, we're already in over an hour here.

[01:04:21] But dude, it's helpful, even in a self-serving way,

[01:04:25] I'm sure the listeners get a lot of it too, So we did that on FinChat. Use code TCI for 15% off. We will see you in a few days. We are here on the podcast Mondays and Thursdays. Every single week, show goes on. If you can give us a five star on Apple Podcasts, you can leave us a nice little review there. Give us a, you know, boost to dopamine. And then if you're on Spotify,

[01:05:41] you can press that follow button.

[01:05:42] It costs you nothing and gives us a lot of value.

[01:05:45] So that's all we ask.

[01:05:46] Thank you so much.

[01:05:47] We'll see you soon.