The Return of Meme Stocks and Canadians Spending Less

[00:00:00] Welcome back to the Canadian Investor podcast.

[00:00:18] I'm here with Dan Kent.

[00:00:19] We're back for our regular Thursday episode.

[00:00:23] We will only have one news and earnings this week.

[00:00:26] I think it's a pretty good one.

[00:00:28] There's a lot of stuff that happened actually in the last few days that will be interesting

[00:00:32] to talk about.

[00:00:34] We're both feeling a little bit sick to some extent.

[00:00:37] I'm coming out of that cold I've had for a few days or a week now.

[00:00:40] Dan, you're battling Alberta allergies, huh?

[00:00:44] Yeah.

[00:00:45] The wildfires in Fort McMurray are not good on me.

[00:00:50] I don't know what's worse like heavy allergies or being sick.

[00:00:55] If I sound a little bit stuffy, that's it.

[00:00:58] I think it was a pretty slow week in the Canadian end, but there's still plenty of

[00:01:03] good US stocks and some kind of stocks today that are really kind of highlight the state

[00:01:09] of the economy really.

[00:01:11] Even some of the financial stocks will go over and retailers things like that.

[00:01:14] It should be a pretty good episode.

[00:01:16] I'm sure for most people it's countdown to Canadian bank earnings.

[00:01:19] I think we're a couple of weeks out or 10 days or something.

[00:01:23] End of May.

[00:01:24] Yeah, like there'll be the end of May.

[00:01:26] OK, so don't worry for those old Canadian banks.

[00:01:29] We will be talking about them.

[00:01:31] I know a lot of people are looking forward to that.

[00:01:33] Well, the first thing on the slate here, because we do have quite a bit, is the

[00:01:38] meme stocks that are making a comeback.

[00:01:41] So I was looking at this earlier this morning and ended up going into a bit of a rabbit

[00:01:46] hole.

[00:01:47] I thought it would take me like 20 minutes to do this segment and then probably did

[00:01:50] an hour, an hour and 15 minutes worth of research to make sure I had some context around it.

[00:01:57] So for those who are not familiar, meme stocks, it happened, I think it was like

[00:02:01] 2021 if I remember correctly, early 2021 when that kind of all started.

[00:02:07] And the I guess poster child of the meme craze was GME.

[00:02:13] So GameStop.

[00:02:14] And as of Tuesday this morning, when we're recording as of 1130 am compared to the close

[00:02:21] on Friday, GME is up 199 percent.

[00:02:24] AMC and another meme stock, I guess it's following the GME trend here up 228 percent

[00:02:32] and our very own Blackberry that's doing nothing but because people are, you know,

[00:02:37] I think it's been caught up in all of this.

[00:02:39] So that one is up 26 percent.

[00:02:41] There's other names too.

[00:02:43] These are not the only ones.

[00:02:45] Now, I'll go over what exactly happened.

[00:02:47] So just to provide some context and I do encourage people there is a documentary on Netflix

[00:02:53] that went over the whole kind of meme stock GME craze.

[00:02:57] Can't really remember what the name is.

[00:02:59] I watched it maybe a year or two ago.

[00:03:01] Was it dumb money or something?

[00:03:02] Was it called something like that?

[00:03:04] I'm not quite sure.

[00:03:05] Anyways, maybe you look that up while I continue here.

[00:03:09] But essentially roaring kitty, who is also known as Keith Gill,

[00:03:13] he's the guy behind the GameStop meme stock mania.

[00:03:16] He posted on X or Twitter for the first time since June 18, 2021.

[00:03:22] So he posted a picture of a drawing of someone sitting in a chair last Sunday,

[00:03:28] May 12th, and the picture appears to show someone that's relaxing back

[00:03:34] and then crouches forward with a gaming controller.

[00:03:37] So obviously, you know, that is kind of up to interpretation.

[00:03:42] And for our joint TCI listeners, I am showing the tweet that I'm talking about.

[00:03:46] So this was his first tweet since essentially three years, not quite, but pretty close to it.

[00:03:52] And since then, there have been 14 more videos posted.

[00:03:57] That's how many I counted.

[00:03:58] And as I was counting another one got posted.

[00:04:01] So there might be more by the time you listen to this.

[00:04:04] If you're not familiar with his videos, they're essentially short videos,

[00:04:09] typically like less than a minute, a minute and a half.

[00:04:12] And they're typically montages from scenes of different movies.

[00:04:17] Sometimes there's some music in the background and it sends a message.

[00:04:22] And that's my interpretation of something coming up and gearing up for battle.

[00:04:26] Obviously leaving room for interpretation, but that's a general sense I got from them.

[00:04:32] And where things get really, really messed up, in my opinion,

[00:04:35] and where I think regulators will be looking at this is when you start looking at GameStop volume,

[00:04:41] which started going up significantly on May 3rd.

[00:04:45] To give people here some context, in the past year,

[00:04:48] the daily volume was just a few million shares, the average.

[00:04:53] You know, typically you'd see like two, three, four, five,

[00:04:56] definitely in the single digit millions may sound like a lot,

[00:04:59] but that's the typical volume.

[00:05:01] And if you go back to a year, you'll see some days,

[00:05:04] there were a few days where there might have been 10, 15,

[00:05:07] even sometimes 20 million shares, but it never lasted for more than a few days.

[00:05:12] And I think there was one instant when it went up to 60 million,

[00:05:16] but that was kind of a one-off.

[00:05:18] And on May 3rd, the volume jumped to 36 million.

[00:05:22] So if you look at that compared to the previous day,

[00:05:27] which was 8 million volume,

[00:05:29] which actually was quite higher than the day before that.

[00:05:32] So May 1st was 2.6 million, May 2nd 8.6 million,

[00:05:38] and then May 3rd you have a significant jump where you have 36 million in terms of volume.

[00:05:44] And then May 6th 48 million, May 7th 24 million,

[00:05:49] you have May 8th close to 25 million, May 9th close to 26 million,

[00:05:55] May 10th, so last Friday, 36.8 million, so let's just say 37 million.

[00:06:01] And then the tweet came out over the weekend,

[00:06:04] and then May 13 on Monday, 182 million of volume.

[00:06:08] And today as of about an hour ago recording, the volume was 106 million.

[00:06:15] So I don't know about you then, but where there's smoke,

[00:06:18] there is often a fire, not to talk about the fires up north here,

[00:06:24] but something feels quite fishy here.

[00:06:27] Like the fact that you have this big take up in volume,

[00:06:30] essentially like a week or so before the tweet comes out,

[00:06:34] and then the tweet comes out and the stock just literally explodes.

[00:06:38] Yeah, it's pretty, you're talking like a 4X day over day volume increase

[00:06:43] and then it keeps on trending up and it stays elevated.

[00:06:46] So clearly something's going on here.

[00:06:48] Some people probably knew this was gonna happen is what I would guess.

[00:06:54] I mean, when you go from 2.8 million on April 30th to,

[00:06:58] well today we're probably, it's gotta close over 200 million today probably.

[00:07:03] It's 1 PM Eastern and it's already at nearly 110,

[00:07:08] so it's probably gonna close, you would think at a hundred times,

[00:07:13] well not quite a hundred times, but like 80X the volume

[00:07:17] that it did a few weeks ago, something is fishy.

[00:07:20] It was Dumb Money.

[00:07:22] Dumb Money, okay.

[00:07:23] So it's yeah, it's kind of like a, it's not a documentary I would say,

[00:07:28] it's, I don't know what do they call it?

[00:07:30] I guess so.

[00:07:31] Like a mockumentary type thing.

[00:07:32] I mean.

[00:07:33] It's like a comedy slash drama.

[00:07:34] I actually haven't seen it.

[00:07:35] I don't know if it's, is it any good?

[00:07:36] Yeah, it's good.

[00:07:37] I mean it's entertaining, even if you're watching it

[00:07:41] with your better half, I think she'd probably enjoy it.

[00:07:45] It's not like, I mean, I think it's more,

[00:07:49] I definitely think it's more in the documentary category.

[00:07:51] And I think it was pretty well done.

[00:07:53] And after all this, I think I'll probably rewatch it this week

[00:07:56] to be honest.

[00:07:57] I'm definitely gonna watch it now, yeah.

