15+ Great Canadian Technology Stocks

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These are some of my favourite Canadian Technology Stocks, most of which appear in my list of “Capital Compounders” . I don’t think Canada gets enough love for its Technology companies. Most investors focus solely on U. S. Tech stocks (e.g. FANG) . But we have Constellation Software, Shopify, CGI etc. Great, multinational technology companies.

My list of 15+ Canadian tech stocks (below) does not include any small micro-cap companies that have yet to establish their positions in the technology industry. For Canadian microcap tech stocks, you can read my writeup on the “Future 60“.

15+ Great Canadian Technology Stocks (2018):

  • Open Text
  • Constellation Software
  • Shopify
  • Computer Modelling Group
  • CGI
  • Tucows
  • Photon Control
  • CAE
  • Ceridian HCM
  • Descartes Systems
  • People Corporation
  • Sylogist
  • Tecsys
  • Enghouse Systems
  • Kinaxis
  • The Stars Group

Watch my video about Canadian Technology Stocks on YouTube. Click here

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Top 10 Most Popular Issues / Posts (Since Jan ’16)

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On January 26, 2016, I started my email newsletter (subscribe here), with only a handful of subscribers (family, and friends). Now, 2.5 years later, membership has grown to 3,700 subscribers!

So, I want to sincerely Thank You for subscribing not only to my newsletter, but also to my YouTube ChannelFacebook Club, and Blog. I’ve been picking stocks since 2005, and there’s nothing more that I love than playing this game, and meeting other DIY investors like you from around the world.

And thanks to everyone who has read my books Market MastersCapital Compounders (email me, r.speziale@gmail.com, for a free copy), and My 72 Rules (download free here).

These are the TOP 10 Most Popular Issues / Posts (Since Jan, ’16):

1. Capital Compounders

2. Small Companies; Big Dreams – Future 60 Canadian MicroCaps

3. How I Built a $300,000 Stock Portfolio Before 30

4. My Interview with Jason Donville

5. How to Find Tenbaggers

6. My Top 15 Stock Ideas for 2018

7. How this Fund Manager Achieves a 24% Compound Annual Return

8. Next Capital Compounders – 15 Market Beating Growth Stocks

9. Small Cap Ideas

10. How I Pick Winning Stocks

Small Companies; Big Dreams – Future 60 Canadian MicroCap Stocks

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When I was younger, 18 – 25, I would usually pass on the smaller companies (sub $100M market cap) that popped up on my stock screener. I was fearful of undiscovered micro-cap stocks because of their small size, low institutional ownership, slim trading volume, and little analyst coverage. It was the fear of the unknown; betting on a tiny company that might fail. I did not want to lose my money on a dumb trade, and look stupid. However, years of passing on these small companies would later lead to much regret, after seeing some grow from ~ $100M to $1B+ (10x) in market capitalization, achieving multi-bagger status that I believe most DIY investors pursue in the market. It was a painful phase, and I would repeatedly ask myself: “Why didn’t I invest in that stock!? It popped up in my screener, and I conducted extensive independent research. I should have pulled the trigger…”

But I am also a realist, and understand that while all great companies start small, not all small companies become “great” (i.e., big). Actually, very few small companies get there. The majority of small companies listed on the TSX/Venture exchange are uninvestable, in my opinion, and some companies should have never gone public in the first place; shoddy business models, questionable shell holding companies, and bad actors promoting, pumping, and then dumping garbage. It is actually quite depressing sifting through, and pulling up the charts of most Venture stocks. Countless flameouts. Therefore, I believe achieving a semblance of success in micro-cap investing comes down to first eliminating the bad batch (80% stocks) from the micro-cap universe, so that one can focus on the good batch (20%) that contain meaningful companies with real future prospects, managed by responsible, and enterprising owners/ operators. Because when companies are at an early-stage in their business life-cycle, you are betting more on the jockey than the horse, hoping that the jockey is not only honest, and able, but executes on his vision and delivers shareholder value.

Here is the thing, though. Even if you do pull the trigger, and invest in a promising small company, will you have the conviction and wherewithal to hold that stock from $100M to $1B+ market cap? Because successful small stocks do not just shoot up, they are highly volatile (i.e., lots of sharp ups and downs in price). Can you stomach watching a small stock drop -20% in a day, rise +10% the next, and then lose 75%+ of its value within the following year? Well, that was part of Amazon’s wild ride. Sure, from 1997 – 2017 (20 years), Amazon’s stock went up 38,155%, but its trajectory certainly was not linear. Amazon had its IPO in 1997, and started trading at $18/share. MarketWatchsuccinctly outlined its trials and tribulations over that period. Amazon fell -95% from December 1999 to October 2001 (tech bubble), and fell -64% in 2008 (financial crisis). In fact, Amazon suffered a double-digit drawdown each year since going public and a 20% drawdown in 16 of 20 years. Fun!

