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I'm always saying that, you know, stuff about the stock market or it could be other investment markets. It could be housing. It could be gold, you name it. But the bottom line, if you're an analyst is getting it right, that that's the only measure that counts. And that's really hard. People don't understand. I don't mind if someone doesn't like me or they don't like my opinion. My point is let's find out if I'm right. That's the only measure. That's why I like the guys at Keystone Financial at keystocks.com. You can find them. Uh,
Ryan Irvine and Aaron Dunn have been with us, God, I don't know how many years now. Aaron probably doesn't want to remember, but well over a couple of decades. And the bottom line is they have the same opinion as I do or the same approach is get it right. Get a methodology that works. And then you see, hey, did it. And in this case, yeah, it does on a regular basis, a very regular basis. And Aaron Dunn joins me now on the line. First of all, appreciate you being with me, Aaron.
I'm happy to be here. And there's plenty of things to talk about in the market right now. So it's a good time. Let me start with this divergence we're seeing in the market, where at least if we're talking about different exchanges have had different levels of return, but also then different stock groups. I mean, we got the so-called Magnificent Seven, all of those kinds of things that play into our analysis of the market.
Yeah, so certainly. So if you look at the returns between Canada and the US, last year was about the first year in 10 years where the US actually underperformed the Canadian market. And that was mostly because energy in Canada was strong, whereas technology in the US was weak. They had a really bad year. Technology had a really bad year in 2022. So now it looks like we've seen a recovery of that in the US. If you just look at the headline figures, that being that the NASDAQ...
is up about 30%, almost 30% since the start of the year. So a lot of people look at that and they think, well, that's a good recovery in the NASDAQ. But
The interesting thing is when you really, when you break down the numbers, you look at the top seven mega cap companies in the US. So this would be Microsoft, Apple, Amazon, Alphabet, which is Google, Meta, Nvidia, and Tesla. If you just look at those companies alone, they account for about $11 trillion in market cap. That's half the NASDAQ right there in seven companies. They're up on average 97%.
since the start of the year, right? So the other, there's about 2,500 companies on the NASDAQ. So the other, you know, 2,493 companies are actually on average down.
Probably about 15 to 20% by those numbers, right? So there's a major divergence in terms of what's happening in the market. And clearly there are some companies as well outside of the top seven that have done well. But generally, we're really not seeing a broad-based recovery in the U.S. market. And similar up here in Canada, I mean, we're pretty flat for the year.
But it should be at least some solace to a lot of portfolio managers who their clients come in and say, hey, where's our return? And you explain that if you didn't own those seven stocks or a couple of them, hey, there was no return to be had. And of course, that's come on top of a very tough bond market. My gosh, the last few months there alone.
And this is what's created such a difficult time for traditional portfolios when if you go down stocks, as you did in 22, and then mediocre in 23, but your bond side's going down too, then that's a tough environment.
Well, and that's an issue because bonds are traditionally thought as being not correlated with stocks, right? Like you put money into bonds, the idea was so that you can diversify so you can even out your return, you can tame down the volatility. But that's not what we've been seeing over the last year.
Let me ask about the small caps because you guys have an expertise in the small caps. It's a proven expertise. You'd also do, of course, you know, solid growth, you do growth with income, that kind of stuff. But the small cap is what you guys started with and became known for because you had a lot of winners. Bottom line was that. What are we seeing in the small cap side of things generally?
Right. So one of the reasons why we really focused on the small caps traditionally as the core of our business is because there really just wasn't a lot of coverage in that space. But if you look right now at just the market overall, if you were to compare small caps versus large caps, small caps right now are trading at a historically high discount to the large cap market. And this is actually unusual because for most of the last 20 years,
They've actually traded at a premium to the large cap market. And a lot of this, I think, has to do with fears about recession. Perhaps the market is assuming that small caps overall are going to be more susceptible to a downturn in the economy, which is fairly rational.
But the problem here, and this is something that we always want to advise people and remind them about, is that small cap can mean a lot of different things. And at Keystone, we're not investing in the small cap index. We're looking for the very best index.
that the small cap market can provide. So these are profitable, growing businesses that we can purchase at a reasonable valuation or even a good discount under valuation. But when you have a situation right now where small caps overall are now trading at a 20-year discount to large caps,
Really what happens is even the best of the breed in the small cap market often get thrown in with the rest of them. So many of them also traded a discount. So that really is the long-term opportunity is in the small cap market right now is finding those profitable companies that are better off
then the far superior fundamentally to the rest of the small cap market, but at the same time are temporarily being grouped together with other small caps and trading at a good valuation, low valuation.