[00:07:58] I had forgotten about this guy to be honest,

[00:08:01] but it was like, I remember early 2021,

[00:08:03] it was just a gong show on all these stocks.

[00:08:07] Yeah, exactly.

[00:08:08] And I mean, at the end of the day,

[00:08:10] some people I had like, I tweeted something out

[00:08:12] regarding this, someone said like,

[00:08:13] oh maybe his account got hacked.

[00:08:15] It's possible.

[00:08:16] I mean, it's just like, I cannot imagine just based on that

[00:08:20] and we don't have all the information clearly,

[00:08:23] but just based on the volume and the timing of it,

[00:08:26] I cannot imagine that regulators

[00:08:28] will not be looking at this.

[00:08:29] Like I 100% think they'll be looking at this

[00:08:33] whether charges are laid or not.

[00:08:35] I guess that remains to be seen.

[00:08:37] And clearly with the video,

[00:08:38] I think the first thought that comes to mind

[00:08:40] is just plausible deniability,

[00:08:42] because they are not, you know,

[00:08:44] it leaves room to interpretation, like we said.

[00:08:47] And I think the other meme stocks

[00:08:49] are kind of just caught in the crossfire.

[00:08:51] So people are just like getting excited.

[00:08:53] And I guess the last thing I'll just mention here is

[00:08:59] I've been feeling that the markets

[00:09:01] are have been quite overvalued to be honest,

[00:09:03] for probably some time.

[00:09:05] And it's hard not to think that

[00:09:08] they're overvalued when this kind of stuff happens.

[00:09:11] Right? Like it's people are, I don't know.

[00:09:15] Yeah, it's hard to explain to be honest.

[00:09:17] I'm a bit lost for words.

[00:09:19] It definitely seems like frothy right now.

[00:09:21] And then you see something like this,

[00:09:23] which is like the last time this occurred

[00:09:25] was during the bonkers markets of 2021,

[00:09:29] which were, I mean, they ended pretty poorly,

[00:09:32] you know, later on in that year

[00:09:33] for a lot of these types of stocks,

[00:09:35] but it's gonna be interesting to see

[00:09:38] because he's still posting videos.

[00:09:40] Like he posted one just 15 minutes ago.

[00:09:43] So I mean, he's made like, it looks, yeah,

[00:09:46] like you said, like 10 or 14 videos today.

[00:09:48] So I'm sure this is only the beginning.

[00:09:51] Yeah.

[00:09:53] Yeah, it's just, it's hard to say.

[00:09:55] I mean, I've watched like,

[00:09:56] I basically took prepare for that.

[00:09:58] I watched like all the ones that were posted

[00:10:01] just to see if I could find a theme.

[00:10:02] And that's what I mentioned

[00:10:04] was kind of the general impression I got.

[00:10:06] But I'm sure we will probably have to touch back

[00:10:10] on it next week,

[00:10:11] because it's hard to think that there won't be

[00:10:13] any developments on that.

[00:10:17] Now, just kind of going into a bit of the macro picture,

[00:10:20] Canada's job report comes in stronger than expected.

[00:10:23] So the headline number was 90,000,

[00:10:26] definitely stronger than expected for April.

[00:10:28] And it's important to put in context

[00:10:30] because of those 90,000 jobs,

[00:10:33] 50,000 of these jobs were actually part-time,

[00:10:36] not incredibly surprising.

[00:10:39] I think that lines a lot with

[00:10:41] university and college students, right?

[00:10:44] They finished university and oftentimes they'll start

[00:10:46] kind of picking up more hours and work part-time.

[00:10:49] On the provincial end percentage basis,

[00:10:53] New Brunswick saw the biggest uptick

[00:10:55] with 2% increase in April.

[00:10:57] BC, Quebec and Ontario saw respective growth of 0.8%,

[00:11:01] 0.4% and 0.3%.

[00:11:04] The employment and unemployment rates were unchanged

[00:11:07] following the strong job report.

[00:11:09] And the fact that it was unchanged

[00:11:12] is because the participation rate increased 0.1%.

[00:11:15] So it kind of offset that.

[00:11:17] And that means the number of people

[00:11:18] that are age 15 or an older looking for work

[00:11:21] or employed, so that's what the participation age is.

[00:11:26] And the main areas of job growth

[00:11:29] were professional scientific and technical services,

[00:11:32] accommodation and food services,

[00:11:35] healthcare and social assistant.

[00:11:37] And then there are some other areas,

[00:11:39] but those were the three main with over 15,000

[00:11:43] each for those sector.

[00:11:45] And I think also it's important for people

[00:11:49] to remember that it could very well be

[00:11:51] that these numbers are revised down the line.

[00:11:54] And that's always a thing that people have to keep

[00:11:56] in mind is especially these job numbers

[00:11:59] and the US is like really infamous for that, right?

[00:12:02] Is there's revisions down the line.

[00:12:05] I've been digging through those stats,

[00:12:06] especially in the US just because there's

[00:12:08] just so much more available to a gradual granular level.

[00:12:12] I mean, I know stats can't rise

[00:12:14] to do the best job they can.

[00:12:15] And I'm sure it's a hard job,

[00:12:16] but you just have so much more data in the US,

[00:12:19] whether it's the Bureau of Labor statistic

[00:12:22] or each of the feds have kind of areas

[00:12:25] that they focus on.

[00:12:26] So it's just a lot of stuff to draw on.

[00:12:29] And apparently some of the job numbers

[00:12:32] are when they come out,

[00:12:33] they're kind of part of it are like estimations.

[00:12:37] So that's why they get revised down the line.

[00:12:40] So I always find that interesting.

[00:12:42] Anything you wanna add here before I go on then?

[00:12:45] No, I mean, the one thing I guess that's a little alarming

[00:12:47] but it might just be coming from me

[00:12:50] because I'm in Alberta and like our housing market

[00:12:52] is just exploding,

[00:12:53] but like the decline in construction jobs.

[00:12:56] Yeah.

[00:12:57] So I mean, like with how desperate we need

[00:13:01] like new housing construction

[00:13:02] and all that type of stuff.

[00:13:03] I mean, it's pretty just surprising

[00:13:06] to see the large drawdown.

[00:13:07] And then I even believe like out of those 90,

[00:13:10] so I think 50,000 were part-time

[00:13:12] and I think almost 30,000 were public sector or something.

[00:13:15] I can't remember that exact number

[00:13:17] but there was a lot of part-time jobs

[00:13:19] and government jobs as well.

[00:13:21] So I mean, yeah, it kind of paints to a picture

[00:13:26] like that rate cuts.

[00:13:29] Does it really need to happen in June now?

[00:13:31] I mean, maybe they start talking about that.

[00:13:33] It's gonna be interesting.

[00:13:36] Yeah, I think that's a great point

[00:13:38] because whether the numbers are great or not

[00:13:42] when you start digging into it,

[00:13:44] it doesn't really matter if they need a reason to not cut.

[00:13:49] So people may say, oh, like, okay,

[00:13:52] if you start digging into the numbers,

[00:13:53] it's really not good.

[00:13:55] But the reality is whether it's in Canada, the US

[00:13:58] or any other central bank,

[00:14:00] if they can point to the headline number

[00:14:03] and say, well, look, jobs are growing,

[00:14:06] 90,000 new jobs in April.

[00:14:08] If they can point to that,

[00:14:09] it's kind of an easy excuse to not cut rates.

[00:14:13] Same thing for the US.

[00:14:14] So I think that's a really good point, to be honest.

[00:14:16] And I think Tiff had mentioned,

[00:14:20] Tiff McLean, of course,

[00:14:21] that a rate cut was a possibility at the June meeting.

[00:14:24] Obviously all the headlines had that in bold,

[00:14:30] and that was kind of the thing

[00:14:33] that was being said after that meeting.

[00:14:34] But people kind of forget that a possibility

[00:14:37] is not a guarantee.

[00:14:40] And I always find it funny

[00:14:41] because you'll have news outlet

[00:14:43] that will kind of anchor on that one word.

[00:14:46] But I do remember that meeting

[00:14:47] and I remember that the way they were talking,

[00:14:50] they left themselves ample room to not cut

[00:14:54] if they saw that as the best possible outcome.

[00:14:58] So I think it's important to remember that.

