The Motley Fool

Special Update: Our Most Recent Live Q&A Replay Is Here

The Canadian investing team took to Zoom (NASDAQ:ZM) once again this week and were overwhelmed by the audience. Literally. We filled the seat capacity that we didn’t even know existed. As we’ve indicated elsewhere, we’re relatively new to this broadcast game and there’s a learning curve involved. Next time around, there will be plenty of room for all.

In the meantime, the recording has been turned around by the production team, transcript and all, and we’re pleased to share the proceedings as they were.

Enjoy!

 

Taylor Muckerman:

All right. People are rolling in. Welcome Fools. We’re kicking off our Tuesday edition, April 14th starting at 1:00 p.m. Eastern, Our State of the Market Live Q&A. You’re joined by our entire analyst team, with Motley Fool Canada. I’m Taylor Muckerman. I’ll be the MC I guess for today as we take your questions. Similar to last time, if you were participating, we do have the ability to take your questions and that’s what we’ll do for the duration of this call. Should last about an hour till two o’clock. If we have tons of questions, we might stick around for a little longer, but we’ll try our best to get through the Q. So start firing away. Guys, big dream day in the market. We’ve seen quite the rebound with trading over the last week or so. Surging almost as highly as our participant count, closing in on 500 participants right now. So welcome everybody and welcome to you four guys as well.

Iain:

At a run. I don’t know if we did this. I think we did this about two weeks ago and it was a pretty different picture then as sort of two weeks prior to that. It’s brillIaint.

Jim:

Bottoms in.

Taylor Muckerman:

We went from the quickest correction in history to the best week in the S&P 500 in about 80 years. So quite time to be an investor. We’ve got some questions coming through. Let’s see. Dah, dah, dah. Let’s just say price jump in recent days seems unreasonable. What are your guys’ thoughts on the action of the last week or so being reasonable, unreasonable? Obviously, we’re in unique times, but just thought on how quickly things have reversed course.

Jim:

Yes. They have quickly reversed course. They’re reasonable, unreasonable.

Taylor Muckerman:

It’s a good observation.

Jim:

Yeah. I mean, I’m great with the obvious answers. I’ll take the first shot. Yeah. It’s not unreasonable if the market… You give me a crystal ball. You tell me what’s going to happen and I’ll give an assessment whether it’s reasonable or unreasonable. I know our friends to the South, that’d be you American types, Taylor and BrIain, and Joey, your government is certainly singing from a different hymnal than our government is in terms of reopening the country. You guys seem to be more on the, “Let’s get her done quickly.” And I think that attitude is probably driving the markets or the market returns. Here, there’s talk of going into the summer at least. I’ve seen some speculation from our prime minister talking about… Well, it could be 18 months. Good luck keeping… You have to hold Iain together with hoops if he’s in his house for another 18 months, I think.

Iain:

Only weekends left in me.

Jim:

So it’s kind of a different spiel North of the border. Right now, I think a lot of this is… Who knows? I mean, it is such a crazily unprecedented market event at least for those of us who weren’t alive during the Spanish pandemic, which is all of us.

BrIain:

Yeah, Taylor, I would chime in and just say that one lesson for members out there that we saw back in the financial crisis is when gIaint sums of money are thrown at a problem, whether that’d be through monetary policy or fiscal policy. And we’ve seen both. You can see the timing relative to those announcements in the market rally and just something to keep in the back of the mind five, 10 years down the road, another big downturn. Just keep in mind that don’t under… Historically, you just probably don’t want to underestimate when a bunch of money is thrown at the problem. Now, as Jim said, we still have a ways to go coming out of this, but I think that helps explain a little bit of the unreasonable upside. If you weren’t paying attention to the money being thrown at the problem, then yeah, it certainly seems unreasonable given the near term outlook that we’re facing and all the uncertainty.

Jim:

Yeah. I’m just worried about the amount of money that’s being chucked, BrIain. No joke. I mean, the CanadIain budget deficits this year was forecasting about the 25 billion range, originally 25 to 28 billion. Which for you American types, it roughly multiplied by 10.

Taylor Muckerman:

Pocket change.

Joey:

We will be dying in a month.

Jim:

Yeah. That would be the equivalent of you guys doing say about a $250 to $280 billion annual deficit, which is well below what you’re doing. I think you’re going to struggle in Canada to keep the budget deficit this year below 200 billion. Which again, American types think that’s two trillion. The problem is our marginal tax rate is already slightly higher than yours and it’s something around the order of about 45% to 47% of CanadIains pay no net taxes, zero net tax. So our marginal rates speak to finance this, or is this going to be somewhere around 65% to 70% marginal tax rates in a couple of years? Because someone’s going to pay for this.

Taylor Muckerman:

We’ll see how best to cross when we get there.

Jim:

Well, that’s the problem. I mean, you can throw all the money at problem you want, but it’s got to come from somewhere.

Taylor Muckerman:

Going to have to start spending more money on marijuana in North America as well. We’re going to have to do this to generate some tax revenue.

Jim:

Feel free to legalize it at any time. We can hook you up.

Iain:

I just know this all hurts psychologically. I think all of us are feeling the same way. You never have sold early enough when it’s going down and you’ve never bought enough when it’s going up. It’s such a mind struggle and we’re all dealing with that. And that’s short-term investing and that’s frankly why we try and steer clear of it because it hurts. It just hurts.

BrIain:

Iain, I’m glad you brought that up because it’s so frustrating at the beginning of a downturn and then so frustrating on the way back up.

Iain:

Totally.

BrIain:

I think it’s important for members to know that we feel the same thing.

Iain:

Yes. The only time it feels good is like three years on when the prices that you were getting as you were buying through all this volatility looked pretty darn good.

Taylor Muckerman:

Mm-hmm (affirmative). And one thing I’ve just noticed watching sectors on a daily basis is there hasn’t really been a broad market rallied, right? It’s like every other day, it’s risk on, risk off, or risk off, risk on. Energy and financials are down today, but consumer discretionary and tech are up and then the next day energy and finances are up. And so it hasn’t been like one day that I remember where it was the entire market was moving up or… We’ve had the entire market moving down, but we haven’t seen really the entire market going in the same direction in the green. But yeah. Definitely messing with a lot of people’s heads right now. We have a one question about lump sum investing or dollar cost averaging. I tend to do a little bit of both, 401k, dollar cost averaging. So that’s retirement account down here in the United States. I think we tend to recommend dollar cost averaging, but in times like this, maybe you throw some dry powder at the problem.

Jim:

Absolutely. I had a lump sum amount of cash that I was going to use for something else in my life that when this happened, I said to my significant other, I said, “I think I’m just going to throw this up the market. We good?” “Yeah, we good.” So that went in lump sum but yeah. And then both of us dollar cost average every paycheck as well. So I think like you Taylor, on what you said, I think you can do both. I think you should do both. What’s the phrase? The best time to invest is when you have the money. So start chucking it in.

Taylor Muckerman:

Absolutely. Anybody have thoughts on Nvidia? I know it’s a recommendation in Stock Advisor coming from several services.

Iain:

I just actually typed an answer there. I think our views are as they were. I think it’s a company that plays into a lot of different secular themes over the next… They’re going to play out nicely over the next five, 10 years. I don’t think you’d get away from the cyclical aspect of the semiconductor world, but yeah. I think by all accounts, we’re fans. I don’t know if others have…

Jim:

Are we still mining Bitcoin using their processors?

Iain:

That was an opportunity. When that went away, the stock really took a hit and I think that’s when we recommended it actually.

Jim:

Look, I fooled mine by a covered call in the 20s. So I’m the last person to talk to about Nvidia. I missed the entire run.

Iain:

Joey, do you have any view?

Jim:

It’s more Joey’s spot.

Joey:

Yeah. I mean, they’re riding a lot of trends. I mean, this is one that I look 10 years out. I mean, yeah, they’re riding a little bit of technology. I mean, chips are going in everything these days. I mean, not only across every part of tech that they’re in there, but autonomous driving still in its infancy. So yeah. Nvidia is one that’s very attractive for the long-term still.