Who do you think has owned Amazon since its 1997 IPO? Very few investors bought Amazon’s stock at $18, and held until now at $1,849/share. The ones who held Amazon since 1997 were either crazy, genius, or simply forgot to check on their stock portfolio for 20 years. Though they are probably all now relaxing on a beach somewhere. In hindsight, it is interesting to think that most people thought investing in Amazon as recently as even 5-10 years ago was crazy. The majority in 2013 were still doubters, focusing on Amazon’s lack of net income, obscene P/E multiple, and calling the company grossly “overvalued”. Many so-called analysts were claiming that Amazon was overvalued all of the way up until recently when Jeff Bezos finally cracked the list of top 10 richest people in the world. However, it is only now that Bezos is the richest man in the world that most people have realized they missed out on one of the greatest wealth-creating opportunities the world has ever seen. I too am guilty. I should have listened to my non-investor University roommate, who in 2006 said: “Robin, you should really invest in Amazon”. My response: “it’s overvalued”. Doh!

Here is a similar, but Canadian story. In 2007 (age 20), I invested in a small company – SXC Health Solutions (Healthcare/Pharmacy Technology) – after conducting my own extensive research, and due diligence. After investing in SXC Health Solutions, the stock whipsawed so much, that I became fearful and sold 100% of my position that same year. I decided to banish SXC Health Solutions from my memory, never to look at, or invest in the company again. Years later, in 2012, it would change its name to Catamaran Corp, and then in 2015, I read in the Wall Street Journal that UnitedHealth Group had announced it was going to acquire Catamaran Corp. for $12.8 billion. I subsequently took a long walk around the block to cool off. Had I not sold my position in SXC Health Solutions, I would have generated multi-bagger returns in my portfolio.

This was not the only case that I had invested in a small stock, and then later sold out of fear. In addition, I cannot count how many ‘errors of omission’ (not buying the stock after extensive research) I have committed throughout my DIY investing career. I have many regrets, which is why since age 25, I plant seeds and water the trees, or in other words; invest small amounts in micro-caps that intrigue me, and then invest more into the winners over time (average up). For example, Tweed. In my book, Market Masters, I wrote in its 50+ page conclusion that I had invested in Tweed, a small cannabis company at the time. The year was 2015, before marijuana became the must-own sector. Tweed was trading at ~$1/share, later becoming “Canopy Growth Corp”, a leader in the Marijuana industry that now trades at ~$40/share. Owning Tweed was not easy. Though I learned from my past mistakes. Tweed was a dead stock for about one year, and then soared on the marijuana legalization tailwind after the Liberals won the federal election. The stock then soared again following the announcement that Constellation Brands had invested (10% stake) in the company. However, throughout that time, Tweed/Canopy Growth incurred wild swings up and down. The stock did not shoot straight up, and had many doubters. Investing in Canopy Growth early on and achieving a multi-bagger has certainly driven my pursuit of discovering more small companies with lots of potential. I might never top that 40-bagger, but I will certainly not fail to try. It is all about discovering new opportunities.

Here is my discovery process for Small Companies:

Once per quarter (every 3 months), I will scour all of the companies on SEDAR (official site that provides access to most public securities documents and information filed by issuers with the thirteen provincial and territorial securities regulatory authorities (“Canadian Securities Administrators” or “CSA”)) and look for new issuers, as well as new quarterly reports from existing companies. I will skip over every single Resource (oil & gas, mining, etc.) company. I only invest in Technology, Consumer Products/Services, and ‘Diversified Industries’. These three industry groups are less cyclical, and more predictable than other industries. I like to use SEDAR, as stock filters and screeners might eliminate worthwhile small companies from my view. Also, years of poring over thousands of financial statements on SEDAR builds an intuition-like skill in the future, whereby promising companies start to jump off the screen.

In quarterly reports, I look for high revenue growth, positive cash flow from operations, low levels of debt, and positive net income. However, I will still shortlist a small company that is not generating income but has a path to profitability. My biggest focus for small companies (<= $100M market cap) is high sustainable revenue growth (Quarter YoY, Annual YoY, and 3-5 Year CAGR), fueled by new contracts, accretive acquisitions, penetration into new markets, and/or expanding unit volume. I will also use the official TMX (Toronto Stock Exchange) stocking-listing inventories as reference to help guide me through my discovery process. I will access TMX’s Technology, and Diversified Industries (includes Consumer Products/Services) pages, and download each inventory excel file. Altogether, there are ~750 stocks in this initial universe.

Stock screeners still play a role in my discovery process, especially to focus on metrics like market cap (<= $100M), revenue growth, cash flow yields, etc. I use TMX stock screener, as I believe it is the most accurate for Canadian stock data, but in addition, I have used screeners on Stockwatch, and Yahoo Finance. However, I cannot stress enough that DIY investors should scour all companies on SEDAR, as screeners might miss some stocks.

Finally, I will check the predefined scans on StockCharts.com every day (Monday through Friday) after 4:00pm (market close). What interests me are the stocks making new 52-week highs, and/or stocks trading on higher-than-average volume. This gets me thinking that something interesting might be going on, and I search further into the possible catalysts via press releases, etc.