[00:15:01] And with the strong headline employment numbers,

[00:15:03] again, it just gives them a bit more ammunition to that.

[00:15:07] So the probabilities of rate cut in the US

[00:15:09] have steadily been pushed out.

[00:15:11] We've been talking about that.

[00:15:13] And it may be harder now for the BOC to start cutting.

[00:15:17] And even today, I think Powell came out

[00:15:19] and said that inflation was actually more stubborn

[00:15:23] than they thought it would be.

[00:15:25] And that rates would probably stay elevated for longer.

[00:15:29] So it's just, I think a good reminder for people

[00:15:32] that I think you have to be careful

[00:15:34] when you make investment decisions,

[00:15:37] especially we've been harping on BCE a whole lot,

[00:15:40] but BC is not alone in terms of companies

[00:15:42] that I've seen their interest expense go way, way up.

[00:15:46] They're not the only company

[00:15:47] that has a lot of debt on the balance sheet

[00:15:49] that will need to refinance part of it

[00:15:51] in the coming years.

[00:15:52] And higher rates clearly will make that refinancing

[00:15:55] of debt more expensive.

[00:15:57] And to me, it's just a reminder for people,

[00:16:01] it's fine to invest if you think it's a good investment

[00:16:03] to invest in companies with significant amount of debt,

[00:16:06] but make sure you draw different outcomes

[00:16:09] because if the only thesis is that

[00:16:12] or your thesis is heavily reliant on rate cuts,

[00:16:15] well, what if they don't happen

[00:16:17] in the timeframe that you think?

[00:16:19] Or what if they happen,

[00:16:20] but not to the extent that you think in your premise

[00:16:23] and so in your thesis.

[00:16:25] So I think that's really important for people to remember

[00:16:27] because unfortunately the tweets I've seen

[00:16:29] with people that are really bullish on BCE,

[00:16:31] a lot of it has been anchored on those rate cuts.

[00:16:36] And now those tweet looks,

[00:16:38] they look like they age like milk.

[00:16:39] So yeah.

[00:16:41] Yeah, I mean, even if you sit here like at last year,

[00:16:44] say at this point, most people figured

[00:16:46] there would already be cuts

[00:16:47] or at least like, you know,

[00:16:48] they might be starting in May or June.

[00:16:50] Yeah, most like most predictions were like,

[00:16:53] March would become basically the latest they would start.

[00:16:58] Yeah, and it's like a lot of these people

[00:17:00] predicting these cuts are, you know,

[00:17:02] very smart economists and even they don't get it right.

[00:17:05] So I mean, that is the case.

[00:17:08] Like you shouldn't really make investments

[00:17:10] based on policy rates

[00:17:11] because absolutely nobody knows where they're going to go.

[00:17:15] Because if I were to have guessed last year,

[00:17:17] I would say at this point,

[00:17:19] they would have started cutting by now.

[00:17:21] But well, remember our bold predictions

[00:17:24] from the start of the year.

[00:17:25] I thought like-

[00:17:26] We were wrong.

[00:17:27] I called it-

[00:17:28] That's already dead in the water.

[00:17:29] Yeah.

[00:17:30] Yeah.

[00:17:30] That is already not happening.

[00:17:33] Unless something like material happens.

[00:17:36] Yeah, exactly.

[00:17:37] So I don't think I don't want my bold prediction

[00:17:39] to be right at this point,

[00:17:40] even if I would probably benefit

[00:17:42] when I refinance my mortgage,

[00:17:44] just because I think if it does happen,

[00:17:46] like you said,

[00:17:47] we're probably going to be in a world of hurt.

[00:17:50] Yeah, there's going to be a big shock

[00:17:51] because I think I predicted 200 or 250 basis points.

[00:17:54] And for that to happen by year's end,

[00:17:56] there would be a material shock to the system.

[00:17:59] Something really bad would have had to happen.

[00:18:02] No, exactly.

[00:18:03] But I think that's enough for the job numbers here.

[00:18:06] So you want to talk to us about GoEasy earnings?

[00:18:10] Yeah, so GoEasy is just,

[00:18:13] I'm sure a lot of people have heard of it.

[00:18:14] It's an alternative lender in here in Canada.

[00:18:17] It's like exploded over the last 20 some years.

[00:18:20] They topped estimates on both revenue and earnings.

[00:18:23] It's pretty clear that,

[00:18:24] I mean, GoEasy is benefiting from a weaker economy

[00:18:27] and rising cost of living,

[00:18:29] which ultimately leads to more Canadians

[00:18:32] needing to borrow from alternative lenders.

[00:18:34] I mean, if you think about it,

[00:18:35] most of the people who are going for financing

[00:18:38] through a company like GoEasy

[00:18:40] would typically be rejected by,

[00:18:42] you know, an institution prior to going to GoEasy,

[00:18:45] like a major bank maybe won't lend to them

[00:18:47] or something like that.

[00:18:48] So typically they go to these alternative lenders.

[00:18:51] This is the 56th straight quarter

[00:18:54] of positive same store sales growth.

[00:18:57] So you're going to 14 plus consecutive years

[00:19:00] this company has grown same store sales.

[00:19:02] Year over year revenue grew by 28%.

[00:19:05] New customer volumes are up by 17%.

[00:19:08] Operating income is up by 30%.

[00:19:10] Earnings per share of $3.40 is up 13%

[00:19:13] on a year over year basis.

[00:19:15] And this is actually despite regulators.

[00:19:17] So I can't remember, it was at some point last year,

[00:19:20] but they essentially reduced the APR,

[00:19:23] like the interest rate you can charge on the loans.

[00:19:25] I can't even remember what it was at before.

[00:19:27] It was over 40 and they reduced it down to 35%.

[00:19:30] So at first many people believe

[00:19:32] this would kind of hit GoEasy quite a bit,

[00:19:35] but the company pretty much came out and said,

[00:19:37] like it wouldn't really be impacted all that much.

[00:19:40] And in the latest quarter,

[00:19:42] the company's weighted average interest rate

[00:19:44] on its loan sits at 30%,

[00:19:46] which is actually down 0.2% on a year over year basis.

[00:19:49] And I would imagine this is just due to the company

[00:19:52] needing to restructure some of the loans

[00:19:54] that did sit above that regulation.

[00:19:56] So it's going to drag down their average interest rate.

[00:19:59] And the company has two core segments.

[00:20:02] It has its easy home and easy financial.

[00:20:05] So the financial end is obviously loans,

[00:20:07] but it's easy home segment

[00:20:09] is where people go to lease everything

[00:20:11] from furniture to electronics.

[00:20:14] The part of this business

[00:20:15] is seeing a pretty significant decline in growth.

[00:20:18] And I don't really mean a decline

[00:20:19] as in sales are dropping,

[00:20:21] they're just not really growing

[00:20:22] at the rate they used to be.

[00:20:23] I mean, they used to grow quite a bit

[00:20:26] pre policy rate hike,

[00:20:28] and now they're only growing at 2% year over year.

[00:20:32] I think I did, I went on to this website.

[00:20:35] This was like three, four years ago.

[00:20:36] And I remember seeing a PlayStation

[00:20:39] that you could buy on easy home.

[00:20:41] And I'd have to run the numbers,

[00:20:43] but I think it was like $20 a month

[00:20:46] for like 120 months that you pay for this thing.

[00:20:51] And I worked out the actual cost

[00:20:53] and I am like, this is absolutely insane.

[00:20:55] You're going to pay over $2,000

[00:20:57] for this $600 PlayStation

[00:21:01] and like furniture, electronics,

[00:21:03] anything you could think of

[00:21:05] that segment of the business sold it.

[00:21:07] And I just like,

[00:21:08] I just kind of thought like who is doing this,

[00:21:10] but clearly a lot of people are now not so much

[00:21:14] because it's probably an easy expense to cut out.

[00:21:18] You don't want to finance a couch over 10 years.

[00:21:21] Well, I would also think that buy now pay later

[00:21:25] is eating into those as well, right?

[00:21:27] Cause it's so easy.

[00:21:28] Yeah, cause those are often

[00:21:29] Yeah, it's right at check.

[00:21:30] Interest rate free too.

[00:21:31] Exactly, interest rate out

[00:21:33] and sure it's not going to be 20 bucks a month

[00:21:35] for a PlayStation,

[00:21:36] but let's say 150 for four months.