Taylor Muckerman:

Great. And I’ll just say right off the top that we’re going to have a lot of people typing similar questions. So if we don’t read your exact question, we probably will answer it in some form or another. So I expect a lot of questions about, “Is this bounce for real?” But a lot more market sentiment. So just listen closely and we’ll provide the video and a transcript after this in case for some reason you need to hop off. You can return to this video at any time on the respective services sites. So let’s see, what else do we have? 50 stocks in a portfolio, is that too many? Too little? Just right? What do we think here, guys?

Jim:

I got more than that.

Joey:

The only thing I would say on that is if you say you have 45,000 in your portfolio and 50-

Jim:

Oh, okay.

Joey:

I mean, at that rate, that seems like a bit much. I want to say when I have 45,000 in my portfolio, I might have had a 10 or 15. Now I can’t give specific advice because I don’t know how much cash you have outside of the market or anything like that. But that’s a situation where if it were me, I would try to whittle it down to my absolute favorite 10 or 15. And if you can’t do that even in half, but yeah, 50 across 45 range seems like a bit much.

Taylor Muckerman:

Awesome.

Iain:

Opinion will probably differ but always thinking in percentage terms too outside of the dollar amount and sort of thinking… I don’t know what an average position size for… Personally, I sort of think in the range like riskiest stuff, 1% to 3%, in the middle, 3% to 5%, and then rock solid foundation stuff 5% to 7%. So that’s a range to think in and that gets you to less than I think 50 stocks with a $45,000 portfolio.

Taylor Muckerman:

Yeah. And not saying like to sell any, but if you wanted to trim your less convincing holds or just become more concentrated as you add money into that portfolio rather than smaller buys of new stocks.

Jim:

Yeah. If 30 of those stocks are 0.25% of your portfolio each, they’re not going to factor in your up or downside returns. So maybe reevaluate why you hold them and go from there. The allocations Iain gave are pretty good, I think.

Taylor Muckerman:

Well, we’ve got over 500 people here. We’ve got some questions about time to buy and do we think there’s going to be a correction?

Jim:

We already have the correction. Correction started.

Taylor Muckerman:

Should we be leveraging to buy at this time? Is it too soon to call it? Okay. So no for leveraging.

Jim:

Well…

Joey:

Hey, I got to say going this downturn and I beefed up my margin beyond belief and I had been trimming off of that because some of these stocks have just… I mean, balance 50% to 100%. But my risk tolerance is significantly higher than most and I have an amount of money that I shouldn’t have. So just because successful investing in just being dumb when I was younger, they just successfully turned out. But yeah, for most. Unless you’re staring at your computer or investing all day, I wouldn’t recommend levering up too high.

Jim:

Yeah. I mean, I’m in a cut of middle road between Iain and Joey here. I have in the past, 2008, 2009, borrowed against my house. I have borrowed against the house, taking 100% of the equity. But I’ve taken like I think the 10% or 50% of my equity and put it into basically just an index fund at what I thought was the bottom. I was early, but not very early, frankly. I was maybe a month or two early, and on the way back up while the headlines six months later were still, “Well, is this just a bounce? Maybe.” And of course, we now know it turned into like an 11 year bull market. But at the time, there was a lot of uncertainty and people saying, “Well, this can’t last.” On the way up, I kind of did what Joey’s described, which was, “Okay. I made my quick whatever 20%, 30% on the index. Now I’m going to sell it and put the money back.”

Joey:

Yeah, you don’t want to get greedy when you’re on margin. You take your wins and go. I mean, if you’ve made 20%, 30% and you see the stock double from there, just remember, “Hey, that’s money and I made off money I didn’t have.”

Jim:

Well, and I’ll point out, Joey. Joey’s talking about a margin account, and I borrowed against my house.

Iain:

Yeah, I think that’s an important clarification.

Jim:

I took a low note that had actual payments so that I could use the interest in a tax deductible fashion that was cheaper. I mean, all interest is free now, right? At zero interest rates. But at the time it wasn’t. That I could then use. I had a repayment plan in place. I think I had it over a two or three year personal loan and I paid it back early, whereas margin… I have a margin account. I don’t think I’ve ever use it for anything but options buttressing.

Iain:

I should clarify my… I also use a home equity loan to invest, but I don’t consider them the same thing. Because margin, you can be forced to sell and I don’t ever want to be in that kind of position. I think with a home equity loan, you could certainly take a loss, but it’s on you.

Jim:

In theory, if you’re using a heloc in… I don’t know if it’s a heloc or a personal loan. In theory, helocs are demand loans, so the bank could demand it back from you at some point. That’s unfortunate.

Iain:

Yeah, yeah. I think I’m okay on that front. But yeah.

Jim:

Yeah, I was going to say. And look, if the big banks are going around pulling people’s helocs, I think you might want to sell your bank stocks.

Iain:

Right.

Taylor Muckerman:

We definitely don’t want to be using leverage under that scenario.

Jim:

No, there’s a problem at that point.

Taylor Muckerman:

BrIain, what do we think about REITs right now?

BrIain:

I still say it’s category and geography specific like it always is. I’d say it still is. And I’d also say that… I mentioned to our members in a video I did, I don’t know, like a month ago that dividends or REITs are in a tough spot. Any time an economy shuts down, we’ve been through this before, right? The economy shuts down every five or six years. I’m just joking. But the point that I’m trying to make is two categories, office REITs and industrial REITs. Their tenants are business owners, small, medium, and large. And when they have to shut their doors and not have any cash come in, you’ve got an issue in terms of being able to pay rent. So I’d say each REIT is in a different spot. And then also REITs tend to operate with relatively high payout ratios. So you might have a great REIT heading into this, but its payout ratio is 90%, 95%, 100%. So it doesn’t take much in terms of tripping up and seeing that payout ratio balloon well over 100% if tenants can’t pay rent.

BrIain:

So REITs are in a tricky spot. I think long-term, you still want to stick with your categories and your geographies, Greater Toronto Area, Vancouver Area, great spots. In terms of category, industrial still got that great long-term story. Right now, they’ll probably have a tough couple of quarters coming up. Office REITs and the GTA will probably take a little bit longer to recover, but those are always good names a little bit later on to keep an eye on. Multi-family’s great as long as you don’t end up in a really long, long drawn out recession. Multi-family REITs are still great. I would prepare myself for lower pay outs. I think coming out of this, some CanadIain REITs will lower their leverage and lower their payout ratios. And I think that’s a healthy thing to be honest. I really do.

Taylor Muckerman:

We had one in particular, H&R mentioned, if you have any thoughts on that one.

BrIain:

H&R is a tough one. H&R is big. It had spent about a year or two repositioning its portfolio. It has a lot of retail exposure. So if there was one category of REIT coming out of this that I think gets hit and stays a little bit lower than the rest, it would be certain pockets of retail. Obviously, malls and different things like that. Certain pockets of retail I think could have a little bit tougher time pulling out of this. H&R is just a big beast. It’s got the retail tag on it. I think you could find it at the right price and have some value there. It’s probably not my favorite REIT though right now.

Taylor Muckerman:

All right. Thank you very much. We do have a question about the Saudi purchase of Carnival stock, Carnival corporations, their cruise line stock. And Rick thinks that might indicate lower oil prices for the foreseeable future. And just kind of he asks, should we reconsider air shipping and what our thoughts are on maybe FedEx? But I’ll expand that question even further. If we do have lower oil for longer, which industries you guys think might benefit the most from that. Obviously, the oil and gas industry will benefit the least from low oil and gas, but where might you be poking around for better cost structure? Airlines if they weren’t being damaged by zero tourism.

Jim:

I would say it’s going to help the airlines but…

BrIain:

But we got a problem.

Taylor Muckerman:

Personally, I’m a FedEx shareholder. I’m a fan of that company. They’re refocusing on e-commerce delivery. And now that Amazon has decided to pull back a range on its own logistics platform for the time being, I’m a happy shareholder of that company for some time and plan on holding it. But I know we recommend Cargojet in a couple of services in Canada, and air shipping in Canada also tied in with Amazon. So that’s an option for our CanadIain investors to consider there. But any other industries or stocks that you guys think might benefit from that outside of obviously airlines being damaged by zero tourism going on right now?