At this point, I have started to build a watch list of small Canadian companies (sub $100M market cap), and will exit the discovery phase and enter the next phase: research, and due diligence. I will dig separately into each one of these companies as much as possible, identifying factors that can lead to breakouts, and sustainable growth. Multiple sources of information aid me in this research process, including company websites (investor relations), Stockhouse.com (Bullboard forums), Twitter (there’s lots of great micro-cap investors tweeting about small companies, and sharing their research), and searches online (Google), which lead to press releases, and sometimes blog posts on these small companies. I also like to see whether any respectable funds / private investors hold these stocks in their portfolios. I will check on Gerry Wimmer’s Investor File, Mawer’s New Canada Fund, and Pender’s Small Cap Opportunities Fund, among others. Further, management access would be ideal. Unfortunately, most DIY investors cannot just pick up the phone and call the CEO. Therefore, in the past I have attended annual shareholder meetings, and have dialed into quarterly calls. I also try to find any CEO/ Management interviews on YouTube. Finally, if there is a storefront that I can visit (e.g. Organic Garage), I will make the outing and explore the store. Throughout my research process, there are certain qualities in these small company stocks that help me determine whether I move them from my watch list to my potential buy list. Below I share my qualification process in the form of questions.

Here are the questions that I ask to qualify Small Companies:

– What are the products/services; does this company offer something new / unique to the market? Is there new technology? Would anyone be unhappy if this company went out of business tomorrow? Would I use their products or services? Is there lasting utility/appeal?

– Who is running the company – owner/operator or installed CEO? Is there a bold vision for the company? What is the CEO’s track-record in leading other public companies, and executing on a vision? What is management’s stake in the company? (i.e., insider ownership %)? Is management overpaying themselves (as a percentage of revenue)?

– How big is the addressable market? Can the company scale to expand and fulfill demand for its products / services domestically and globally? Can it achieve profitable growth? How easy will it be to acquire, and on-board new customers?

– What is the business model; are revenues repeatable and recurring (e.g. SaaS subscriptions), or inconsistent, and cyclical (e.g. gas tank manufacturers)? Are profit margins good; how will they improve? Is the company structure, workforce and sales / marketing group in place for the company to succeed?

– Is the company vulnerable to business cycles? What would happen in a recession? Does the company have ample net-cash on hand so they are not vulnerable to economic down-cycles? Can growth be funded through its own operations? What is the capital structure?

– Does management have a focused acquisition plan? Have they successfully integrated complimentary companies? Is the industry in which they operate fragmented, and so is there an opportunity for this company to consolidate smaller companies?

– Are there positive tailwinds? Are tailwinds anticipated in the future (e.g. eldercare)?

– What is the regulatory environment; can regulations dampen the company’s growth? Conversely, could regulation bolster company growth? (e.g. Cannabis industry)

– Does the company have sufficient cost controls in place?

– Will the company innovate; what is the culture?  What is the current Research and Development spend? (note: R&D is more important for Technology companies) Does the company plan to expand its product / service selection?

– Can the company achieve a competitive advantage (moat), and fend off any competition? If there is competition, is there room for multiple players? Does the company own any intellectual property? What are the switching costs; is moving to a competitor easy?

– Who is promoting, and supporting the company? Is it under-followed by analysts, and under-owned by institutions? What is the daily/weekly share volume?

– Can a Chinese (or other low-cost) competitor simply produce these goods/services cheaper, or does this company have a following (brand), or a better way of making the product / delivering the service?  Can a bigger company (e.g. Amazon) catch on to this opportunity and easily steal market share?

– Is the stock price validating the company’s positive developments, and quarterly releases (e.g. +25% Q1 YoY Revenue)? Does the stock have positive momentum?

– Does the company have any prominent short sellers? (E.g. Marc Cohodes, Andrew Left, Carson Block, etc.) If so, do you believe the short-thesis? Have you considered worst-case scenarios for the company?

– Finally, can this company grow 3x bigger (e.g. $100M – $300M market cap) in 3-5 years? Will the high sales growth continue for years to come? Can the company attract a shareholder base; large investors and institutions that can take the the company to the next level?

Ultimately, I invest in small companies that pass most of my qualification questions (above). Because I allocate small chunks of capital to these micro-cap stocks at the onset, I have the wherewithal to hold through volatile swings in the market. After planting these seeds, I will water the stocks that grow (i.e., average up), and hold the stocks that I still have conviction in.

I would like to share with you my current Universe of Small Companies ($63M avg. market cap) listed on the Canadian TSX, and TSX/Venture exchanges. There are 60 small stocks on my list. I have applied both my discovery, and qualification processes to arrive at these 60 small companies, and will continue to track them in my newsletter. However, this does not mean that I recommend any of these stocks. One might find some new ideas, and then conduct their own research/ due diligence.

I have also included some interesting recent information below on a subset of these under-followed companies:

AnalytixInsight (ALY): On May 16th, entered into a distribution agreement with Thomson Reuters (TSX:TRI) whereby Thomson Reuters will distribute financial research reports created by AnalytixInsight’s artificial intelligence platform to customers on Eikon and Thomson One.