[00:21:38] A lot of people I feel like will probably be like,

[00:21:40] eh, I can make it work like 150 bucks.

[00:21:42] So I would think buy now pay later

[00:21:44] definitely would be a big competition for them.

[00:21:47] Yeah.

[00:21:48] And I would say if you have to finance

[00:21:50] a PlayStation at $20 a month for 10 years,

[00:21:52] you probably shouldn't be buying one,

[00:21:54] but I would agree with that.

[00:21:56] I mean, it only makes up,

[00:21:58] like it's a pretty small portion of Go EZ's revenue.

[00:22:01] I think it's around 10%.

[00:22:03] So I'm pretty sure they're at like 366 million

[00:22:05] on the quarter and the EZ home is like 30 million,

[00:22:08] maybe a bit more.

[00:22:09] Net charge off rates came in at 9.1%.

[00:22:12] This would be loans unpaid.

[00:22:14] It's in line with the company's target ranges

[00:22:16] and it's actually below pre-vandemic levels still.

[00:22:19] So a lot of the issues that people projected

[00:22:22] with these alt lenders is,

[00:22:25] times would get tough, default rates would rise,

[00:22:26] but this is still a relatively high charge off rate.

[00:22:30] Like it is high,

[00:22:31] but they are like, they're at alternative lender.

[00:22:34] I mean, they have quite a few people

[00:22:36] who are probably in tough shape financially

[00:22:39] coming in and getting loans.

[00:22:41] And I mean, especially now,

[00:22:43] like the weaker the economy gets, I believe,

[00:22:45] the more popular a platform like Go EZ becomes.

[00:22:50] So they like record loan volumes

[00:22:52] and new applications for credit, 41%.

[00:22:55] So they're seeing a 41% increase

[00:22:58] in applications for credit, which is just, it's insane.

[00:23:01] Return on equity 24.6%.

[00:23:03] So it's like, it's probably thousand basis points higher

[00:23:08] than most of the major banks.

[00:23:09] Like it's a pretty crazy business.

[00:23:13] I mean, again, like Go EZ aside,

[00:23:15] when we look to these earnings,

[00:23:16] it kind of paints a picture of the state

[00:23:18] of the Canadian consumer.

[00:23:20] It's a place you go when you're rejected

[00:23:21] from another financial institution

[00:23:24] because the interest rates at these institutions are just,

[00:23:27] I mean, they're horrible.

[00:23:29] A lot of people see it as like predatory lending,

[00:23:31] like borderline predatory lending.

[00:23:33] I would say it's, I would qualify it subprime.

[00:23:35] That's essentially what it is.

[00:23:36] It is some prime lending.

[00:23:37] Yeah, they're a subprime lender.

[00:23:39] Yeah.

[00:23:39] And those will do well as long

[00:23:41] as the economy is doing well.

[00:23:44] But I would say this is probably,

[00:23:47] it's probably entering the riskiest phase

[00:23:50] for like sick legality for this company

[00:23:53] because people may like be tempted

[00:23:55] and maybe it'll be a good investment.

[00:23:57] I'm not saying that, but you know,

[00:23:59] it's just sick legality, right?

[00:24:00] As you have people that are really

[00:24:03] not in the best financial situation going that,

[00:24:06] they probably have a job.

[00:24:07] That's how they're being able to get approved.

[00:24:10] But if the economy takes somewhat of a downturn

[00:24:14] and you start seeing layoffs take up,

[00:24:17] that's where the write-offs could really start

[00:24:20] going way, way up for a subprime lender.

[00:24:23] Yeah, and it's,

[00:24:25] I mean, I don't really think it's unique

[00:24:26] to Canadians either because there's a pretty popular

[00:24:30] Canadian company as of late.

[00:24:32] It's called Propel Holdings.

[00:24:33] So it trades, I think its ticker is PRL,

[00:24:36] but it's gone up.

[00:24:37] I think it's gone up so much.

[00:24:39] I think it's gone from like 10 bucks a share

[00:24:41] to like 26 bucks a share in pretty short order.

[00:24:43] And they're like more US focused

[00:24:45] and they're seeing huge activity as well.

[00:24:48] So I mean, there's definitely a flood of consumers

[00:24:51] that are going to these B grade subprime,

[00:24:54] like alternative lenders.

[00:24:55] And I mean, it's good for shareholders right now for sure,

[00:24:58] but I mean, it's not really a good look

[00:25:01] in terms of consumer financial health.

[00:25:03] But that being said,

[00:25:05] like Go Easy has been around for quite a while.

[00:25:07] I think they've been publicly traded since the 90s.

[00:25:09] So they've gone through quite a bit

[00:25:11] of different environments.

[00:25:13] They've typically come out unscathed.

[00:25:15] We'll see how it goes at this point in time,

[00:25:17] but I was just shocked by the new applications

[00:25:20] for credit, the loan originations,

[00:25:22] like how much they're dishing out right now,

[00:25:24] especially like when Canadians are supposed to be

[00:25:27] scaling back a bit, you know, not borrowing as much.

[00:25:29] That's essentially the objective of higher policy rates,

[00:25:33] but these lenders are not seeing

[00:25:36] any type of slowdown right now.

[00:25:38] Yeah, exactly.

[00:25:38] And just showing the charges to show people,

[00:25:41] like you can clearly tell like

[00:25:43] exactly what I'm saying, right?

[00:25:45] So it's very cyclical and this is the kind of company,

[00:25:48] like over time it's performed very well.

[00:25:50] I'm not gonna deny that,

[00:25:52] but you can see that once you get into these economic cycle

[00:25:57] and the economy slows down or we go into recession,

[00:26:01] the results go follow, right?

[00:26:04] So it's kinda, it kinda goes on the way up.

[00:26:06] I mean, it's pretty clear, right?

[00:26:08] It goes on the way up as things are going well.

[00:26:10] And then I would be willing to bet that, you know,

[00:26:14] if we get into a recession

[00:26:16] or there's a significant downturn,

[00:26:18] those results will start being hit just because,

[00:26:21] people start losing their job

[00:26:23] and they can't service those loans.

[00:26:24] And chances are is if they're getting these loans,

[00:26:28] they're already getting stretch and it's not surprising.

[00:26:31] I mean, we've talked about it before.

[00:26:33] People can look it up, the feds in the US,

[00:26:35] the different feds, like I've said earlier in the show,

[00:26:39] they will focus on different kinds of economic data,

[00:26:42] but you can, I can't remember which one,

[00:26:44] but I think it's the New York Fed

[00:26:46] that does like a household indebtedness survey

[00:26:49] and the credit card data in the US

[00:26:52] and I imagine it's the same in Canada.

[00:26:53] I mean, we've seen it with certain businesses

[00:26:56] is not looking great.

[00:26:57] People are fueling their, you know,

[00:27:00] their spending with credit and not cheap credit.

[00:27:04] And at some point the party stops, right?

[00:27:07] The music stop, it's like musical chair

[00:27:09] and I feel like there's about five chairs and 10 people.

[00:27:13] And once the music stops,

[00:27:16] there's gonna be a lot of people left without a chair.

[00:27:19] I don't mean to make light of this,

[00:27:21] but it's just the reality.

[00:27:22] I mean, credit is great while it's ongoing.

[00:27:25] I mean, we saw it in 2008, right?

[00:27:27] And the US was doing 2006, 2007, everything was great.

[00:27:32] Credit was fueling this housing bubble.

[00:27:35] All these other people were spending

[00:27:36] because they had equity and so on.

[00:27:38] And then when the music stops,

[00:27:40] bad things happen unfortunately.

[00:27:42] Yeah, and these are like,

[00:27:44] this loans through a company like Go Easy

[00:27:46] are typically gonna be at higher APRs

[00:27:48] than even a credit card.

[00:27:50] So I mean, a lot of these loans are,

[00:27:52] again, like a lot of people feel this is

[00:27:54] like borderline predatory lending,

[00:27:57] like just 30% plus APRs

[00:28:00] which are like crippling financially.

[00:28:03] Like it's almost impossible to get out of that,

[00:28:05] especially if you're stretched to the point

[00:28:08] where you're going to go easy

[00:28:09] because you have no other option elsewhere.