Jim:

I was going to say the obvious one is Amazon. But they control everything and until they run into antitrust issues, which may be coming, how do you not own Amazon even at all time highs?

Taylor Muckerman:

Mm-hmm (affirmative). Yeah. And now back to the earlier portion of this conversation about the indexes being high but sectors diverging. Amazon being as large as it is controls a lot of the indexes than it’s a part of. So that performance is definitely going to drive things higher. And that might be why you see the NASDAQ-100 performing so well over the last couple of weeks just because those stalwart stops are flying high: Microsoft, Alphabet, Amazon. Guys, anything else on that thought? Of oil for longer and the benefits?

Iain:

Mine came to mind.

BrIain:

Yeah.

Taylor Muckerman:

Mine?

Iain:

If anybody wants to go down that path. I mean, I think fuel is an important input to the mining process and if prices are cheaper there, that’s good. But that’s part of the commodity game. I was also going to say, I also believe that Saudi, there was headlines that Saudi Arabia put a billion dollars into four of the big global energy companies as well. So who knows what they’re doing out there? I wouldn’t read anything into what’s going on there.

Taylor Muckerman:

Yep. Great. Iain, you’ve said you would like to talk about how people can benefit from our advice if they’re new to the services or just new to investing in general.

Iain:

Yeah. And this is something that frequently comes up. So it’s probably applicable across all conversations and everybody pipe in. I mean, we have frequent recommendations. I’m not sure which… Was there a service mentioned? I’m not sure which service…

Taylor Muckerman:

No. It was just new people like myself.

Iain:

So across our services, Stock Advisor Canada, Hidden Gems Canada, Dividend Investor Canada, we’ve got a frequent stream of new recommendations. Not necessarily always new companies to the services, but new recommendations are constantly coming through and we’re constantly updating our best buys now as well, which do focus on existing recommendations. So I think it seems like the appetite for ideas is insatiable and maybe people should concentrate more on the advice that we are providing instead of broadening their scope and wondering about. Because indeed, the scorecards are large. There’s a lot of companies there. So we do our best to try and focus people on our newest recommendations and our best buys now.

Taylor Muckerman:

Got it. Just thoughts on… So we’ve had a couple of questions about members investing in the TSX stocks considering branching out to the US market right now. I know Jim, you raised your hand for a question along those lines, but where the currencies are right now, we talked about this on our call about two weeks ago, but just again, if you want to reiterate your broad thoughts on investing cross border.

Jim:

Yeah. It’s the same thoughts that I think Iain and I have both been saying forever as the token CanadIains on this side of the border. You have to invest in the world’s largest market. Canada is a tiny player on the world stage, and we are too concentrated in sectors like finance or energy. And energy is a sector that I find almost un-investible on the best days. And you want to invest in a market where you have for the most part, some of the world’s best investor protections. That’d be the US. The world’s broadest market exposure to every industry you want, again, the US. And the currency is just a cost to do a business. Right? Now we’re with 71, 72 cents. I know in my investing career, I’ve seen it as high as a dollar and 10, and as low as 61 cents and that is just the cost of doing business.

Jim:

I’ve seen a lot of people talking recently and there was an article in the Golden Mail yesterday that talked about, “Oh, there’s a 60 cent dollar coming.” And I’m like, “If you are sure there’s a 60 cent dollar coming, you should be buying every American stock you can find today.” I don’t think it’s a concern dollars coming, but you should be every American stock you can find because you’re going to make 15% of the currency. Forget the actual companies. But look, at a money show that Iain and Taylor and I went to a couple of years ago, there was a guy there who claimed to be able to…. You know who I’m talking about. Who claimed to be able to predict currency moves with tremendous certainty. And he spoke like three or four times.

Jim:

It was a really weird… Because we’ve always been from the school of that, “No. You can’t predict currency.” And we come home afterwards and Google a guy’s name and he’s a convicted felon. I mean, he’s like the only guy I think that will make that claim. Everyone else should be honest about the fact that we don’t know where it’s going to go. I don’t think you’re going to see an 87 cent dollar anytime soon with CanadIain oil at $7 a barrel. I mean, low 70s, mid 70s, cost of doing business. Put some of your money in US stocks as well as CanadIain.

Iain:

I think the unfortunate thing that you said there was that he’s not the only guy that makes that claim. There’s a whole industry of him out there.

Jim:

But at least I understand him because he’s a fraudulent victor.

Iain:

Load up and onto the next town.

Jim:

No.

Taylor Muckerman:

Got one. We’ll go skull around the horn, maybe Joey, Jim, Iain, and then BrIain. What’s one sector or stock that you think has been the hardest hit unjustifiably and one that you’re keying in on? Maybe it’s not Doug one, but just one that leaps to mind when you hear that question.

Joey:

I mean, in the downturn, it’s almost like every company’s just been absolutely pummeled. So I haven’t seen anything that’s pummeled more so than everything else. There was a lot of tech companies in late March that just seemed they fell too far too fast which I think we hit it on the podcast last time. I mean, I finally dip my toe into some retail where… I mean, bricks and mortar retail, they have been crushed lately. And on our last podcast, we were talking about… Someone brought up Ulta. And I remember, they have this ironclad balance sheet, no debt. But they had a credit line that they could tap into.

Joey:

I mean, once I dug deeper into that, after talking on here and waiting couple of days that I had to, I did finally dip my toe in that one just because they’ve got that great e-commerce presence. Yes, bricks and mortar retail has been destroyed, but they’re one of those brands that once everything opens back up, I know for a fact my wife is going to be in there probably as soon as she can. In the meantime, she’s been buying stuff on ulta.com. I mean, that’s what I look at. Great brands that have been absolutely crushed that I know will stand the test of time and still be here in 10 years.

Taylor Muckerman:

Jim?

Jim:

Am I up? I’ll keep it as short and sweet as I’m physically capable of doing so. CanadIain bank stocks are a gift that these yields.

Taylor Muckerman:

We had Bank of Nova Scotia mentioned right off in one of the questions. So I know that’s a stock that’s recommended. It’s the only big six bank recommended in Stock Advisor Canada and one that we’ve all talked about quite a bit lately.

Jim:

If you like to have bedrock stocks to bolster your portfolio so you can have the small caps and the more fun stuff on the top, CanadIain bank stocks at these current yields have been a gift.

Taylor Muckerman:

Awesome. BrIain?

BrIain:

It a tough question to answer right now after the rebound. I’d say at one time, US utilities got worse. We’re down like 30%, 40% at one time. That would probably have been my answer. I’d also say there’s a fringe in the travel industry. I know it’s an industry no one wants to touch right now, but I think booking and holdings dropped to the point where it got quite attractive given the cash flow and given the fact that it’s going to probably dominate that European market for years and years and years to come. Right now it looks really ugly, but at the end of the day, they produce a ton of cashflow and they’ll be back on their feet dominating in the years to come. So that was one that I was surprised dropped so much. I mean, it’s understandable. But just given our time horizon that we have just seemed like an easy one to target in the travel industry.

Taylor Muckerman:

Iain?

Iain:

Sector wise, we talked about REITs earlier and that fits with this, but just hard assets in general just got obliterated in a brief four or five day period, the Brookfield Family. But REITS in particular really drew my attention. Some of the yields really fattened up nicely and they’re still pretty generous. So that was an area that certainly caught my eye. In terms of companies, the one that just sprung to mind that simply I thought… Well, there was a bunch now that I say this. 10 more flooding in, but Stingray is one that I thought just was a ridiculous bargain and still is. Very, very cheap. It’s in Stock Advisor, it’s in Dividend Investor. We’ve gotten a few in the portfolios. Really nice free cash flow profile there. Has some debt but manageable, manageable under only the worst conditions I think. So I think that’s one that’s attractive.