Axion Ventures (AXV): On July 3rd, announced the commercial launch of the Company’s self-title, ‘Rising Fire’ in China through Tencent’s ‘WeGame’. Axion expects Tencent to distribute Rising Fire in a staged manner to approximately 1.5 million active WeGame users immediately, 15 million users by mid-July, and up to 100 million users by mid-August.

GreenPower Motor Company (GPV): On June 5th, announced that it received an order for 100 buses from Creative Bus Sales, the U.S.’s largest bus dealer for sales, parts and service. This 100 bus order represents its largest order to date.

Kraken Robotics (PNG): On July 5th, re-affirmed the Company’s 2018 revenue target of over $7 million, which represents at least a doubling of 2017’s reported revenue.

Organic Garage (OG): On June 29th, reported its first quarterly positive cash flow from operations and a 38% increase in revenue. Its Liberty Village location is on track to open in fall 2018. On July 11th, announced that its sixth location will be in the central Toronto area.

Symbility Solutions (SY): On May 8th, announced it had completed a definitive agreement to sell its Symbility Health Division business to TELUS Health (CA$16.5 million), allowing the company to apply greater focus to its core Property and Casualty insurance platform while contemplating further transformative M&A with the proceeds of the sale.

WELL Health Technologies (WELL): Chairman & CEO, Hamed Shahbazi previously founded TIO Networks (TSXV:TNC), a multi-channel payment solution provider specializing in bill payment and other financial services. TIO Networks was acquired by PayPal (Nasdaq: PYPL) for CAD$304 million (Jul 2017).

Wow Unlimited (WOW.A): Michael Hirsh, CEO, co-founded Nelvana Limited (known for Babar, Tintin, Berenstain Bears, Care Bears, and Magic School Bus, etc.). Nelvana was sold to Corus Entertainment in 2000. Later, Hirsh co-led an investment group to start Cookie Jar Entertainment Inc. where he served as CEO until the acquisition by DHX Media in 2012

“Future 60”: Small Company Stocks on TSX and TSX/Venture:
(For Information Purposes Only. These stocks are not recommendations)

Company  Ticker
AcuityAds AT
AgJunction AJX
AirIQ IQ
AnalytixInsight ALY
Avante Logixx XX
Axion Ventures AXV
Bevo Agro BVO
BeWhere Holdings BEW
Blackline Safety BLN
BSM Technologies GPS
Caldwell Partners International CWL
Ceapro CZO
Cortex Business Solutions CBX
CVR Medical CVM
Diamond Estates Wine & Spirits DWS
Drone Delivery Canada FLT
Evergreen Gaming TNA
FLYHT Aerospace Solutions FLY
Globalive Technology LIVE
Good Life Networks GOOD
GoodFood FOOD
GreenPower Motor Company GPV
Greenspace Brands JTR
Hamilton Thorne HTL
Hempco Food & Fiber HEMP
Imaflex IFX
Intrinsyc Technologies ITC
Kneat.com KSI
Kraken Robotics PNG
Legend Power Systems LPS
Memex OEE
Namsys CTZ
Nanotech Security NTS
Nexoptic Technology NXO
Opsens OPS
Organic Garage OG
Partner Jet PJT
Patriot One Technologies PAT
PineTree Capital PNP
Pioneering Technology PTE
Posera PAY
Quarterhill QTRH
Redishred Capital KUT
Reliq Health Technologies RHT
RYU Apparel RYU
Smart Employee Benefits SEB
Sunora Foods SNF
Symbility Solutions SY
Ten Peaks Coffee TPK
Titan Medical TMD
Titanium Transportation TTR
TrackX Holdings TKX
Trakopolis IoT TRAK
Vigil Health Solutions VGL
VisionState VIS
Vitalhub VHI
WELL Health Technologies WELL
Wi2Wi YTY
Wow Unlimited WOW.A
Xpel Technologies DAP.U

“Future 60”: Highest Proven Growth
(For Information Purposes Only. These stocks are not recommendations)

If you are curious, below is a subset (1/3) of “Future 60” stocks that have all achieved the following hurdles, achieving an average 20% YTD 2018 return (as at July 10, 2018):

  • >= 0% Latest Quarter YoY Revenue Growth (Average = 26%)
  • >= 0% Latest Annual YoY Revenue Growth (Average = 39%)
  • >= 0% Last 5-Year Revenue CAGR (Average = 21%)
  • >= 0% Cash Flow Yield (Average = 8.6%)
Company  Ticker YTD 2018 
Xpel Technologies DAP.U 207%
Organic Garage OG 63%
Titanium Transportation TTR 62%
Evergreen Gaming TNA 35%
Avante Logixx XX 33%
Symbility Solutions SY 31%
Partner Jet PJT 30%
Hamilton Thorne HTL 19%
Redishred Capital KUT 18%
Bevo Agro BVO 10%
Diamond Estates Wine & Spirits DWS 10%
Caldwell Partners International CWL 9%
Intrinsyc Technologies ITC 6%
AirIQ IQ 3%
Namsys CTZ -3%
Ten Peaks Coffee TPK -7%
Wi2Wi YTY -9%
Cortex Business Solutions CBX -11%
Nanotech Security NTS -22%
Sunora Foods SNF -23%
Quarterhill QTRH -40%