[00:28:11] Like it's a pretty tough,

[00:28:15] you know, a lot of people don't invest in them

[00:28:16] just because of this type of situation.

[00:28:20] But I mean, it's posted good results right now.

[00:28:22] We'll see how it does moving forward.

[00:28:25] No, definitely.

[00:28:27] So let's move on.

[00:28:28] You're gonna go over Stella Jones earnings.

[00:28:31] Haven't looked at this company in quite some time.

[00:28:34] So I know it's an interesting company.

[00:28:38] Like they went through like a seven year period.

[00:28:42] I believe it was like 2015 to 2022,

[00:28:46] pretty much doing nothing.

[00:28:47] Like it just returned next to nothing.

[00:28:50] And that was even with, you know, dividends reinvested.

[00:28:53] But I mean, it's absolutely exploded as of late.

[00:28:55] It's been one of the better performing Canadian stocks

[00:28:58] over the last years

[00:29:00] because of its low residential lumber exposure.

[00:29:03] And I think Stella Jones,

[00:29:04] like it's labeled as a lumber company

[00:29:05] but it actually has very little

[00:29:08] residential lumber exposure compared to,

[00:29:10] you know, its entire business.

[00:29:11] But because of this low residential lumber exposure,

[00:29:14] when lumber skyrocketed during the pandemic

[00:29:17] and you know, house building, residential,

[00:29:19] like house sales, all that type of stuff,

[00:29:21] they didn't really see the big run up in price.

[00:29:24] Like, you know, say a Wes Fraser timber did

[00:29:26] because of that.

[00:29:27] But the gap has certainly closed.

[00:29:30] So since Stella's low point in 2022,

[00:29:33] it returned more than 158%

[00:29:36] while a company like Wes Fraser is just 8%.

[00:29:39] So they reported earnings that topped expectations

[00:29:42] in a pretty big way.

[00:29:43] So earnings per share came in 26% higher than estimates

[00:29:47] and EBITDA came in around 20% higher.

[00:29:50] So again, like surface level,

[00:29:52] they may just like look like a typical lumber stock

[00:29:54] but it has a lot of products that kind of shelter it

[00:29:57] from the cyclical nature of the lumber industry.

[00:30:00] So I believe there are around 20% exposure

[00:30:03] to residential lumber,

[00:30:04] but their bread and butter is things like

[00:30:06] utility poles and railroad ties.

[00:30:08] So these are products that, you know,

[00:30:11] they're typically needed regardless

[00:30:12] of the state of the economy.

[00:30:14] I mean, there's gonna be more infrastructure expansion

[00:30:16] no doubt like when the economy is doing well, you know,

[00:30:20] they're gonna need more ties,

[00:30:22] more utility poles during good economic times.

[00:30:24] But even in a weak economy,

[00:30:27] I mean, they're constantly replacing

[00:30:28] existing utility poles,

[00:30:30] existing railroad ties just as a maintenance thing.

[00:30:33] So sales do tend to be relatively stable.

[00:30:38] They reported 9% sales growth.

[00:30:40] I mean, pretty much all due to the increased sales

[00:30:43] of its infrastructure related products,

[00:30:45] residential lumber sales actually declined

[00:30:47] on a year over year basis.

[00:30:48] And I mean, it's not surprising.

[00:30:49] I mean, even during that job report,

[00:30:51] construction was the biggest net loss of jobs.

[00:30:54] So that's definitely slowing down.

[00:30:56] Profit margins increased by 300 basis points,

[00:30:59] operating margins by 260 basis points.

[00:31:02] So, you know, when you have margin expansion

[00:31:05] combined with, you know, the increased demand,

[00:31:07] it resulted in a 32% year over year increase

[00:31:10] in earnings per share.

[00:31:11] They had 16% organic growth in railroad ties,

[00:31:14] 7% in utility poles and 8% in pressure treated lumber.

[00:31:19] And then again, on the flip side,

[00:31:20] residential lumber 3% decline in organic growth.

[00:31:23] But residential lumber only accounted for around 11%

[00:31:27] of the company's total sales on the quarter,

[00:31:29] whereas typically it's in the 20% range.

[00:31:31] And they issued guidance.

[00:31:34] It plans to grow its infrastructure segment

[00:31:36] by 9% annually.

[00:31:38] It aims to have it make up again around 75, 80% of sales

[00:31:41] with residential lumber picking up most of the remaining 20%.

[00:31:45] And it plans to grow EBITDA by around 9%

[00:31:48] through the end of 2025.

[00:31:49] So it's had a couple like really, really strong years.

[00:31:54] I mean, 32% earnings growth on, you know,

[00:31:57] single digit revenue growth, big margin expansion.

[00:32:01] It's, you know, it's killing it

[00:32:03] over the last few years.

[00:32:05] Yeah, I know that it's definitely,

[00:32:07] it's not the sexiest company,

[00:32:08] but I like the fact that there's a lot of it.

[00:32:11] Most of its revenues are kind of tied

[00:32:12] for industrial uses, right?

[00:32:14] So I think it just gives them a bit more stability.

[00:32:18] Their margins must, they must vary with the costs

[00:32:23] and you know, the price of lumber, right?

[00:32:26] And I'm assuming they must have some kind

[00:32:28] of agreements that, or maybe not,

[00:32:31] I don't know with the big railway companies

[00:32:33] where maybe there's kind of inflation adjusted

[00:32:36] or a premium base, like almost say gas surcharge, right?

[00:32:40] How, you know, Air Canada, CNREL, CP kind of charge.

[00:32:44] Maybe they have like a lumber surcharge.

[00:32:47] I don't know if that's anything like that.

[00:32:49] They might.

[00:32:50] I mean, it's the one main thing that I would say

[00:32:53] is like on the bearish side of things

[00:32:55] is like will they get away from using wood ties?

[00:33:00] Yeah.

[00:33:01] For like, I don't know exactly what they replace them with,

[00:33:04] but I mean something that's longer lasting

[00:33:06] because you gotta think like,

[00:33:08] I bet you those ties get absolutely beat down.

[00:33:11] Like there's probably so much maintenance

[00:33:13] on that end of things.

[00:33:13] Like if they could find an alternative,

[00:33:16] it would obviously have a big impact on Stella.

[00:33:18] Like I don't really imagine that's coming anytime soon,

[00:33:20] but it's probably something

[00:33:21] that's being investigated for sure.

[00:33:23] Cause yeah, the maintenance

[00:33:25] on those wooden ties would be crazy.

[00:33:30] Yeah, I would imagine.

[00:33:31] I mean, I think it's something

[00:33:32] we'll probably have to dig into.

[00:33:34] It's pretty interesting just to see that.

[00:33:37] But no, I think it looks like an interesting company,

[00:33:42] definitely for and someone,

[00:33:44] one of the, a company that we probably should talk

[00:33:46] a bit more on this podcast for sure.

[00:33:49] Yeah, it's had a few good years.

[00:33:50] I figure I'd bring it up because probably, yeah,

[00:33:53] not a lot of people look at it.

[00:33:54] Not a lot of people probably even know that it exists,

[00:33:58] but yeah, there's actually a plant very close to my house

[00:34:02] where they make, well probably like a 15 minute drive

[00:34:05] and same thing.

[00:34:06] It's pretty much all utility poles that they make there.

[00:34:09] It's a pretty crazy operation.

[00:34:11] Oh, that's pretty cool.

[00:34:12] That's pretty cool.

[00:34:13] Well, anything else on Stella or we'll go to,

[00:34:15] I guess more of a bellwether stocks

[00:34:18] for the economy now.

[00:34:19] Nope, that's it.

[00:34:20] Okay, so while the next one on the slate

[00:34:22] is Canadian tire, so nothing gets more Canadian

[00:34:25] than this, I guess, for on the retail side.

[00:34:28] It was really not great in terms of results

[00:34:31] for Canadian tire.

[00:34:32] Not surprising, I mean the stock was a bit up on the day,

[00:34:36] but I think it's probably more of a reflection

[00:34:38] of people just expecting maybe even worse.

[00:34:42] Not quite sure, but as joint TCI listeners can see,

[00:34:46] so you can see the quarter of last year,

[00:34:49] this is just total revenues and you know,

[00:34:52] it's not been great essentially for the past year.