Taylor Muckerman:

Yeah. I’ll throw out two, one CanadIain, one US. Tucows, is one that I… I mean, it had come down a little bit before COVID-19 struck, but it’s obviously been impacted beyond that. So about 43% off of its 52 week high. Similar traits to what Iain just talked about with Stingray. Great free cash flow profile and largely insulated from the effects of corona with being a domain registrar business, mobile phone company, and getting into the fiber business. So everyone’s staying at home, faster internet, working from home in these key markets that they’re in. So fiber customers could be growing throughout this timeframe on their US footprint with the fiber.

Taylor Muckerman:

And then SVB Financial, ticker SIVB, in the US, is a bank that deals with venture capital and startup industry. Largely, they do other things as well, but I think they’ve been hit in an inordinate version. So those are two that I’ve added to you lately during this downturn. Let’s see, what else we’ve got? I’ve got a couple of questions about… We can just briefly talk about CanadIain energy. I know that we’ve hammered that one over the last few months, but two came up in particular, Suncor and Enbridge. Two of the biggest names in CanadIain energy. BrIain, you’ve got some energy recommendations in Dividend Investor, what do you guys think right now? Obviously, oil prices are in the gutter but maybe just those two companies. And BrIain, maybe your top energy stock in Dividend Investor Canada.

Iain:

Okay. Go for it Brain.

BrIain:

I would say right now, we have a few in Dividend Investor. I like the royalty companies. We have Freehold Royalties and Viper Energy. They’re able to withstand the lower oil prices for a little bit longer than most. They don’t have the leverage. Freehold Royalties is going to put you into Western Canada or Dundurn, Saskatchewan and Viper Energy is going to primarily put you into the PermIain Basin in the US. So there’s a little difference between the two. Viper has a little bit more leverage than Freehold. It’s not a pretty situation for any of the oil and gas companies. But a company like Freehold and Viper, they do 80% to 85% cash margins. They’re still able to generate cash flow in an environment like this which is very unusual if you look at a normal oil and gas producer right now. They’re not going to be able to produce positive cash flow or positive free cash flow in a $20, $25 a barrel oil environment.

BrIain:

So these companies can, and it’s a little bit more of a direct play on the price of oil. So if you think that in a year or two we’re looking at higher oil prices and maybe eventually we get back up to $60 a barrel and it normalizes around there, these royalty companies should be able to survive and then benefit. As a matter of fact, Freehold management put out a press release last week where they’re even considering making some small token acquisitions. Just to give you an idea, they’re in an ugly spot, no doubt, but they do have a little bit more flexibility than your average producer.

Iain:

Enbridge, Suncor, I think Parex specifically… I’m going to actually spin this in a different direction and say the industry is such that it is pure speculation I think right now. And if you’re going to purely speculate, because there’s so many other quality companies elsewhere, go for torque. Seriously, use it as a 1% to 2% position and look for clean balance sheets. But go for a smaller cap, mid-cap name that’s going to really provide some torque should the industry find its footing. Because it’s a little more than walking into casino in the energy sector as far as I’m concerned. And my team is…

Jim:

I thought we were going to find the clean balance sheets.

Iain:

So BrIain was along these lines. PrairieSky is another royalty company with zero debt. ARC Energy or ARC Resources is one that has a pretty clean. Tourmaline, I believe has little debt. Parex Resources, a ColombIain company that has almost no debt. So there’s few and far between. Again though, the no debt ones aren’t necessarily going to give that torque. So you may even want to go a little further down the chain. That’s a non-foolish answer I would say. But it’s really a non-foolish sector right now.

Taylor Muckerman:

We are honesty.

Iain:

Yeah. It’s totally a non-foolish sector.

BrIain:

And I think the perspective is a little bit different for investors. I think members and us that have been around and we’ve kind of struggled through this oil period for multiple years now have maybe a different perspective making an investment in the industry versus a new member that has no exposure to oil and gas.

Iain:

Right.

BrIain:

I mean, if I put myself in the shoes of a member with absolutely no exposure to oil and gas, I’d get a little bit more excited and a little less frustrated than where we come from and our perspective. We’ve been through quite a struggle with our oil and gas companies.

Iain:

Totally.

Taylor Muckerman:

Airlines have come up a few times. Oh, sorry Joey, if you want to go ahead.

Joey:

Well, Taylor, before we get on, the moderator messaged you to change your setting. If you could check your Slack so we can let more than 500 people on this podcast.

Taylor Muckerman:

Oh.

Jim:

Oh dear.

Iain:

Oh.

Taylor Muckerman:

All right. We will handle that. Sorry about that. We’ll see what we can do. We have 508 people right now, so hopefully we can get some more on there. In the meantime, we have a few airline questions, Air Canada, Copa Holdings, and [inaudible 00:35:41] Aviation were three tickers that have come up in particular. And then just any other thoughts beyond those if you have them?

Iain:

I think we’ve run into the speculative game in the airline industry as well at the present time. I think these are companies that we have admired, but the environment that we’ve found ourself in has really changed the landscape and who knows what the other side looks like. I saw and I’ve been wanting to get to this today and I probably will leave this afternoon. Copa had some… What’s that? Air monopoly.

Jim:

This is the book about the last time Air Canada went bankrupt. So it can happen, folks.

Iain:

And it can happen fast. They’re hugely capital-intense businesses, right?

Taylor Muckerman:

I love that you had that handy, Jim.

Jim:

You can’t see the shelf behind me because of course I’m rocking the orbiting the earth background.

Taylor Muckerman:

Did Buffet used to say that he needed to be talked down from airlines every once in a while? That’s sort of your version of the same thing? Every time you want to buy an airline, you just looked at that book.

Taylor Muckerman:

Until he sold some of his recently.

Joey:

Yeah.

Iain:

And he changed his tune and went into them. That’s right. He was a shaving position. I think Copa just came out with… I think they were preliminary results and they are exactly what we’re going to see. It’s like January, February, fine, March, it just-

Jim:

March was terrible.

Iain:

Just terrible. And who knows what’s going forward? So it’s down. It was 100 bucks a share. Now it’s 40-ish. It’s taken a huge hit. Is that justified? It just all depends on what the next six months look like I think.

Taylor Muckerman:

All right. We have-

Jim:

I don’t like airlines, but I think people know that already. So I’ll shut up.

Taylor Muckerman:

We have Boeing in there too. We’ve seen orders for that 737 max dropping off at cliff along with obviously their financial troubles, they’ve drawn down the entire credit facility available to them and then they’re being a little honorary when it comes to the conditions of a bailout that might be offered to them. Not willing to give the US government and thus US citizens a stake in the business.

Jim:

Okay.

Joey:

Yeah, exactly.

Taylor Muckerman:

I’m totally fine. Just let them test the public equity or private equity waters.

Jim:

May you be happy in the life you have chosen.

Taylor Muckerman:

Absolutely.

Jim:

I believe the way we respond to that.

BrIain:

I believe there was complaints about having to pay interest on some of the money that they potentially could receive.

Jim:

I am a capitalist. Feel free to go seek the solution.

BrIain:

How dare you charge me interest?

Jim:

Yup. Feel free to go seek your fortune in the public market. I hear the guy in Omaha’s taking calls. Didn’t he soak Harley Davidson for 15% during the credit crisis? I believe he did.

Iain:

Yeah, it rings a bell.

Jim:

Call him.

Iain:

Yeah.

Taylor Muckerman:

There’s few other options out there if you’re going to be picky. So fair thee well. I agree. That’s a stock that I believe it’s critical to not only the United States economy but global economy.

Jim:

It’s a business that’s critical. It’s not a stock that’s critical. You can go bankrupt, someone will pick up the pieces.

Taylor Muckerman:

That’s for sure. Let’s see what else we have here. Joey, Lightspeed again, a hot topic in this one. I’ve seen three or four posts talking about its customers not doing so well but its stock has rebounded. But then again, so has the market. So just share some quick thoughts on maybe how this stock might be navigating this market while so many restaurants are shuttered at this time.

