Wait for a pullback on Shopify, this portfolio manager says

Wait for a pullback on Shopify, this portfolio manager says

Rick Stuchberry
What’s an investor to do with a stock like Shopify ?(Shopify Stock Quote, Chart TSX:SHOP)Already trading at absurdly high levels, the e-commerce company’s share price keeps climbing higher — as does its top line, which grew by a whopping 50 per cent in its last quarter. Jumping in even at these prices is tempting, says portfolio manager Rick Stuchberry, who argues that even though Canada’s investment environment is tilted in SHOP’s favour, you should probably resist the urge and look instead to cheaper tech plays in the US.

“We owned it and sold it. It was a triple or something, a really good sale. But the thing kept going,” says Stuchberry of Wellington Altus Private Wealth to BNN Bloomberg on Monday. “What happens to a stock like this is —now remember, this is a Canadian darling— that as it moves up in market cap, the ETFs, if they have a Shopify in their basket, they have to continue to buy the thing. They’re adding to their positions just to maintain their weightings.”

“It’s a self-fulfilling prophecy,” he says.

Currently one of the hottest stocks not just in Canada but in US markets as well, Shopify is now up 89 per cent year-to-date. That’s after finishing 2018 up almost 50 per cent, a year in which the tech sector in general performed poorly.

SHOP has surged higher over the past week, buoyed by the market’s response to its first quarter earnings, delivered on April 30. Revenue for the quarter jumped to $320.5 million, compared to $214.3 million a year earlier and besting analysts’ expectations of $309.4 million. (All figures in US dollars.) At the same time, the company posted a net loss of $24.2 million, which was higher than last year’s Q1 loss of $15.9 million. Also notable was the guidance from management, which upped its fiscal 2019 adjusted operating income from the $10-million to $20-million range to the $20-million to $30-million range.

“The company has done very well, doing everything they said they were going to do. And it is a stock in the Canadian portfolios that the managers really have to buy if you’re running an index in Canada,” says Stuchberry.

“This thing is going up and up as opposed to the banks which are going sideways,” he says.

Stuchberry argues that emerging competition may become a factor for Shopify and that a a buyout from a larger tech company looking to take on e-commerce processing is also a possibility.

“On the valuation model, we’ve been looking for the big pullback and we haven’t had it. So what we’ve done is redeployed into technology in the United States,” he says. “Because there are so few names in Canada, they’re always trading at a pretty reasonable premium to what you can get in other markets. Almost all of our technology now is in the US where we think it’s cheaper on a relative basis because of this ETF model.”

Alimentation Couche Tard looks good

We have owned Alimentation Couche Tard for approximately a year and it’s starting to look ready to breakout higher. It has broken out to the upside of a 5-year consolidation as it has bought out several companies over the last several years but added a good amount of debt to do so.  The market is starting to get a handle on the new company layout and money seems to be flowing in.

The company itself is doing a lot of things right, they are rapidly paying down debt after these transactions and growing both revenue and earnings. Execution is looking good.

The past isn’t exactly important but after the last major growth phase for Couche Tard, the stock grew nearly 50%/year for 7 years.  This is unlikely to occur again as it is a much larger company and cant move as easily, but it still appears that we are looking forward to some good days.

Corporate earnings are coming in nicely in general and Couche Tard earnings come out March 19th.

Happy to discuss markets if you call in.

RRSP season is down to 17 days.

Chris

Rick

Rebecca

 

The World Is Getting Quietly, Relentlessly Better

Source: The Wall Street Journal, by Greg Ip January 2, 2019

If you spent 2018 mainlining misery about global warming, inequality, toxic politics or other anxieties, I’m here to break your addiction with some good news: The world got better last year, and it is going to get even better this year.

Poverty around the world is plummeting; half the world is now middle class; and illiteracy, disease and deadly violence are receding. These things don’t make headlines because they are gradual, relentless and unsurprising. That is why they are worth highlighting.The problems the world faces are far smaller than those it has already overcome and can be solved the same way: not by betting on miracles but by patiently applying knowledge and tools we already possess.