[00:34:56] Canadian tire has definitely been struggling,

[00:34:58] so revenues came in lower at 4.9% on the year over year

[00:35:03] basis and you have retail sales that were down 2.1%.

[00:35:09] Canadian tire brand revenue was down 6.9%.

[00:35:14] Sport Check was the worst of their brand.

[00:35:17] It was down 7.9%.

[00:35:19] Marks Warehouse was down 2%.

[00:35:21] Helly Hansen down 7.8%.

[00:35:24] And gas revenue was down 2.8%.

[00:35:26] So I could have made this shorter and just say

[00:35:28] it was down across the board, but I wanted to,

[00:35:32] I wanted to show the differences between all of it.

[00:35:36] It's you know, it was to be expected,

[00:35:39] I think with Canadian tire, net income was up 83%

[00:35:43] to 122 million due to lower SG&A expenses.

[00:35:47] Earnings per share was up almost 10x to $1.38.

[00:35:50] Now, I would take this with a grain of salt

[00:35:53] since last year's results were impacted by a fire

[00:35:56] at one of their main distribution centers.

[00:35:59] So clearly this year will look better,

[00:36:01] but they have made progress

[00:36:03] at least on the expense front.

[00:36:04] Now where it gets interesting,

[00:36:07] at least from my perspective is when you start digging

[00:36:09] into the financial services segment

[00:36:11] and they also have a real estate segment,

[00:36:14] but you know, I just have more interest

[00:36:16] and I think it's a good barometer

[00:36:18] for what's kind of happening for the economy here.

[00:36:21] And that financial services segment is important

[00:36:24] because they have a large credit card business

[00:36:27] as most people who have been listening to this podcast

[00:36:29] for a little bit probably are aware of.

[00:36:31] And this gives them insight

[00:36:33] as to how Canadians are spending.

[00:36:35] Now, credit card sales declined 0.6%

[00:36:38] compared to an increase of 6.1% the year before.

[00:36:42] Gross average accounts receivable, so GAAR,

[00:36:46] which is the amount that is owed on those credit card

[00:36:49] was up 4.5%.

[00:36:52] So it kind of goes to what we were talking about here

[00:36:53] would go easy where the balances are going up

[00:36:57] on credit cards and accounts with a balance grew 0.6%.

[00:37:02] So that's basically people

[00:37:04] that are carrying a balance month to month.

[00:37:07] Net credit card write-off rate

[00:37:09] increased 110 basis point to 6.4%.

[00:37:12] It was up 30 basis point from the previous quarter.

[00:37:15] So the 6.4 is on a year to year basis.

[00:37:19] Clearly this has been creeping up over the quarters.

[00:37:22] Past due credit card receivable

[00:37:24] increased 50 basis point to 3.6%.

[00:37:27] And that's unchanged from the previous quarter.

[00:37:30] And these are all things I think it's important

[00:37:32] to keep in mind because I think it does paint

[00:37:34] a pretty good picture on what the consumer is doing.

[00:37:39] And clearly, I think a lot of people right now

[00:37:44] are using debt to make ends meet.

[00:37:47] I don't think, I mean, you're seeing all over the place

[00:37:50] is just credit card debt is going up

[00:37:53] and GoEasy is doing well.

[00:37:54] That's an alternative lender,

[00:37:57] but you're seeing that in the US as well.

[00:37:59] So I don't know if you had anything else to add there.

[00:38:02] No, I mean, it's not really surprising

[00:38:04] to see like Sport Check being down that much.

[00:38:06] Like they're pretty much all discretionary.

[00:38:08] I don't know if there's any necessities

[00:38:10] you need to buy at Sport Check.

[00:38:11] And I mean, it's already ridiculously expensive in there.

[00:38:15] People were Canadians, so hockey sticks, hockey skates.

[00:38:19] I guess, yeah, but even then, it's so expensive there.

[00:38:23] I mean, even when I used to play hockey,

[00:38:27] but I wouldn't go to Sport Check.

[00:38:29] I would go to like a more niche hockey place

[00:38:32] that we had in Calgary here

[00:38:34] just because Sport Check was so expensive.

[00:38:37] I mean, even Canadian Tire,

[00:38:40] I'm actually surprised to see Canadian Tire down that much

[00:38:45] because I mean, they do a lot of like automotive stuff.

[00:38:47] They have a lot of like,

[00:38:48] I mean, I guess they do a lot of seasonal stuff

[00:38:51] that people are probably also trimming down on.

[00:38:54] But I mean, it's not really,

[00:38:56] the numbers aren't really that surprising at all.

[00:38:58] I think we've covered them every quarter

[00:39:00] and every single quarter,

[00:39:01] that charge off rate and the receivables unpaid

[00:39:05] continues to tick up every single quarter.

[00:39:08] Whereas like surprisingly enough,

[00:39:10] a company like Go Easy has kept the charge off rate

[00:39:13] relatively stable over the last few years.

[00:39:16] So it's pretty interesting.

[00:39:18] Yeah, yeah and I mean,

[00:39:19] I think it's important something to keep in mind off

[00:39:21] especially for those investing

[00:39:24] and it's not only Canadian Tire, right?

[00:39:25] If you're investing in any kind of consumer good business,

[00:39:28] especially discretionary consumer goods,

[00:39:31] something to keep in mind

[00:39:33] because if it's discretionary,

[00:39:36] I mean, people at some point,

[00:39:38] if they have to make hard choices

[00:39:41] that might be spending that they actually cut.

[00:39:43] Maybe now they're still spending there

[00:39:45] because they can use credit to do so,

[00:39:47] but credit is not infinite.

[00:39:49] At some point, you know,

[00:39:50] you're not gonna be able to get credit

[00:39:52] of wherever you go, right?

[00:39:53] So companies will just say like,

[00:39:55] no, we're not lending you any more money.

[00:39:57] You already have enough debt.

[00:39:58] We're not sure if you'd repay it

[00:40:00] if we lend you an even more.

[00:40:02] So I think it's just a good reminder

[00:40:04] for people to understand that.

[00:40:06] You know, it's hard to say, I think,

[00:40:09] especially with credit card

[00:40:10] if you have a company like Apple, right?

[00:40:12] I'm sure a decent amount of their iPhones

[00:40:13] are sold on credit, but I don't know

[00:40:16] who knows on to what extent.

[00:40:18] So it's really hard to say because oftentimes,

[00:40:20] you know, you can buy an iPhone with your credit card

[00:40:24] and the only thing that Apple sees

[00:40:25] is just you paid for it.

[00:40:27] They're not, you know, the loan is not with Apple.

[00:40:31] It's with a bank, right?

[00:40:33] So you don't really see that.

[00:40:33] But just something to keep in mind

[00:40:35] for discretionary spending,

[00:40:37] especially as people are getting more stretched,

[00:40:39] you know, I'll say it again, you know,

[00:40:42] at some point the music stops, right?

[00:40:43] If you can keep your level of spending,

[00:40:46] but you know, if you just,

[00:40:48] you'd use credit at some point,

[00:40:49] you won't be able to end.

[00:40:51] I don't know about you, like kind of a personal

[00:40:53] anecdote, but I see people like,

[00:40:57] sometimes people I know and you know,

[00:40:59] people out and about, and you know,

[00:41:02] I think my wife and I have like a pretty good

[00:41:04] household income, but we're not, you know,

[00:41:06] we're definitely not in the top 1%.

[00:41:08] And I mean, we've been cutting back on some things

[00:41:11] and I just see people spend and I'm like,

[00:41:14] my God, I guess everyone's richer than us.

[00:41:16] Like, I just don't understand.

[00:41:18] Like it's just, the only answer is people are in debt

[00:41:23] and they just keep like delaying the inevitable

[00:41:27] and they're just, you know,

[00:41:29] they just keep spending and extend and pretend

[00:41:32] until you can no longer extend anymore.

[00:41:35] I just don't know.

[00:41:35] Like what are your thoughts on that?

[00:41:38] Yeah, I would definitely agree.

[00:41:39] I mean, people living off, you know,

[00:41:42] finance money pretty much.

[00:41:44] And it's not like, you could rack up a credit card

[00:41:46] and you know, the minimum payments

[00:41:47] are really not that much.

[00:41:49] You could live off something like that

[00:41:50] for quite some time, especially if you even have,

[00:41:52] you know, something like a line of credit

[00:41:54] where typically sometimes it's only the interest

[00:41:57] that's due.