Joey:

Yeah. See it’s about doubled from its lows. It was just one of those that even when we talked about this last time, I mean, it got to the point where it was just so oversold that any balance seemed quite significant. But if you look at kind of like the last year, it’s still down over the last two weeks. But yeah. So the problem with Lightspeed is its entire customer base is just absolutely hurting. I mean, retail and restaurants, they’re just not doing much business right now so you’re not going to see them processing too many payments. They’re going to have some major speed bumps along the way. But I think this rebound was basically… It was too far too fast and eventually we will be back open. All the economies will open back up and their client base will be fine.

Joey:

I guess then you get into the situation like, how many of their clients will actually go belly up and completely go away? And how many new businesses will open out of this? Lightspeed, there’s too many question marks to really get behind it and say, “Hey. Yeah, you definitely want to buy this right now.” Maybe if you see any significant pullback and you just want some shares and dip your toe in. But I think in their specific space, it’s just too many question marks.

Taylor Muckerman:

Would just recommend still holding it as a shareholder or is it…?

Joey:

Oh, if you already own it, yeah, I wouldn’t be selling it just because I do like the company. I thought we were talking about fresh cash going into it.

Taylor Muckerman:

Oh, yeah, yeah. Either way, yes. So now we got both opinions there because I’m sure some of our viewers do currently own it. So that’s great to get the difference of opinion there based on your current standing. Any thoughts for new beginners, ETFs, or mutual funds? I own a few mutual funds and ETFs in sectors that I don’t necessarily understand enough to go digging for individual companies. So my biotech exposure is pretty much entirely through ETFs and outside of SVB Financial, my financial exposure is pretty much all through ETF. So I’m just curious about your opinions guys on utilizing ETFs and mutual funds and how you might blend those with individual stock ownership?

Jim:

I think there’s never a good reason to own mutual funds. I think especially in the world of ETFs by ETFs, I tend to… My partner has like 99% of her money in just index hugging ETFs because that’s what she’s comfortable with. And that’s fine. For my RSP, which The Fool matches. So we have that going on there. That’s all in the index hugging ETFs, SMP 500, Toronto Stock Exchange and then abroad, European/AsIain Index. And that’s good enough. I mean, the problem with sector ETFs, I kind of come at it from a different perspective, maybe a little bit than you do Taylor. Is if I don’t feel I can understand the industry that well enough to pick the winners, I just stay away from it entirely. For example, there is an index that tracks the marijuana stocks, HMMJ, and if I was going to play the marijuana industry, which I would not. But if I were, that’s how I would play it. But it’s like you know what? If I’m not excited about the diving in to try to find the winners, I’m not going to bother.

Iain:

I bought a preferred share ETF a couple of weeks ago as a way to play that space just because I don’t have a lot of insight into that and the yield is pretty attractive and lined up nicely. So that was one angle that I took.

Jim:

I like that actually. Wish you told me.

Iain:

It’s still there. It hasn’t really moved.

Jim:

Oh, good. Well, we’ll talk after.

Iain:

CBD for… I can’t even remember the full name of it, but I think it was TF.

Jim:

CBD?

Taylor Muckerman:

Yeah, I was going to say that sounds like marijuana.

Iain:

Yeah, yeah. It does.

Jim:

I can go back into the marijuana industry.

Iain:

I think it was a [inaudible 00:43:14].

BrIain:

I would say one… Oh, go ahead.

Iain:

No, no.

Jim:

Yeah, please.

Iain:

I would just say one thing about ETFs. I’ve received a lot of questions on the Dividend Investor boards over the years on ETFs. And if you lack some experience in markets, I would say if you do go towards ETFs or even mutual fund, try to stay with the plain Jane ones and try not to go for some of the ones that use leverage via options. If you don’t have experience and understand how they operate. There’s some structural issues with some of the ETFs that use leverage especially the easiest way to pick those out is in the ETF name, but also in the yield. If you’re looking at an ETF with a really high yield, it’s likely they’re using leverage in order to fund that.

Jim:

Or if there’s a 2X or a 3X in the name, you should just go away. Be done with it.

BrIain:

Yeah.

Taylor Muckerman:

Those are more expensive too on the management expense ratio side. You’re paying more for riskier assets. So you’ve got to keep an eye on them more and it’s going to cost you for sure.

BrIain:

Yeah.

Taylor Muckerman:

I should have segue to Berkshire earlier when we were talking about airlines, but we’ve got a few comments and questions on Berkshire and it’s cash worth. Jim, I know that might be your number one holding.

Jim:

That’s close.

Taylor Muckerman:

Close?

Jim:

It’s no longer because I did deploy a not insignificant amount of my personal dry powder into a name that Iain mentioned earlier, which I will hold off. Oh, it’s in the Brookfield family. I’ll put it that way. So that may now be my largest holding. Look, Berkshire is Berkshire. It’s rock solid. Buffet is still one of the smartest investors in the world, even at age 89. The airline thing, I’m not sure what’s going on there and neither is anyone else, frankly. The airlines that he filed form forced to sell, that’d be Delta and Southwest. It took him below 10%. And that’s the explanation that was given was that they didn’t want to own more than 10% because then they have to file extra paperwork when they move in and out of the shares. So I’m not sure there’s much, A lot of people are like, “Oh, he’s selling airlines now. Look out.”

Jim:

There may be significant moves there, we may find out when the next quarterly report comes out. He took the below 10% and then eject did everything. We don’t know. Or we may find out as he’s still got me 9.99% in each one of them and he’s fine with it. It may be a precursor too. If he’s going to bid for one of them he’s trying to scale back what he has. I mean, we just don’t know. I don’t know. I mean, a lot of people like to coattail famous investors and I’m not sure that’s ever a great idea. Rather than coattailing, just invest alongside Buffet if that’s your gem. I’ve owned Berkshire for pretty much ever. So it’s a position I don’t even think about most of the time, frankly. If you’re looking for multi-baggers from this point, it ain’t going to be Berkshire. If you’re looking for a steady 8% to 12% a year with periods of stability during times of chaos, shall we say, Berkshire is probably pretty good bet.

Taylor Muckerman:

[crosstalk 00:46:42] there?

Jim:

Yeah. I’m just going to quickly say here because I do kind of have a soft stop at two o’clock and I know we’ve got a lot of questions here. There is a question of macro economic question I’d like to address. Okay. The question I see pop up here. I’ve seen it come up in a number of occasions and it’s something that I’ve had conversations with colleagues as well as other people in the world. It’s talking about that, “Every central bank in the world is printing massive amounts of money and adding liquidity to the system. What’s the impact on inflation?” And you hear horror stories about Venezuela and high inflation. I want to kind of encourage people to go back to kind of their university or college courses, economics 101 or even actually perhaps their high school courses, economics 101. The classic GDP equation, which is consumer spending plus investment spending plus government spending plus the net of imports versus exports. Yes, governments are printing a ton of money right now, but recognize that the first two times terms in that equation, consumer spending is gone, okay? And investment spending is gone. Net imports, regardless of where the economy is is probably a push, frankly. Our imports might be down, but so will our exports be, and it’s the least important term in that equation. Your standard GDP equation.

Jim:

If North America, consumer spending is 70, seven, zero, 70% of GDP. And again, it’s gone. Without massive government and spending, we’re not worried about inflation at all. The massive government money printing is frankly just to fill this massive hole. Without it, we are in a deflationary.

BrIain:

Deflation.

Jim:

Yeah, we are going into a deflationary spiral. So you should be… And again, I’m kind of the… I am not a communist or a socialist or anything by any means. You should be welcoming government spending right now folks because it’s preventing a deflationary hole. So I just wanted to get that out there because that’s one question I see a lot there. “Oh, money printing inflation.” Not necessarily.

BrIain:

No. Not necessarily.

Jim:

And I think we have a really good case study from 2008, 2009. There was not an insignificant government spending then and inflation did not run away in the ensuing years.

BrIain:

Yeah.

Taylor Muckerman:

Thanks Jim. We got a couple of questions on RIETs here. Iain, I’ve heard you talk about that stock a couple of times in the CanadIain retail sector.