Well, I just want to mention, by the way, you guys have got a couple of webinars coming up that are full webinars. I'll talk about the first one here because you're doing it November 2nd and November 9th, both at about 7 p.m. on November 2nd, 7 p.m. Pacific, and then on November 9th, 7 p.m. Eastern. We're going to put up the details of that in Mike'sMoneyTalks.ca, or you can go to...
But I just want to – that's the kind of thing you're going to be dealing with. Like on one of them, and I'll talk about both, but one of them is building a winning stock portfolio. And you know what? I think it's never been more important because I think inflation pressures –
demand that people invest in this way. Now, I like what the bond market's been doing for the last three months, let's say, you know, that's it, you know, but stocks over time are beneficiaries of inflation. And that's why I think this is maybe something if people haven't done it before, for goodness sakes, take a couple of hours, you know, and become informed on this stuff. So tell me a little bit more about that first seminar.
Sure. So what this seminar is doing is it's, as you said, it's providing education and then we're also providing actual individual stock picks like recommendations that people can buy right away. So we're,
What we want to teach people to do is to be able to build up a 20 to 25 stock individual stock portfolio over a period of about 12 months. So gradually increasing the size of that portfolio over 12 months. So we're essentially walking people through the process of how you would do that. We're looking at different areas in the market and talking about how investors should approach them. And that may include categories like artificial intelligence,
growth investing, how dividend growth stocks should be integrated into the portfolio. Some people do also want to have ETFs to get some wide diversification outside of their individual stock portfolio. So how do you integrate indexed ETFs with an actively managed individual stock portfolio? We're going to talk about that as well. What types of companies, like what is the profile of
of the type of company that you should gravitate towards, what should you want to buy, and what types of companies should you avoid. And these are like essentially giving people the tools that they need to be successful and build up that portfolio. And that's applicable whether you manage your own money or you don't.
It gives you more information, more background to have an elevated conversation with whoever is helping you with your portfolio. So I think it's important on that scale too. But I got to throw this at you, Aaron. Last year on this show, and you did it at your seminar, you recommended Hammond Power. Now, those are the things I like, Aaron. It went up 200 plus percent, what, 250%? About 250% since the recommendation at the event. And it was actually recommended previous years.
to our clients. So their return would have been higher, but at the event, 250%. Yeah. And you don't have to have any expertise in stocks to know that's a good thing. So I'll just say congratulations. Let me come another direction there about Canadians owning US stocks. Now, I've been keen on the US dollar, never wavered on that. I have an end date for that for myself when I think
the party's over, but right now I don't think it is. How do you work with US stocks? You guys do a lot of research in that direction. We do. We do. Yeah. And like I said, the US is a serial outperformer of the Canadian market. The US market outperforms Canada in almost every year, certainly over the past decade plus. And you could never just assume that that's always going to be the case going forward. But I think that they're
There are some very systemic reasons and structural reasons why that's the case and why I think that outperformance is going to continue. And the problem with the Canadian market is that we're so over-concentrated in resources and in financials. And financials is basically mostly the big six Canadian banks. So 60%.
of our stock market is resources and financials, whereas technology, which to me is the most interesting sector to invest in. That's where innovation comes from. That's where
Essentially, that's the sector that moves society forward, that moves other industries forward and changes all industries. It's very unimportant in the Canadian stock market. It's less than 8%. And most of that is Shopify, one company, or a good portion of that is Shopify. Whereas if you look at the US market, in spite of it being more than 10 times the size, in addition to that,
The way that the market is diversified, it's just a much better diversification across other sectors like industrials and healthcare. And then technology is the top sector in the US, about 25% of the US market plus, depending on how you categorize certain companies. So by not investing in the US market, you're really setting yourself up at a huge disadvantage. And I talked to Canadian investors that just, they have all their capital here
Canada. I personally think that's a big mistake. I think that every portfolio needs to have some exposure to the US. It's just too important an economy. You know, just from a
So looking at the way their economy operates, their stock market operates, it's a very entrepreneurial culture. It's a culture focused on innovation, and that's an opportunity for investors. So don't disregard the US market. Don't just keep all of your capital at home. A lot of people are worried about the currency risk. We think that actually having some exposure to other currencies is good, but outside of that...
You know, these things tend to even themselves out. And if you look historically, there's never been a single year, even when you lost money on the US currency, where you would have done worse by being in the US market, like your, your gain of being in the US market, relatively speaking, was always higher than the loss on currency. And then of course, in some years, you gain on currency.