For most of recorded history humanity lived on the brink of starvation. As recently as 1980 nearly half the world lived in “extreme poverty,” that is, consuming less than the basic necessities, which the World Bank values at $1.90 a day in 2011 dollars, adjusted for the differing costs of goods and services between countries. The proportion of people in extreme poverty was projected to fall to an estimated 8.6% last year and, given the correlation between growth and poverty, is almost certain to drop further this year.

Rising incomes alone cannot capture how much better life has gotten. “Nathan Rothschild was surely the richest man in the world when he died in 1836,” economists Max Roser and Esteban Ortiz-Ospina wrote in 2017. “But the cause of his death was an infection—a condition that can now be treated with antibiotics sold for less than a couple of cents. Today, only the very poorest people in the world would die in the way that the richest man of the 19th century died.”

Mr. Roser is the founder of Our World in Data, a website that tracks the evolution of human welfare over the last few centuries. Scroll through the charts, articles and data sets, and you will be stunned by how much better life has become in just the last few decades: Child mortality, illiteracy and deaths from violence have all plummeted, and life expectancy has gone up.

The world first eradicated a disease, smallpox, in 1980. It could soon eradicate a few more: 2016 saw just 46 new cases of paralytic polio recorded; in 2017, there were just 25 new infections of Guinea worm, a painful and disabling parasitic infection. These victories come not through laboratory breakthroughs but the meticulous application of tried-and-true tools, such as vaccination and improved sanitation.

Much of the decline in poverty happened in China, where per-person income has risen 25-fold since China’s then-leader Deng Xiaoping inaugurated its economic reforms in 1978. India’s economy, though, is now growing faster than China’s. If India can maintain its pace, the impact on human well-being will be just as momentous, given that India’s population should soon pass China’s.

As with disease, poverty is being eradicated not through technological miracles but basic rules of growth: Invest more in your human and physical capital, open yourself to markets and trade—that’s right, globalization is good—and incomes will rise.

Allow this growth to continue long enough, and something else momentous happens. As of September, more than half the world—3.8 billion people—are middle-class or rich, Homi Kharas of the Brookings Institution and Kristofer Hamel of World Data Lab found. They define middle class as consuming between $11 and $110 a day, in 2011 dollars adjusted for varying costs between countries. At this level, households devote ever more of their incomes to discretionary items such as motorcycles, refrigerators, movies or vacations.

Money and well-being aren’t the same, but Mr. Kharas and Mr. Hamel note that moving from poor to middle class does correspond to a big jump in happiness and much greater demands on governments to deliver affordable housing, education, health care and safety.

If the world is getting so much better, why does everyone seem so miserable? Perhaps because in the U.S., life is improving more slowly than in poorer countries, and in some places it is getting worse. Yet for most Americans, life is getting better: Median incomes are rising, average health is improving, and violent crime, divorce and teen pregnancy are all trending down.

Perhaps it also feels irresponsible to celebrate the many ways the world is quietly getting better because it distracts from the fight against things that are loudly getting worse: polarized and authoritarian politics, deadly opioids, nuclear proliferation, and most of all, a warming climate—a consequence of all those new middle-class entrants burning fossil fuels.

Yet obsessing over such perils is how we’ll likely solve them. Take global warming: Public concern over climate change is rising in the wake of wildfires and floods. Some media reports last year made much of a federal assessment that a warming climate could leave the U.S. economy 10% smaller by 2100.

First, note that if growth continues at 2%, gross domestic product would be 350% bigger by 2100, as opposed to 400%. Second, only one study is that dire: The consensus is more like a 5% hit, not 10%.

More important, the policy tools and technology exist to avoid those worst-case scenarios at a price considerably less than 5% of GDP; we only need the political will to apply them. Today that political will looks remote. But in 1980, the prospect that most of the world would one day be middle class looked even bleaker.

Happy New Year!