Iain:

Yeah. That’s one retailer. One CanadIain retail. Maybe the only CanadIain retail that’s ever resonated with me and maybe across the group. I think it’s proven itself to be a really well run company. The management sort of brought it from ground zero, right up to where it’s at a month or two ago and then all their doors are closed. So that kind of changes the situation when it’s another one of these situations. And Joey mentioned he’s been intrigued by retail. I haven’t been brave enough to sort of wade into those waters. The prices are certainly far more attractive than it was. Still believe in the company. They’ve got some online presence, but I think that was really sort of a minor factor at this point. They hadn’t grown it to a significant piece of the business. So I’m just wary. I find it hard to wade in to a business where its doors are closed. Call me preservative.

Joey:

One of the issues I have with [inaudible 00:50:14] is they have a lot of the locations within malls. So when I think like once people eventually vent the back out, they’re going to want to still avoid groups of people. Going into a mall, you’re just kind of like going into a massive group of people. Like Iain said here, I was kind of scanning around for all the different retail names and Ulta was one that had popped up. They’re entirely off malls and I know it’s like one that people can kind of pop in, pop out. They’re in [inaudible 00:50:40] centers. So of course, yeah, there’s more stores. Yeah. That’s the one thing when I was looking at some ultimately beaten down retail is a lot of them were more mall based. And I think those will come back slower than most. Yeah. I mean, retail, yeah, it’s just been an ultimate bloodbath there.

Iain:

Totally. And under normalize, when we looked at it towards the end of last year when the world was normal, the hold up was valuation had moved up pretty significantly and their growth…. Growth is not projected to be explosive by any stretch, which is fine. I think they take a very measured approach to their growth. Which is great, but it was priced as though I think growth was going to be a little bit more explosive than it was. But now that’s completely changed. It’s just a matter of getting past the fact that their stores are all closed.

Taylor Muckerman:

Jim, one more maybe before you hop off, Viamed

Jim:

I got a couple here. Oh, is Viamed up today? We can just find that. I circulated yesterday to the team only because I think probably I saw it first. Otherwise, someone else would have thrown it around. Viamed, ventilators, non-invasive ventilation treatment therapy, which is what they do. They are not, repeat, not going to be part of the upcoming 2021 competitive bidding process. And I think Iain can correct me if I’m wrong here, but I think I said something along the lines of this just removes the biggest uncertainty and risk for this company that they were going to have like 30%, 40% of the profitability impair. This is fantastic news. The stock should be up big and we’re happy to see that it is. Got a couple of real quick ones here.

Taylor Muckerman:

All right. Go ahead.

Jim:

We have one member here saying, “What is the best instrument to hold to benefit from Brookfield’s management expertise?” I think mothership, just bam. Which is brookfieldassetmanagement.vashares. Trading on the TSX. Another question here which I think I’m going to come across as maybe a bit of a jerk. I hope don’t but I’m fail on that front quite often, “How is Motley Fool Stock Advisor any different from a mutual fund after you factor in the subscription fee? I think Jim’s comment about mutual funds was foolish, lowercase staff.” Maybe, but the average mutual fund in Canada is still charging you two and a half percent, okay? Which means if you have a hundred thousand dollar portfolio, you are paying $2,500 per year. But don’t worry, they’re taking it off the top so you’re never seeing it. You are paying $2,500 a year per for a hundred thousand dollars for most of the time subpar index underperforming performance as opposed to…. What’s the subscription fee to Motley Fool Stock Advisor? Costs 99 bucks.

Taylor Muckerman:

Yeah, depending on the sale.

Jim:

Yeah. Okay. It’s not 2,500. It’s not tied to your assets owned under management, Taylor. Like we don’t ask people buying it, “Hey, how big is your portfolio? We’ll take a two and a half percent big.” Yeah, that’s the difference. Look, whether you’re a subscriber or not, you don’t need to invest in mutual funds because ETFs exist and you can replicate practically anything mutual funds do with the right combination of ETFs and you’ll pay a quarter of the fees with the index tracking ETFs. So that’s what I would go for.

Iain:

I might just chime into that. It’s a bit of an apples to oranges situation. A mutual fund is a package portfolio or advisory services. I think Stock Advisor was mentioned. It’s basically leveraging the advisers here to accentuate your own work as you’re individually picking stocks. So it’s not necessarily an apples to apples situation.

Taylor Muckerman:

And just to mention to everyone, this has been recorded and we will have a transcript out as well. So you’ll get an email from us on your respective services site pointing you to that recording once we do have it up on there. So if you missed any audio or you want to go back and reread the transcript to see what stocks you might’ve missed or how we discussed particular questions, just know that that would be provided as soon as we get it back. Shopify, it wouldn’t be a live chat without talking about Shopify. Is it too expensive? It’s top three holding for me and I’m not selling any. I’m a big fan of this business and where it’s going and it continues to launch new offerings for always it’s growing user base. They just opened up email marketing for free until October 1st and internationally. So another offering there for small business owners starting up on their own. Shopify like top three holding for me and I don’t plan on trimming anytime soon.

Joey:

Yeah, we talked about Shopify in the last podcast. I think it was like low three hundreds. The thing about Shopify, tell me what single time it’s been cheap. It’s always been a very expensive stock. I mean, I don’t see that changing anytime soon. I mean, they’re just changing the game of e-commerce. They’re making it simple for anybody to open up a shop. And like Taylor said, they just keep expanding the tools, expanding the offerings. I mean, it’s just a phenomenal company.

Iain:

I think that’s a great point. We first recommended it in Stock Advisor when the share price was $35-ish and it was expensive. And so one of those companies that sort of just has grown so significantly and the valuation has been maintained that whole way. So obviously $35 looks cheap as heck now. I think when we look back in five years, we’re going to say that whatever it’s at today, 600 CanadIain-ish is going to look pretty cheap.

Jim:

I hope so.

Iain:

Yeah. Me too. Biased, heavily biased.

Jim:

Yeah. It’s not a top three holding for me like Taylor, but it’s not an insignificant holding either. I’ve been holding personally since June, 2016 and no intention of getting rid of any. I mean, as Joey says, it’s changing the landscape here a little bit. And my question to the group would be, what has changed about the long term, like their potential growth pathway? What has changed?

Taylor Muckerman:

For me it’s only gotten better, especially with this scenario. E-commerce in the United States and Canada, fall behind,. Some of its AsIain peers are in China, over 30% of their retail is e-commerce. And we’re talking about… I think Canada’s further ahead than the United States in terms of percentage of retail sales but that’s how we’re doing our shopping now. Almost entirely in both countries. So both where Shopify has a huge footprint. So I think e-commerce is going to leap forward out of Corona and COVID just based on now everyone’s basically being forced to utilize it to some degree. And so with familiarity comes repeat use, if they’re having a good experience and for all intents and purposes, Shopify is a great experience for the sellers and the buyers. So I think that the current environment is actually expanding its awareness.

Taylor Muckerman:

Same thing with Amazon. I’ve seen so many people recently considering Amazon and infrastructure play almost now. Not only with Amazon, web services and logistics, but just how much e-commerce is going to play a part in our lives. And people might not realize how small of a part it really is playing right now and it’s only going to get bigger from here in my mind. So I think it’s opportunity continues to grow by the day

BrIain:

It reminds me, Taylor, of the story that’s been attached to visa and MasterCard over the years. Everyone thinks that everybody uses credit cards and debit cards. But the reality was, it just wasn’t the case.

Jim:

Something like 15% of, or it’s like 85% of worldwide transactions are still cash paid.

BrIain:

Yeah. And every year you work that percentage higher and it just leads to great long-term returns for investors.

Taylor Muckerman:

Sure

Jim:

Fools, I have to drop off. I do have to drop off, but I can answer one more if you want to hit me.

Taylor Muckerman:

Okay. I don’t know what we’ve got here. Somebody said they congratulated you on CRH, but they want to know your other three best buys now. Do you have anything off the top of your head? I know you mentioned banks, but anything else? Telcos.