[00:41:57] So times get tougher.

[00:42:00] I mean, people continue to live the same way.

[00:42:02] They don't have the money to do it

[00:42:03] and then it eventually just,

[00:42:05] it comes back to haunt people after a while

[00:42:07] because eventually it does need to be repaid.

[00:42:09] And I mean, we're clearly seeing it right now

[00:42:13] with, you know, the alt lending growing,

[00:42:15] the credit cards growing, all that type of stuff.

[00:42:17] It's not a good situation.

[00:42:20] Eventually the music does stop

[00:42:21] or they could navigate themselves out of this

[00:42:24] to the point where, you know,

[00:42:25] it doesn't really get that bad

[00:42:26] but there is a possibility that it could get that bad.

[00:42:29] Yeah, or I mean, government bailout, right?

[00:42:32] Why not?

[00:42:33] They allow your own citizen.

[00:42:34] I mean, the US, you've seen it in the US.

[00:42:37] Like people are, you know,

[00:42:39] I think it's a lot of people, it's contentious, right?

[00:42:42] Whether you agree with it or not,

[00:42:44] but student loans.

[00:42:45] Yeah.

[00:42:46] You know, obvious I know like have family

[00:42:48] that have some pretty steep student loans

[00:42:50] and I know they can be quite burdensome

[00:42:53] but when you think about it, okay, it's great

[00:42:55] but what about the person who worked their butt off

[00:42:59] and didn't spend at all

[00:43:02] so they can try and pay off that loan

[00:43:04] as quickly as possible.

[00:43:05] And then they see their neighbor

[00:43:06] that just took on more debt, didn't pay it off

[00:43:08] and then they get it forgiven.

[00:43:10] But I don't know,

[00:43:10] I was just kind of throwing that out there

[00:43:12] just as maybe a non-zero possibility.

[00:43:17] Yeah, there's a lot of,

[00:43:18] the student loan thing is quite controversial.

[00:43:21] I don't know,

[00:43:23] don't really wanna get into that too much on this

[00:43:26] but do you wanna move on to Home Depot?

[00:43:27] Yeah, okay, Dan doesn't wanna get political.

[00:43:29] It's all good.

[00:43:31] No, it's more like I was trying to show both sides,

[00:43:34] right, because sometimes people kind of think

[00:43:36] it's just good or just bad

[00:43:37] and I think there's always,

[00:43:39] most things there's kind of two sides.

[00:43:41] Benefits to both sides, yeah.

[00:43:42] Yeah, so do you wanna tell us about another

[00:43:44] bellwether stock, so Home Depot?

[00:43:47] Yeah, a big bellwether stock for US consumers,

[00:43:51] primarily, but they do have exposure in both countries.

[00:43:55] So they delivered earnings that were relatively in line.

[00:43:58] I mean, nobody really expects Home Depot

[00:44:01] to perform well right now.

[00:44:02] The expectations are to kind of just tread water

[00:44:05] until the economy improves, people start spending more.

[00:44:08] So I own Home Depot,

[00:44:09] it's actually outside of my crypto exposure,

[00:44:12] it's my largest position.

[00:44:15] So I believe the tailwinds that will be provided

[00:44:17] by Canadian US housing markets moving forward

[00:44:20] should allow it to continue to grow for a very long time.

[00:44:23] I mean, particularly in the US market

[00:44:25] where a lot of residents have rock bottom pandemic mortgages

[00:44:30] which at that point you're really incentivized.

[00:44:34] If you sell your house and move,

[00:44:35] you're gonna lose that rate

[00:44:36] where if you spend some money to renovate,

[00:44:39] you might be able to keep that rate

[00:44:41] because again, their mortgage structure

[00:44:42] is very different than ours.

[00:44:45] I mean, you can get that rate,

[00:44:46] you can keep it for the entirety of the mortgage

[00:44:48] whereas here you have to refinance.

[00:44:51] One of the big differences though on top of that

[00:44:54] it's not portable.

[00:44:55] So a lot of Canadian mortgages are portable.

[00:44:57] So if you were one of those rock stars

[00:45:00] that got like a 10 year fixed mortgage

[00:45:03] which are pretty rare,

[00:45:04] but you got them at like 2% at the lows.

[00:45:08] You can actually buy depending on your mortgage,

[00:45:10] but in a lot of cases you can buy a home

[00:45:13] and port your mortgage onto the new home where

[00:45:16] in the US that's typically not something

[00:45:18] you'd be able to do.

[00:45:19] I think there is a few of them that are able to

[00:45:22] but it's like few and far between.

[00:45:24] So I mean, you have to think if you're sitting there

[00:45:25] with like a 30 year fixed rate at 1.8%

[00:45:31] and you don't like your kitchen,

[00:45:33] are you gonna sell that house and go somewhere else

[00:45:36] or are you gonna be like,

[00:45:36] all right, let's just gut it

[00:45:38] and redo it the way we want?

[00:45:39] Let's EGTV it, yeah.

[00:45:41] Yeah, exactly.

[00:45:42] Like if you think of the,

[00:45:43] cause what are US rates at right now?

[00:45:46] Like gotta be like over 6%.

[00:45:47] So like that is a huge increase.

[00:45:49] More than that, yeah,

[00:45:50] I think they're hovering around seven.

[00:45:51] Yeah, so I mean, that's like,

[00:45:53] that's huge.

[00:45:54] So I think a lot of people are gonna be incentivized

[00:45:57] right now, but like, you know,

[00:45:59] right now is probably not a good time

[00:46:01] for anybody to do renovations.

[00:46:02] They're obviously with the Home Depot's results,

[00:46:04] they're slowing down quite a bit,

[00:46:07] but they, so sales are down 2.3% and earning 7%.

[00:46:12] The company said results were impacted

[00:46:14] by the fact there was a late start to the spring.

[00:46:16] So I mean, spring typically brings on

[00:46:18] a lot of new projects,

[00:46:19] whether it be yard work, deck, new shed.

[00:46:22] I mean, I just redid my entire,

[00:46:24] well not redid, but just did my entire front lawn

[00:46:27] this weekend.

[00:46:28] I couldn't walk for like a day afterwards

[00:46:30] cause we only had like,

[00:46:32] should have went to Home Depot

[00:46:33] and bought like a full length shovel,

[00:46:35] but we only had like little,

[00:46:36] we only had the little house.

[00:46:37] Sonder, I just seeds.

[00:46:39] No rock.

[00:46:40] Oh, rock, okay, okay.

[00:46:41] We rocked our whole front, yeah.

[00:46:43] So I'm wheelbarrow on rock

[00:46:44] and I'm have to bend over like 90 degrees

[00:46:46] to get this shovel to put it into the barrel.

[00:46:49] It was, I should have invested in a good shovel.

[00:46:51] Should have went to Home Depot and helped them out.

[00:46:54] But yeah, I mean, spring is like huge

[00:46:56] with renovation projects.

[00:46:58] So obviously if they did feel that it was a late start,

[00:47:01] it's probably gonna impact results.

[00:47:03] If we look to same store sales,

[00:47:04] they fell 2.8% company wide,

[00:47:06] 3.2% in the United States.

[00:47:08] As I mentioned before,

[00:47:09] the difference between total sales and same store sales

[00:47:12] would be the company will isolate

[00:47:14] and leave out new store revenue,

[00:47:16] like new openings to give a better picture

[00:47:17] on how it's growing without the need to add new stores.

[00:47:21] A couple of weeks ago I talked about Starbucks

[00:47:23] and their average ticket per customer dipping

[00:47:26] and how this is kind of an indication

[00:47:27] of people scaling back a bit on spending,

[00:47:30] maybe opting for cheaper alternatives.

[00:47:32] Home Depot seeing the same thing.

[00:47:34] It's not as amplified as Starbucks.

[00:47:36] I think they were like 4% decline in average ticket,

[00:47:38] but it did report average decline of 1.3%.

[00:47:42] So this kind of leads me to believe

[00:47:44] that people are putting off larger projects.

[00:47:46] I mean, especially ones that need to be financed

[00:47:48] and are instead waiting for probably a better opportunity

[00:47:51] to pull the trigger on that

[00:47:52] or waiting for some cash.