I really enjoy finding promising small companies. The enterprising DIY investors’ edge is the ability to not only find companies when they are small, but also to invest in them as institutions have restrictions on holding low market-cap stocks in their funds. In addition, there is usually no analyst coverage for sub $100M market-cap stocks. Thus, the micro-cap universe is largely uncharted territory. The delight comes when a small company that you find, and invest in grows into a larger one, crossing that chasm from micro-cap, into small-cap, and then maybe into mid-cap and beyond. That is the dream. While it is rare for any company to grow from $100M to $1B (10x), and even rarer to grow from $100M to $10B (100x) the process is still fun, in my opinion. In those rare cases it can be very rewarding for DIY investors, managing a small portfolio (e.g. < $1,000,000). Buffett once said, “The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It is a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that”.

Next Capital Compounders; 15 Market Beating Growth Stocks

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Last year, I was invited to speak at the Annual Fairfax Financial Shareholder’s Dinner (April 19th) at the Royal York Hotel in Toronto. It was a pretty big deal for me, as the company’s Founder & CEO Prem Watsa, who some call the ‘Buffett of Canada’, was in the audience. My speech was on “Canadian Capital Compounders Today – 25 Market Beating Stocks”, which I later posted on my website, wrote about in my newsletter, featured in my mini-book, “Capital Compounders” (email me for a free copy), and recorded on YouTube. I honestly had a lot of fun because I hold the majority of these wealth-creating companies in my stock portfolio, and greatly respect the exceptional Founders/ CEOs that lead them, including Larry Rossy (Dollarama), Mark Leonard (Constellation Software), and Stanley Ma (MTY Food Group), among others.

At the dinner, in front of ~100 people (shareholders, executives, hedge fund managers, etc.), I talked about my insatiable drive since age 18 (2005) to find, and invest in a concentrated group of stocks that can continually beat the market in the long-run (i.e., greater than the S&P/TSX’s long term 9.8% compound annual return). I showcased my research on these 25 market-beating Canadian stocks, which are still publicly traded on the TSX, to reveal the key attributes that they all have in common:

– Mostly small-mid caps ($100M – $10B) in the non-cyclical Technology, Consumer, and Diversified Industries space – large addressable markets / long growth runways;
– Free cash-flow generative, high return on capital businesses (with a durable moat);
– Run by exceptional operators, and shareholder-oriented managers who;
– Effectively deploy capital in (re)investment opportunities to grow the business (i.e., re-invest in the business, acquire/integrate smaller companies, and buy back shares over time), continually delivering high rates of return for their shareholders

I said: “I like to think that there’s a strong correlation in the long run between a company’s Return on Capital (i.e., ROIC) and its share price performance… the average ROIC of these 25 Capital Compounder stocks is 16% (5 Year Average)… and the average compound annual return [since trading inception on the TSX] is 26%”. Looking back, this may have not been the best comparison; matching the 25 Capital Compounders’ past 5 years average ROIC with past 15+ years (average) share price performance, but it was important to make the abstract connection. Later in this issue, I’ll show the shorter 2017-2018 period share price performance (1 Year) vs. ROIC (5 Year Average), and discuss whether there was in fact a correlation.

It’s now been over one year since my talk on these 25 Capital Compounders, and so I wanted to gauge their stock performance over that period, reflecting on both my process, and justification for picking this particular group of stocks. The results were satisfactory. In aggregate, the 25 Capital Compounders (see Table 1 below) achieved a +15.8% return from April 19, 2017 to June 29, 2018, easily beating the S&P/TSX (+4.7%), and ranking closely alongside the S&P 500 (17.2%), and DJIA (19.9%). Further, it was encouraging to see that for YTD 2018 (i.e., Jan – June), this basket of 25 Capital Compounders was up +5.7%, ahead of all three comparison indexes; S&P/TSX (+0.4%), S&P 500 (+1.7%), and DJIA (-1.8%). The performance comparison summary can be found below in Table 2.

Table 1: Original 25 Capital Compounders 

Company Ticker 2017 – 2018 Return YTD 2018 Return
Pollard Banknote PBL 104.8% 25.3%
Constellation Software CSU 62.2% 34.7%
Photon Control PHO 56.7% 27.0%
Logistec LGT 50.3% 20.8%
TFI International TFII 37.3% 23.1%
Enghouse Systems ENGH 34.4% 24.9%
Premium Brands PBH 32.3% 10.1%
Dollarama DOL 30.9% -0.8%
Lassonde Industries LAS 15.4% 12.3%
Stella-Jones SJ 11.1% -4.6%
Brookfield Asset Management BAM 9.2% -0.6%
Canadian National Railway CNR 9.1% 3.4%
Savaria SIS 8.1% -14.0%
CCL Industries CCL 7.9% 12.4%
Metro MRU 7.4% 10.9%
Tucows TC 4.4% 2.4%
MTY Food Group MTY 2.5% -10.5%
Gildan Activewear GIL 0.5% -7.9%
Saputo SAP -2.2% -2.9%
New Flyer Industries (NFI) NFI -2.5% -9.5%
Stantec STN -2.6% -4.0%
Alimentation Couche-Tard ATD -5.1% -11.9%
Richelieu Hardware RCH -5.2% -20.6%
Computer Modelling Group CMG -5.6% 4.1%
CRH Medical CRH -66.2% 17.7%