Jim:

I mean, there’s been so many great companies, frankly, on sale. I mean, this is what we want to see, frankly. I know it’s been stressful for a lot of people, us included. But if you’re not buying your favorite companies when they’re on sale, when are you buying them? I mean, like me personally, I do like CRH. I of course talked about it constantly on this and on the US feeds for these streams. So I’ve never been able to jump on it. I like Medpace Holdings which is a contract research organization that allows a lot of… Which members of Hidden Gems will have a little bit of insight into. I like eBay. I like Brookfield. I like a Brookfield Asset, the mothership. I like kinder Morgan. I like Lightspeed about $10 ago. That was kind of in my book, that was a no brainer. I like Shopify a little bit lower as well. Not a little less now, but I mean, there’s… Oh, and as you say, I like the CanadIain banks.

Jim:

I mean, I think while it’s not as fantastic as it was maybe two weeks ago. I still think there’s all kinds of opportunities. And I would encourage people for all three of the frontline services, go look at the best buys now and see what stock speak to you there. And if you can’t make a choice, buy a basket. Buy if there’s four or five in stock advice you’re like, and two or three in Hidden Gems and three or four in Dividend Investor, buy them all. I mean, you can always decide to eject or hit the AI mode button later. But this is a great time to be investing in my opinion.

Taylor Muckerman:

Awesome. Jim, thanks for tuning in. Thanks for joining us for this last hour.

Jim:

Thank you fools. And I look forward to, let’s do another one of these soon.

Taylor Muckerman:

I’m sure we will.

Jim:

Cool. Okay. Fool out folks.

Taylor Muckerman:

Cheers.

Jim:

Cheers.

Iain:

Rather have the market quiet down, frankly. No, I’m kidding.

Taylor Muckerman:

Yeah. That would be nice. If you weren’t quick on the trigger, this dip blew right by.

Iain:

Yeah. Yeah.

Taylor Muckerman:

Let’s see what else we have.

Iain:

What do we think? We sort of set an hour? Two minutes after two. Do we say 2:15? Around 2:15.

Taylor Muckerman:

Yeah. We’ve got 15 more minutes. I don’t know if any questions have have jumped out at you. I see some on Etsy right now and Joey’s eyes always light up when Etsy comes up. So I don’t think we need to dive too deep, but just maybe give these folks just a tweets worth of your thoughts on Etsy.

Joey:

Yeah, Etsy. I mean, there are upward like 70% since we last had a little chat about them. I mean, Etsy, it’s like Taylor was saying about Shopify. E-commerce is just the name of the game now. People aren’t going out to shop. And it helps that they had 20,000 sellers selling face masks. And the CEO is on mad money. I mean, they were just getting a lot of exposure. Sellers are riding the trends. Everybody’s just at home shopping. You see Wayfair, they were talking their sales usage or the number of people on their websites were double once everybody was on lockdown. So many people were just at home, whether they’re redecorating their homes or buying masks, it’s just e-commerce is the name of the game right now. And Etsy is in that sweet spot along with, I think, Amazon with my recession proof stock. And you see what Shopify has been doing, Wayfair, all these e-commerce players. People realize, “Yeah. We’re not going out to the store.” But they still want to be making purchases. So those are the sites they’re going to.

Taylor Muckerman:

Thanks man. Again, e-commerce play. So yeah. And it gets a small businesses and those entrepreneurial mindset folks, out in front of the world. So I love what Etsy is doing just as a purpose, not only how they’re doing it, but what they’re doing and why they’re doing it. I don’t know if anybody has seen some questions in the Q that have jumped out at you or..?

Iain:

I saw a couple that raised Shawcor. We can sort of circle back on some energy talk. We’ve covered my thoughts there, but Shawcor is one of these… I would put that in the high torque category that I mentioned earlier. It was, probably it’s still is essentially priced for bankruptcy. And this is a company that’s got a really niche position within the energy sector. It’s just a matter of… The business fundamentals there have just been so dominated by the industry fundamentals that it’s been completely cast aside. I can remember portfolio managers through my earlier years saying, “It’s one of the best companies in Canada, but it just hasn’t been able to navigate.” Not any, I don’t know if any energy companies have been able to hold up. It’s just in the face of these industry dynamics. So I would totally throw that into the high torque basket that was mentioned earlier. That if you’re looking to throw a percent or 2% into an energy company, I would certainly put that one forward.

Iain:

PaySend Systems would be another one frankly. PaySend’s got a better balance sheet. Probably not the same kind of torque situation, but it would be another that… Great little business, just impossible industry.

Taylor Muckerman:

We’ve had a couple… Oh, sorry. Go ahead.

BrIain:

Sorry Taylor.

Taylor Muckerman:

That’s okay.

BrIain:

Just to add on top, Shawcor has got a lot of upside just based on a normal recovery. Maybe oil gets to 40, 45 and Shawcor would have some of… Shawcor could ultimately become one of the biggest returners if we actually got back to oil at $80 a barrel because of all the money that’s been put into the system. So picture 18 months from now, economies are humming. I’m not predicting this, I’m just giving a scenario where Shawcor’s core business could come alive. And a lot of that depends on $80 to $100 a barrel oil because of their exposure to offshore markets.

BrIain:

So Shawcor is a a funky one that you could see it end up being one of the top performers, but it’s going to take a while.

Iain:

And actually, the more I think of it, the more… It is one of those head-shaking situations because it’s actually largely tied to natural gas more so than oil. Natural gas is used to power a lot of economies in the markets that it’s associated with. Natural gas sources move around. New pipelines are required. There’s just been no capital spending whatsoever.

BrIain:

No capital.

Iain:

No capital spending on these pipelines and that just can’t last because it’s a depleting resource. So that capital cycle has to happen or it drives prices to the point where it does happen. So it’s like the famous line where the answer to low prices is low prices. And the answer to high prices is high prices. And Shawcor stands to benefit provided they can remain solvent and that’s-

BrIain:

That’s the trouble. Yeah. I don’t want to have members walk away too optimistic about to name it faces. A lot of challenges. But Shawcor is that unusual one where there could be a really long tail wind if everything goes the right way.

Iain:

Yeah. It could be multi-bagger.

Taylor Muckerman:

Switching directions almost entirely, we’ve got a couple of questions on Zoom and one on just capitalizing on remote work in general. I don’t know if anybody has thoughts on Zoom. It’s become like Kleenex and ChapStick. It’s a household name like, “You’re going to get on a Zoom call.” It used to just be for conference meetings, but now everyone seems to be using it to see… Easter dinners and Passover dinners taking place over Zoom with everyone in isolation.

Iain:

Poker on Zoom.

Taylor Muckerman:

Yeah, poker on zoom. Everyone’s connecting this way right now. I mean, we’ve been using it at The Fool for well over a year. I think we are early adopters with this technology. And it’s finally been that one piece of conference room software that we’ve settled on. We’ve tried them all since I’ve been with The Fool for the last eight years. And this has been the longest tenured one and I think we feel like we’re sticking with this one much like pretty much everyone else you talk to these days. So any thoughts on Zoom in particular as a stock? I know it’s really raced into the stratosphere over the last month or so. And then just any other stocks.

Taylor Muckerman:

I know Joey, you and I’ve slacked about stocks to capitalize on, the work from home environment. Any thoughts from you?

Joey:

Yeah. I mean, Zoom is one of those… I love the product. My problem with it is the moat where, yes, it has superior products compared to some other ones, but this is just another video conferencing. I mean, we’ve got Skype, WebEx. I mean, there’s just a ton of different services. I mean, I used Blue Jeans at a previous company. So there’s a lot of players in this. And then I look at valuation where I know I don’t care so much about valuation because we were talking Shopify where it’s never been a cheap stock. Zoom could be that same thing. It could never be a cheap stock.

Joey:

But when I’m looking at it as a $40 to $50 billion company, could I see it become like a 400 to 500 billion? I feel like they’d have to do a lot more than just video conferencing. They’d have to do more than just this to become a huge company as opposed to some other ideas. I prefer Slack in this space which is one we were talking about. The valuation is something I can kind of wrap my head around and that you still see that runway that they could have where if Zoom can grow to $100 billion company, yeah, that’s a double. But for Slack, that’d be 7X, 8X.