Office Address Change to 150 King Street W

Ladies and Gentlemen,

For anyone who visited us in the 55 Yonge Street office over the last year, saw us busting at the seams.  Wellington Altus keeps growing – we hired 3 brokers in the last 24 hours. Our firms assets are now above five billion and we have added another downtown Toronto branch at 150 King St West, Suite 1501 –  our team has moved over to the new branch.  Rick conveniently, was in BC during the office move and I’m one paper-cut away from losing an arm. Rebecca is pleased that she no longer has to share a chair with other employees.

 

There are no changes to our direct phone numbers or emails, but our mailing address, toll-free number and fax number has changed – please see below:

 

Wellington-Altus Private Wealth

Suite 1501
150 King St. West

Toronto, Ontario, M5H 1J9

 

Toll Free: 1-888-585-1962

Fax: 416-369-6216

 

We look forward to your visit our new office,

Chris

Rick

Rebecca

Testing Your Theory

Hi Everyone,

 

It’s critical to constantly test and re analyze your ideas to see if A) you are wrong or in a better case, no longer right, or B) things have changed, to break your investment thesis.

 

We continually critically examine our ideas and when necessary change.  Often times we do not get the results we want immediately with a company and have to critically examine our thesis, if we are still right, we keep it and continue the wait.  Two great examples of the wait paying off are Bank of America and Twilio. Bank of America took 4 years, Twilio 18 months – mostly underwater.  In both cases the companies did exactly what we wanted and our discipline paid off.

 

When training Rebecca, I have gone through  a lot of why we invested in certain spaces and sectors, and critically examined some of our previous investment ideas that aren’t performing well this year, and have found my resolve even more intact.

 

A couple Stocks having a tough year are Facebook, Alibiba, and Tencent.

 

These three examples from top to bottom are down – 26%, 35% and 25%.  Its very normal for these large firms to come across hard times in the stock price and changes in market sentiment, but one must also look at the results they deliver and will continue to deliver going forward, in that case, all these companies look really good.

It’s always a bumpy ride, think back to 2006 – Apple dropped by 41% that year top to bottom and those who were shaken off the puck missed another 10 bagger return over the next decade.

The ride is never completely smooth, headline risk exists and investors can easily get spooked on small thoughts missing the big picture of a companies potential.  We think the big picture for these companies remains very strong.

 

Chris

Remembering 2008 and the Fall of Lehman

Hard to believe it was 10 years ago I was on the trade desk at a small boutique investment firm.  I actually did not sleep Sunday into Monday because I wrote my Wealth Management Essentials Exam that morning at 9am. But at 1am when the uk markets were opening Lehman was Gone.  We all knew it was toast but didn’t know what it would do to the system.

 

The New York Times created this graphic that Shows the banks plummet and vanish during that period, I have kept it in my favourite websites since that time

Here is an image below, but click here to view the graphic. (you may need to update your Flash to view)

 

Source: New York Times.

Over the month of September and October of 2008 we had unimaginable volatility on a Multi generational level.  Each one these brackets below is a 7-10% market swing in a single day. Basically a good investment year lost in a single day(the yellow line is 15% move in one single day). That despair lasted until the spring of 2009.

I believe I won’t go through this again in my career and ideally my life, it is a multigenerational crash level event and a complete system failure.  Lets be thankful ours is behind us.

Source Bloomberg, Stuchberry Group- Daily Volatility during 2008 crisis

Looking forward.

Demographically speaking we are in a good place- millennials are creating households slowly but surely – one of the largest population demographics 5 years from now does not even exist yet.

Technological innovation and disruption is creating incredible efficiencies never before utilized. In 2008, Amazon had revenue of 20bl now it is over 250bl.

In 2007-8 Lehman Etc had regulatory capital levels of 2-5% and went bankrupt, conversely virtually all banks now are 10-14% tier one capital.

Debt levels in the US are far lower than pre-crisis levels, and corporate balance sheets are full of cash. In 2008, Microsoft had cash of 23bl, its now 133bl; Google had cash of 15bl, its now 102bl.

 

We will carry this fear of this market for the rest of this investing generation, but I think its safe to say it won’t happen like this ever again.

The 10 years since the bottom was great for investors and I think the next ten years are going to be even better than the last 10 years!

Chris