So that's not a reason not to invest in the US. Yeah, but your point also about the much wider selection, you know, aggressively wider selection is a very important one and the domination of certain sectors in ours compared to the opportunity of different sectors in the US. I think people shouldn't
underestimate how important that is. Let me, you know me, I always put you on the spot. I mentioned Hammond Power. Give me a couple of things you're looking at these days. Of course, you don't know people's individual portfolios or risk profiles, et cetera, but things that maybe people could put in their radar and then do the analysis if it's appropriate for themselves. So I'm going to start. We just talked about US investing. We talked about the MAGA CAP-7. So the first company that I'm going to suggest that people look at is Alphabet.
G-O-O-G-L on the NASDAQ. This is Google, right? So of course, everybody knows Google. Some people will say, well, why are you recommending Alphabet? We all know about it. But do you know why to invest in it? That's the question. So...
It was, you know, over the past year, a lot of people were really looking at Google search suspiciously with chat GPT coming out. And everybody really kind of thought like, oh, now that chat GPT is out, Microsoft's a big investor. They're integrating chat GPT into Bing. This is going to start eating into Google's share of the search market, which is most of its business. That was the big concern. So Google shares sold off.
However, that didn't happen. You know, it's being now, we're approaching now almost a year and their market share in search is as strong as ever. And I can say from my personal experience, I went right to Bing when they integrated ChatGPT. I was really excited about it. I was even telling people to Bing things instead of Google things. And people were starting to get annoyed with me, but whatever. I ended up going back to Google.
Because it just ultimately, it is the best. It provides the best search results. And now Google is starting to catch up. I mean, they are...
Number one, a top tier AI company. The technology, the research that actually resulted in the development of ChatGPT actually originally came from Google. Now Google's come out with their own large language models, Google Bard. They've come up with their Palm model. They're integrating all of this into their business and they're doing as good as they've ever done or better. They have YouTube, which I consider to be one of the largest educational institutions, platforms in the world. They have Google Cloud.
which is the third largest cloud computing company in the world and gaining market share. So a lot of good things going on with the company. You have to have some exposure to the, to the mega cap seven alphabet is one way to do it. Double digit earnings growth right now this year and expected next year, but it's still trading at a valuation. That's actually pretty cheap relative to the company's fundamentals, but 24 times this year's expected earnings and about 20 times next year's expected earnings. Now the thing,
They have $118 billion in cash sitting on their balance sheet. They made almost a billion dollars, about $900 million, just in interest income alone. Now, obviously, we would like to see them deploy that cash. But if you're looking for a company that is well-situated in a high interest rate environment, look no further than a company that's sitting on $118 billion in cash and virtually no debt. So Google is a company that, or Alphabet is a company that people can look at.
You know, it's interesting with the rise in interest rates. Of course, we're focusing on people who've borrowed the money, governments who've borrowed the money. Actually, Microsoft and Google were my examples of companies with huge cash portfolios that were benefiting from the higher rates. There's a tendency to think everybody's losing because rates have gone up. No, it's exactly what you said. You look at Alphabet's huge cash portfolio and they're just laughing.
You know, they got 1% on that a year and a half ago, and now they're at 5%. It's a big moneymaker for them. And they don't have to worry about servicing debt, which is incredible. They could take that at some point. They could invest it. They could use it for acquisitions. It's a good situation to be in, particularly in this type of an environment.
So let's come to this side of the border here. You know, and I know you guys look at literally every stock out there, but I'll ask you about sort of a midsize and then go down. I'll ask you before you go for a smaller one, but give me something, you know, a little bit bigger. Sure. So midsize. So I'm going to talk about a company. It's called EQB Inc.,
The symbol is EQB. It's on the Toronto Stock Exchange, TSX. This is a bank, but this is a niche bank. It's the seventh largest bank in Canada. They call themselves Canada's Challenger Bank, which means that they're challenging the big six banks.
the big six banks, but they have a niche focus. So their niche focus is based on the customer that they tend to work with and also their technology focus as well. So they're a very technology driven company, almost in some ways like a FinTech. They're able to provide technology features to their customers very quickly, far quicker than the big banks.
And this might be with customer onboarding or customer service or even transferring money. But the reason why we like this company is because it's a business that consistently over time has had far superior fundamentals to virtually every other bank in Canada. They're growing their earnings per share at a double digit rate where all the other banks are struggling to maybe grow at low single digits or in most cases seeing lower earnings than they've seen in previous years. So,
We recommended the company originally at the start of the year around February, March, and they had just come out with the revised five-year plan. So their five-year plan going forward over the next five years is to double their earnings per share and to triple their dividend.