Joey:

So I think also with Slack, we share files around it. We have a lot of systems that tie into it. We have this integrated approach. You can see all of these different plugins. It’s like a communication platform rather than just a simple service that you log into to do some business through. So yeah, it’s not a knock on Zoom. It’s just one of those and I don’t see how they can grow significantly over the next decade or grow that multiple to be 10X from here. But I could see that more so for Slack.

Taylor Muckerman:

Yeah. And you mentioned Slack. It has its own video conferencing option right in the platform. So not only are you replacing email with it, but it also has a Slack call option for phone calls, audio, or video. So right there it’s embedded in the system.

Joey:

I think the match made in heaven, Zoom acquired Slack. That’s a company I could get behind because it’s the ultimate work from them communications platform that will likely never happen because AtlassIain has a big stake in Slack. So I can see them taking them. The ultimate would be if Microsoft wants to get real, they should just buy them both. But they were just getting in the acquisition game which isn’t how you really want to pick some stocks. I mean, if I could have my way, I’d have those two paired up and then you’d have a $500 billion juggernaut.

Taylor Muckerman:

Any other stocks?

Iain:

The one that I keep looking at and actually I’m more frustrated by it than a lot of others that we’ve looked at just because it’s gone up over this whole outcome and it was one that I sort of flagged like, “Ooh, if we ever get a market hiccup,” is DocuSign.

Joey:

Ooh, I love that.

Iain:

Yeah. And I think it’s only got to have become more popular through this. We don’t hear as much about it as the others, but I think it’s one that I’ve got a lot of interest in.

Joey:

I think the one stock I owned during this whole downturn has just constantly gone-

Iain:

Yeah. I know. I’ve been watching it like a hawk like, “Come on. Come on down.” And no, not at all.

Taylor Muckerman:

It was a stock on our radar at one point, wasn’t it?

Iain:

It has been, yeah, at about $50 and now it’s at 96. Yeah.

Joey:

Yeah. I have a lot of stocks that I always like to follow like, “Hey, in a big downturn, if this gets hammered, this is one I want to add to.” And DocuSign ever since I bought it has always been like if it gets knocked down, I want to buy more just because you see all these industries just cutting out paper. They want to do everything through DocuSign, but yeah, it’s just kept on running. Just kind of like a let it run situation.

Iain:

Yeah. It might be a close your eyes and just go get some type of situation. I got to quit being so picky.

Taylor Muckerman:

A small nibble here and a small nibble there. One that I’m looking at, only a little bit so far, but I’m going to dig deeper when I have the time is CyberArk Software, ticker CYBR in the US. It’s more on the remote work security side of things. So a remote work log in and providing secure access while you might be working from home or from somewhere outside of the office. So I know that could be a hindrance for a lot of the companies with people working remotely. It might be reason why they didn’t allow people to work remotely before coronavirus, but now that it’s kind of enforced, I think that that might be something that companies need to take a closer look at so that they make sure that trade secrets, company secrets, aren’t being accessed as employees work on their own home network versus in office networks.

Taylor Muckerman:

I think we’ve got a couple more minutes. If we want to just go on a lightning round, I’ll throw out-

Iain:

Do you want to hit this one about quarterly earnings? That might be a good way to sort of-

Taylor Muckerman:

Yeah, we can wrap it up that way. Yeah. And then maybe we’ll try and answer any of these leftovers in the forums and the respective services. Yeah, certainly.

Iain:

I think we said we were going to do that last time and then when we shut the call off, they all disappeared. So we’ll do our best.

Taylor Muckerman:

We’ll try to keep it in memory. If not, we’ll apologize, but we’ll do this call again. So we’ll be back. Don’t worry about that. The quarterly earning one, I’m not sure which one-

Iain:

So probability of quarterly earnings influencing the market. I think that’s pretty topical for what we’re sort of on the cusp of here.

Taylor Muckerman:

Mm-hmm (affirmative). Yeah. Personally, I think that it will have some impact. I think the markets are riding pretty high and they haven’t really had that reality check of just how bad some of these companies have performed in March. So once investors… I think people might get a little spooked when they see some of these numbers and maybe some forward guidance just getting crushed and CEOs and boards just kind of throwing their right hands up saying, “We just don’t know until we get that clarity.” I think it will have at least a small negative impact if not more personally.

Joey:

Yeah. And luckily we got some earnings results out of JP Morgan and Wells Fargo today. They kind of gave us that glimpse into how banks are fairing and the significant impact they’re seeing. And we’re still having a massive rally today. So it kind of gives me some hope. Luckily, I mean, a lot of the companies you’ll see January, February, March is where it really hit the fan and they’ll probably see that carry over in April and May.

Joey:

I mean, best case scenario is they are just like, “Hey, look, it got really bad in the final month. We pulled our outlook, but we’re not going to provide outlook for here.” And then I can see where stocks fair better because then it’s like, “Look, they’re just…” Like Taylor you said, they’re just throwing up their hands near like, “We don’t know until the economy reopens and everybody’s back to business as usual.” But yeah, JP Morgan and Wells Fargo did give me some hope that not that the rally can be sustained and we just keep raging higher as we have been, but more so like it’s found its footing. And it wasn’t down where it was in late March, but it kind of ticked up now. I’m okay if we kind of trade sideways from here until everything gets better.

Iain:

What do you think, BrIain?

BrIain:

Yeah. I think we’ll see some differences between industries. I’ll be interested to see coming out of earning season sort of how the REITs perform, each individual category within the REITs, industrial office and all that. I just think a lot of attention will be paid towards forward guidance, not so really worried about the past… Second quarter results are going to be so ugly. First quarter should hold up somewhat decent as others have said. Really started the stuffs that had hit the fan in March. Yeah, I don’t know. It’s tough to say. Yeah, it’s tough to say.

BrIain:

I guess I wonder sometimes if some of these trader type mentalities, how many of them will want to hold stocks heading into earnings. I don’t know. It’s tough to say. I think for us, I’ll be spending most of my time looking at the forward guidance.

Iain:

And I think balance sheet information is going to be paramount as well. I might just highlight the video that we put out with a bit of a balance sheet tutorial that Jim, BrIain, and I put together last night or last week, sorry. It showed up on three of the services yesterday. Those might be the most important numbers to tune into. I just keep thinking. I mean, quarter in and quarter out, it’s a bit of a crap shoot what’s going to happen. But everything seems to be based around analyst estimates in terms of the short term fluctuations that occur. And analyst assessments are right out the window more so than ever.

Iain:

So if the market truly does hate uncertainty, I think there’s going to be a pile of uncertainty come to the floor as Taylor mentioned. Joey actually used the word hope, so that’s… We’re not at complete consensus, so that’s a good sign. But I feel like I’m… I don’t know. I just feel like significant volatility is ahead and it’s going to be delicate to navigate our way through.

Taylor Muckerman:

Awesome, guys. Well, we got through over a hundred questions. We still have a bunch more out there, but we’ll be doing this again and you’ll be hearing from the whole team and your normal messaging. We’ll get the SAC rec out tomorrow in Hidden Gems. Oh, did we lose everybody? No, sorry, that was just my screen. So I think that was a good way to end it, guys. Thanks everybody for tuning in and-

Iain:

I’ll say just scrolling through quickly, it does look like a good number of the unanswered ones have been covered somewhat. So everybody go back. If you didn’t get an answer or you missed the answer, go back and check the transcript and the recording when it comes through.

Joey:

Yeah. We saw that somehow we got capped at about 500 people. So we’ll get that fixed. If you’re watching this on replay or transcript, sorry about that. We’ll get it fixed up so we can include everybody next time.

Iain:

This is our second time through and I don’t think we realized that wrinkle even existed. So we’ll address that for next event for sure.

Taylor Muckerman:

For sure. All right, everybody. Thanks for tuning in and thanks guys for all the time.

Iain:

Awesome.

Joey:

Thanks everybody.