Table 2: Performance Summary (“CC” vs. Comparison Indexes)

Index Apr 2017 –  Jun 2018 YTD 2018
S&P/TSX 4.7% 0.4%
S&P 500 17.2% 1.7%
DJIA 19.9% -1.8%
CC* 15.8% 5.7%

*CC = 25 Capital Compounders

The top three performers over that 2017 – 2018 period were Pollard Banknote (+104.8%), Constellation Software (+62.2%), and Photon Control (+56.7%), and the top 10 (out of 25) stocks delivered an average 43.5% return. Interestingly, the top three performers YTD 2018 were the same 3 stocks from the 2017 – 2018 period, demonstrating that performance trends can prevail. “The trend is your friend”, as they say. Note: If I remove the worst performer from the group (CRH Medical), the 2017-2018 average return is 19.2%. But if I remove the best performer (Pollard Banknote), it’s 12.1%. And that I observed around 80% of these stocks seem to be in a multi-year consolidation phase. Thus, I wouldn’t hesitate to personally buy more at these share price levels, as there’s a near-term opportunity to break out of their bases (but that’s not certain).

Indeed, one year later, there was a correlation between these 25 Capital Compounder stocks’ Return on Capital (i.e., 16% ROIC; 5 Year Average) and their share price performance (+15.8%). While this correlation won’t always be achieved in the short term, and can be due to a mix of other factors, ‘High ROIC = High Share Price Performance’ should theoretically play out in the long run. But nothing is certain! Companies come and go, and markets can surprise us.

This is why it’s so important to always be on the quest for new Capital Compounders. As a DIY investor, one needs to continually keep their portfolio fresh with small-to-mid cap growth stocks. I’m not saying to sell long-held stocks at ‘the top’, because as we know, high can go higher, which is the desired outcome. Rather, I’m suggesting that one supplements his portfolio (which might now include large-caps) with new ideas. Obviously, based on the law of large numbers, a company cannot compound at the same high rate forever. For example, Brookfield Asset Management, which is now a large $40+ billion dollar company can’t as easily/quickly double many more times over at this point in its life. Plant new seeds, and water the growing trees (i.e., winners).

To this end, I’ve posted below the Next 15 Canadian Capital Compounders for your consideration, which I’ll supplement and track along with my original 25 Capital Compounders. The majority of these 15 companies (see Table 3 below) are Small-Cap ($100M – $2B) and Mid-Cap ($2B – $10B) in size, sharing the same attributes as discussed above (i.e., high ROIC, exceptional managers, ample investment opportunities/ returns, etc.). On a trailing twelve-month (TTM) basis, these 15 companies in aggregate have achieved a 17.2% Return on Capital (ROIC), and over the last 5 years, 15.9% Average ROIC. Their average compound annual return (since inception on the TSX) is 23.3%, with an average public life of 14 years. Interestingly, 5 (out of 15) companies below have achieved a compound annual return that is greater than or equal to 30% since their inception, with Kinaxis (+61%), Spin Master (+47%), and FirstService (+43%) ranking the highest.

The ‘newest’ companies (out of 15), with only 3-5 years of public trading on the TSX, are Spin Master (TOY), Fairfax India (FIH.U), Sleep Country (ZZZ), First Service (FSV), Kinaxis (KXS), and BRP (DOO). Some companies, like Transcontinental (TCL.B), have a much longer tenure on the stock market, but are transforming their business models for future growth, and so one might expect higher compound returns from this point on. In Transcontinental’s case; transforming their business from traditional newspapers/printing to shipping/packaging for the e-commerce age. Others are larger companies (e.g. Magna) that are diversifying into new investment opportunities (AI, electric vehicles, etc.) to drive their next growth phase. However, the majority of companies below fit into the small-mid-cap space, with large addressable markets, and long runways to grow.

Table 3: Next 15 Capital Compounders

Company Ticker CEO ROIC (TTM) ROIC (5yr Avg)
Spin Master TOY Ronnen Harary / Anton Rabie 31.6% 46.5%
BRP DOO Jose Boisjoli 30.9% 29.1%
Sylogist SYZ Jim Wilson 23.0% 13.5%
Tecsys TCS Peter Brereton 19.0% 11.6%
Calian Group CGY Kevin Ford 17.4% 17.0%
Transcontinental TCL.B François Olivier 16.3% 10.9%
Sleep Country ZZZ David Friesema 16.0% 12.2%
Magna International MG Donald J. Walker 15.9% 17.6%
Kinaxis KXS John Sicard 15.5% 18.4%
Fairfax India FIH.U Chandran Ratnaswami 14.5% 13.8%
CGI Group GIB.A George Schindler 12.6% 12.1%
Great Canadian Gaming GC Rod N. Baker 12.3% 12.0%
FirstService FSV D. Scott Patterson 11.3% 5.4%
CAE CAE Marc Parent 10.9% 9.2%
Andrew Peller ADW.B John E. Peller 10.4% 8.8%