[00:47:54] They confirmed their 2024 guidance

[00:47:56] in which they expect earnings and revenue

[00:47:58] to grow by only 1%.

[00:48:00] But this is actually due to the fact

[00:48:02] the company has an extra reporting week in 2024.

[00:48:06] So it said it's gonna add around 2.3 billion in revenue

[00:48:08] and 30 cents per share during this week.

[00:48:11] If we factor that out,

[00:48:13] pretty safe to say they're gonna see declines

[00:48:16] in 2024 relative to 2023.

[00:48:18] They plan to add around 12 new stores

[00:48:21] and total interest expenses will come in at 1.8 billion.

[00:48:25] So financing expenses have gone from 1.3 billion in 2022

[00:48:29] to 1.8 billion in 2024.

[00:48:31] And this is kind of highlighting

[00:48:33] how even a company with pretty rock solid balance sheet

[00:48:37] is going to be in the future.

[00:48:38] So I mean, it's a pretty good thing

[00:48:39] because it's a good thing

[00:48:40] because it's a good thing

[00:48:41] because it's a good thing

[00:48:42] because it's a good thing

[00:48:43] because it's a good thing

[00:48:43] that we're seeing a lot of debt structure.

[00:48:46] I mean, I think Home Depot has around 44 billion in debt

[00:48:49] but the thing is they generate

[00:48:51] I think almost 20 billion in free cashflow.

[00:48:53] So I mean, the debt is not huge relative

[00:48:57] to the cash they generate

[00:48:58] but you're still seeing like a, what would that be?

[00:49:01] More than a 40% increase in financing costs

[00:49:04] for what was expected for Home Depot

[00:49:06] but it's definitely like, they're clearly feeling it

[00:49:08] from a softer consumer for sure.

[00:49:12] Yeah, just to show people

[00:49:14] what it looks like for free cashflow.

[00:49:15] So definitely, you know, they're generating the last

[00:49:19] you know, in the last few years

[00:49:20] in excess of like 10 billion a year

[00:49:23] in terms of free cashflow.

[00:49:24] So like you said, they definitely have the room

[00:49:26] to pay a dividend and if they wanted to

[00:49:29] they can definitely pay down that debt

[00:49:31] but I think it's just a good reminder.

[00:49:33] I think Home Depot is a good example of a company

[00:49:35] that can do fine with higher rates.

[00:49:38] If rates were lower, it probably would do even better

[00:49:41] and that's the kind of company for me, it's okay.

[00:49:44] Like your thesis is not reliant on rates going down

[00:49:49] it more likely would just be a boost to the business

[00:49:52] and I think that's where

[00:49:54] that's the point I wanted to make earlier is,

[00:49:56] you know, it's still, you know

[00:49:58] going to be a great business.

[00:49:59] I mean, they're probably gonna be fine

[00:50:01] even if rates go up a hundred basis point from here

[00:50:04] I'm not saying they will.

[00:50:05] I think it's who knows whether they go up

[00:50:08] or just stays or go down, we'll see

[00:50:11] but I think Home Depot is a great example of that.

[00:50:13] Yeah, for sure.

[00:50:14] I mean, they're definitely gonna see slower sales

[00:50:17] when rates are this high

[00:50:18] even if they were to stay elevated for long

[00:50:20] I think they would see a return eventually of activity

[00:50:23] and then, you know, when they go down

[00:50:25] people, you know, they're tightening up right now

[00:50:28] but they're eventually going to get back to spending

[00:50:31] especially in terms of like any sort of projects

[00:50:35] renovations, lawn projects, anything you can think of

[00:50:37] and like in Canada, even Canada and the United States

[00:50:42] I mean, they have way more department

[00:50:43] like hardware stores down there

[00:50:44] but I mean, it's either Lowe's or Home Depot here

[00:50:47] for the most part.

[00:50:47] I think we have Rona as well.

[00:50:49] Yeah, we have Rona.

[00:50:50] Yeah, they bought the assets from Lowe's

[00:50:54] Lowe's exited from Canada

[00:50:56] but yeah, and I think you're right

[00:50:58] at the end of the day too

[00:50:58] even if rates stay higher for longer

[00:51:01] there's just so many things that you can push back

[00:51:04] for maintenance, right?

[00:51:05] There's certain things you just have to do, right?

[00:51:07] If your refrigerator breaks

[00:51:10] I mean, there's a few different places

[00:51:11] you can get a new refrigerator

[00:51:13] but you're going to have to get one.

[00:51:15] You don't have a choice, right?

[00:51:16] And there's certain things

[00:51:17] there are certain things obviously you'll push back

[00:51:20] and I think that's probably why there's a little bit

[00:51:22] of softness in the results

[00:51:24] as people are kind of pushing that back

[00:51:27] and waiting until either rates are lower

[00:51:28] or maybe they have a bit more money to spend

[00:51:32] and kind of the rate of inflation slows down

[00:51:35] and their salary catches up, right?

[00:51:39] Yeah, exactly.

[00:51:39] And there's also the element that new home builds

[00:51:43] a lot of people don't think of Home Depot

[00:51:45] as where you would go to buy

[00:51:47] a lumber for a new home construction

[00:51:49] but they do deal with plenty of contractors

[00:51:52] in terms of new homes.

[00:51:53] So it's not just renovations

[00:51:55] which are fueling their results.

[00:51:57] But I mean, they're kind of like a Walmart

[00:52:01] I guess I would say they have a big advantage

[00:52:03] over smaller department stores in this part

[00:52:06] because they're just like a high volume

[00:52:08] they can just generate so much cashflow

[00:52:10] just by pushing through high volume.

[00:52:12] So prices generally get lower

[00:52:14] it's more favorable to shop there

[00:52:16] and I just think they're

[00:52:17] I think they're in a pretty good position

[00:52:18] even though like how weak it is right now

[00:52:21] I think they've got a pretty good

[00:52:24] you know, it should be pretty good

[00:52:25] for them moving forward

[00:52:26] once things tame down a bit here.

[00:52:28] Yeah, no, I definitely agree.

[00:52:30] I own it as well.

[00:52:31] It's a small position for me,

[00:52:32] definitely smaller

[00:52:33] but I think that kind of wraps it up for today.

[00:52:36] I had Shopify I wanted to talk about

[00:52:39] but you know, the roaring kitty came roaring.

[00:52:42] So that kind of-

[00:52:43] Had to talk about it.

[00:52:44] Yeah, I had to talk about that.

[00:52:45] So we'll keep Shopify for next week.

[00:52:48] You know, I know there's a lot of people

[00:52:50] that listen that own this stock.

[00:52:51] I own it.

[00:52:52] It's a relatively small position for me.

[00:52:54] So I'll go over why, you know

[00:52:56] the stock kind of had a big drop

[00:52:58] once earnings were released.

[00:52:59] And I think Shopify is starting to become

[00:53:01] a little bit of a bellwether stock in its own way, right?

[00:53:04] Because you really see kind of smaller businesses

[00:53:08] that use their online e-commerce platforms.

[00:53:10] So a company like Shopify that may be, you know

[00:53:14] slowing down the growth a little bit

[00:53:16] it may be an indicator that, you know

[00:53:18] things are slowing down for the economy as well

[00:53:20] but we'll touch more on that next week.

[00:53:22] Thank you everyone for listening.

[00:53:24] If you haven't done so

[00:53:25] if you can just take a few minutes

[00:53:27] give us a five-star review on Apple podcast

[00:53:29] Spotify, whichever platform you listen to us on.

[00:53:32] You can find me on X slash Twitter

[00:53:35] at Fiat underscore iceberg

[00:53:37] Dan at stock trades underscore CA.

[00:53:41] Still got that one?

[00:53:42] That's it, yeah.

[00:53:43] Yeah, perfect.

[00:53:43] And stock trades.ca

[00:53:45] if you're looking to see Dan's work there as well.

[00:53:48] And yeah, we'll see you guys next week.

[00:53:52] The Canadian investor podcast should not be construed

[00:53:55] as investment or financial advice.

[00:53:58] The host and guest featured may own securities

[00:54:01] or assets discussed on this podcast.

[00:54:04] Always do your own due diligence

[00:54:05] or consult with a financial professional

[00:54:08] before making any financial or investment decisions.