Triple the size of their dividend. Now, what really gives us confidence in this outside of just analyzing the current fundamentals of the business, all of the numbers look strong in terms of net interest margin strong, capital ratio strong, loan losses strong. Everything compares extremely well to the other banks, better operating efficiency. So right across the board. But they had just finished a five-year plan.
where they had also said that they were going to double earnings and they did better than doubling their earnings, right? So this is a company that has a historical track record of making goals for themselves and achieving or exceeding those goals. And we have high confidence that they're going to do it again. Based on their financial results in the first two quarters of this year, obviously it's early into the five-year plan, but I would say they're well ahead of target right now at this point. So this is a business, you know, you want to look to hold it for...
you know, three years, three to five years as they execute that plan. But as this company doubles earnings, we believe strongly that this is going to show up in the share price performance as well. Investors are getting a dividend. It's about 2% right now, which is just kind of like the bottom threshold that makes a dividend stock interesting to me. But if you're looking at doubling to tripling your dividend,
Over the next five years, I mean, there's a lot, there's huge extra income stream coming in from that. And it's trading at eight times earnings. So superior fundamentals to the other banks, more attractive valuation, outlook and all of the numbers look strong at this point. Give me a quick small cap before we're done here because I know time's running short, but give me a small cap.
Sure. So I'm going to talk about, gold has been topical lately. So I'm going to talk about a company called Dynacor DNG. So what they are is they're a gold miller. They have a gold processing facility in Peru. And this is a small cap company. It's about 120 million market cap. But it's another company that has net cash on their balance sheet. So they have about $30 million in cash sitting on their balance sheet.
virtually no debt. That's about a quarter of their market capitalization. And what they're providing investors is they're providing indirect exposure to the gold market. So they're not directly exposed to the commodity price of gold because they're a miller, they're a processor. But at the same time, they are exposed to opportunities in a strong gold market.
So what those opportunities are right now is that their facility in Peru is operating at capacity. They have 12 years of consistent profitability. They pay a dividend that's just under 4% yield. They've been growing their dividend every year.
They traded at a good valuation, about 10 times earnings right now. But if you look forward, they're planning on expanding. They're in the process of expanding their facilities from one facility in Peru to four facilities through South America and then also West Africa. So they think they can more than double their revenues over the next four years. And again, this is a company that's producing a ton of free cash flow.
And it has $30 million in cash on its balance sheet. So it's not like they have to go to the market to raise equity or take on a bunch of debt in order to move forward with this expansion plan. So this is going to be a higher risk on the higher risk end of the spectrum than the other two that I talked about. But again, it's about, you know, this is where you're layering, you're adding layers of risk to augment returns.
to your portfolio. But it's also what you guys are going to be dealing with in the seminars is how do you build a portfolio? You know, how do you integrate, you know, these sort of solid growth positions or even conservative growth with something that is more aggressive, more speculative. So that's exactly what the seminars are. And as I said, I should have said, by the way, the seminar November 2nd at seven o'clock Pacific, then you're doing another November 9th at seven o'clock Eastern, but it's $29.95 is the early bird special.
And that includes, and this is something I talked to Ryan Irvine, your partner with, about the whole situation with having to change the electrical grid. And you've got a report called electrification that you've just put out. That's a 599 value.
That comes with it. So, but I want you to tell me about the other one, because you're also doing a VIP event on November 4th at 11 a.m. Pacific, which is of course more pricey. It's the original value is about really about $3,700, but you can get the early bird ticket price at just under 2000. So tell me about that. What are you getting? If I'm going to put out that money kind of money?
Right. So the VIP event is really for people that are ready to move forward with a full VIP service package from Keystone Financial. So right away, you get our VIP research package. So this is all of our research, all of our small cap recommendations, dividend growth, US recommendations, all of that. There's our VIP portfolio, which are all of our top picks. We have a portfolio builder app.
We do about 100 Q&A sessions with the analysts throughout the course of the year on a weekly basis. There's a couple of special VIP webinars throughout the course of the year. And then on top of that, we also have what is a DIY seminar specifically designed for our VIP clients. So, yeah.
It includes all of the educational content that we would have in our typical DIY webinar. But then we go, we expand beyond that. And what we're really trying to do is we're trying to set our clients up for success. So it's research plus education, as well as opportunities to do calls with our analyst team, just essentially set people up for success.
get them started with our recommendations and building that portfolio and then helping them along the way as well. So it's a very, very comprehensive, very comprehensive service. You know, it's, as I say, I think we're in a period of time where I think it's as difficult. We had Jamie Dimon, I think this week said it's the most precarious time, you know, he can remember in generations now. And I would agree with that. And people ask me all the time, well, how do I,
defend for myself? How do I protect myself? This is how. Education is how. But I'll tell people that you didn't have to memorize all that. You can go to keystocks.com, keystocks.com, or go to mikesmoneytalks.ca and get all the details of that. In the meantime, Aaron, I think those sound terrific, but I want to thank you for taking time with us today. Oh, it's always a great time. Thanks a lot, Michael. Appreciate it.