*TTM = Trailing Twelve Months

I’ll track these 40 Capital Compounders (25 + 15) for the foreseeable future. And I’ll always be on the lookout for more (email me your suggestions!). As Peter Lynch said: “The person that turns over the most rocks wins the game.” Overall, if I achieve a 15% compound annual return in my portfolio over the long run, then I’m a happy guy. Striving for anything over 15% and I’m taking on too much risk and that can blow up my portfolio. Achieving anything below 15%, and I’d rather just hold an Index ETF. 15% is the sweet spot, and means that I can double my money every 5 years, based on the Rule of 72.

Before I conclude this issue, it’s important to note that I am not overly concerned with Price-to-Earnings multiples (P/E) in the long run as I’m a Growth-at-a-Reasonable-Price (GARP) investor. This means that I’ll invest in a company trading at 30 P/E if its EPS growth rate is 30% or greater, for example. I say this because most so called “value investors” would just balk at that 30 P/E and move on. Please look into “PEG”. If I avoided companies with 30+ P/E over the past 13 years, I wouldn’t have created much wealth at all in my portfolio. I’d just be sitting on my thumbs, “waiting for a pullback” and investing in the likes of Torstar, and Corus Entertainment, both being classic “value stocks” that teach one a very valuable lesson: cheap stocks can get cheaper.

Also, notice that I don’t invest at all in Pharma, Oil & Gas, or Mining. I call those industries “Capital Destroyers”, as all are cyclical, ebbing and flowing through the years, with little cash flow predictability, and hardly any sustainable wealth creation to be seen. Instead I focus on, and allocate capital to these three non-cyclical areas: Technology, Consumer, and Diversified (e.g. Media).

Further, I use Return on Capital (ROIC) rather than Return on Equity (ROE) to ultimately base my investment decisions, as the latter metric can be inflated (i.e. look great!!) due to extensive debt leverage. I don’t like debt. And I especially don’t like companies that grow-by-excessive-leverage. We saw what happened to Valeant. I much prefer companies that are self-funded through their own free cash flow, combined with strong, well capitalized balance sheets, so that those companies are capable of funding growth, and avoid crashing in economic downturns. This very important ROIC metric must be consistently high (which is why I use a minimum 5-year average), above a company’s cost of capital, and preferably rising throughout the years, combined with growing revenues, book value per share, earnings per share, and free cash flow per share.

But perhaps most importantly, companies that I invest in need to have sustainable competitive advantages, whether that be through the industries in which they operate, their operating models, distribution network, niche and/or new products and services, regulatory advantages, patents, technology, and brand/goodwill, etc. Durable competitive advantage allows these companies to compound shareholder wealth for a longer period of time, warding off competition for as long as possible.

Thanks for reading, and Happy Canada Day! I’ll leave you with Chuck Akre’s explanation of the “three legged stool” – the three foundations of “Compounding Machines”, or what I prefer to call them – “Capital Compounders”:

“The first leg of the stool has to do with the business models that are likely to compound the shareholders’ capital at above-average rates, combined with leg two, people who run the business who are not only exceptional at running the business but also see to it that what happens at the company level also happens at the per share level–and then leg three, where because of the nature of the business and the skill of the manager there is both history as well as an opportunity to reinvest all the excess capital they generate in places where they earn these above-average rates of return.”

20 Chinese Technology Stocks and their American Equivalents (All Companies Listed on U.S. Exchanges)

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I obsessively researched Chinese Technology Companies this weekend. Baidu, Alibaba, and Tencent (aka BAT) are widely known in the North American investor community, but these others (below), not as much. I’ve mapped my list of Chinese Tech Stocks (all U.S. exchange listed NYSE, NASDAQ) to their North American equivalent companies (e.g. Alibaba / Amazon)…

Chinese Technology Stocks:

Alibaba $BABA / JD $JD (Amazon)
Tencent $TCEHY (Facebook)
Baidu $BIDU / Sogou $SOGO (Google)
IQiyi $IQ (Netflix)
Weibo $WB (Twitter)
BYD $BYDDY (Tesla)
Momo $MOMO (Match Group)
YY Inc. $YY / Bilibili $BILI (YouTube)
CTrip $CTRP (Expedia Group)
Baozun $BZUN (Shopify)
Huami $HMI (Fitbit)
51Job $JOBS (Monster Worldwide)
58.com $WUBA (eBay)
Cheetah Mobile $CMCM (Zynga)
NetEase $NTES (Activision Blizzard)
Huya $HUYA (Twitch)
AutoHome $ATHM (CarMax)

Robin Speziale Net Worth: $545,000 – January 2018

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Robin Speziale’s Net Worth: $545,000 (Jan, 2018)

I’m updating my blog with Net Worth Updates. You can see my past net worth updates: here. Currently, (January, 2018) this is my Net Worth: $545,000.

I’ve built my net worth over time through working – part-time and full-time, investing in stocks, real estate (primary residence), dabbling in online opportunities (eBay, websites, etc.) and receiving book royalty payments from my publisher (ECW Press; Market Masters), and Smashwords (other eBooks).

I’m 30 now. But my plan is to build my net worth up to $1,000,000 within the next decade (i.e., before 2028) by the time I’m 40, but preferably to build a stock portfolio that’s worth $1,000,000 (I like liquid assets). Lots can happen between now and then, so we’ll see.

Assets –

  • Condo: $430,000
  • Stocks: $385,000
  • TOTAL ASSETS: $815,000

Liabilities –

  • Mortgage: $270,000
  • TOTAL LIABILITIES: $270,000

Robin Speziale Net Worth (January, 2018) –

$545,000

My Top 10 Stocks in 2017

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My portfolio gained 22% in 2017, beating both the S&P 500 (+19%) and S&P/TSX (+6%).

Here are my Top 10 Stocks in 2017:

Company Ticker Return
CANOPY GROWTH WEED 225.38%
ALIBABA GROUP HOLDING BABA 96.43%
NATIONAL BEVERAGE FIZZ 90.76%
TUCOWS ATC 87.56%
PHOTON CONTROL PHO 84.84%
NINTENDO NTDOY 73.68%
MATCH GROUP MTCH 71.65%
BEVO AGRO BVO 71.04%
SPIN MASTER TOY 67.81%
SAVARIA SIS 67.62%

Year in Review; My Stock Portfolio Update for 2017

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Merry Christmas, Happy Holidays, and Happy New Year! I hope you’ve all had a wonderful holiday season with your family, and friends. Thank you all for being readers of my booksblog, and newsletter. I’m really looking forward to writing more in 2018 (don’t forget to read My Top 15 Best Ideas for the New Year), and updating you on my stock portfolio, top stocks, and watchlist.

I’m proud to be involved with such a big community of DIY investors 🙂

On top of my market-beating return in 2017, and new portfolio high (which I’ll get to soon), there’s a bunch of other things I’d like to share with you…

Here’s My 2017 Milestones:

– 1,850 Newsletter subscribers (always free!) – 42 issues to-date
– 40,000+ Books sold-to-date (including Market MastersCapital CompoundersMy 72 Rules, + others)
– Won the Gold Award from IPPY for the Finance/Investment book category
– 21 New Patreon Members (who receive my monthly portfolio updates, top stocks, & more – join now)
– 450 Capital Compounders Club members – become a member!
– 13,000 Blog visitors (w/ 26,000 views) – the top 3 posts; here,here, and here
– 302 YouTube Channel subscribers (w/ 24,000 views of my videos)
– 20 Speeches given-to-date, including my speech at the Fairfax Financial Annual Dinner
– 1,800 Twitter Followers

It was certainly a solid wealth-building year for me in 2017 as I’m sure it was for you. My stock portfolio was up +22% (not including dividends), beating the S&P 500 (+19%), and S&P/TSX (+6%) for the year. I’m always content if I beat the S&P 500 over the long run. That’s my objective; generate ‘alpha’ by picking my own stocks. Otherwise, I’d just dump all of my stock holdings and invest in an ETF that tracks the S&P 500. Brutal honesty. The cherry on top this year was that my winners (i.e., stocks that went up) made up 80% of my portfolio, meaning only 20% of my stocks went down (the losers). I like it when I’m right more often than I’m wrong. Also, that my predominantly Canadian portfolio (75% of holdings) beat the S&P 500 – a U.S. index.

I’ve been investing in the stock market for over 12 years. I started when I was 18, in 2005, with $10,000 (money earned through part-time jobs back then) and have now built a $375,000 portfolio, which I plan to grow to $1,000,000 by 35. I’m 30 now. If you’ve read about my story, you’ll know that I don’t come from a rich family. No trust fund. And no easy access to a cushy job. It’s taken a lot of work, and perseverance to get here. And it’ll take more focus on my investment strategy to get to my goal; though, the power of compounding helps (as my ‘snowball’ gets bigger). You can read about How I Pick Winning Stocks here. Hopefully we don’t suffer a huge market crash in the near-term. But if that does happen, I’ll just buy stocks on sale, and push my $1 million goal a bit further down the road. Ultimately, I want to achieve financial independence, and do more of the things that I love… freedom of choice.

My portfolio got a big jolt in Q4-2017; the last couple of months leading up to the end of the year (October-December). As I shared in “My Bad Quarter“, that while Q3 (July – September) showed general weakness in the small/mid-cap segments, and many of the new micro-caps in my portfolio, I excepted some strength to return soon. Indeed, many of these stocks revived in the 4th Quarter, with a bunch of micro-caps showing new signs of life in the last month of the year – December. I suspect that a lot of capital in 2017 flowed out of quality micro-caps to chase momentum in Blockchain, Lithium, and Marijuana stocks on the TSX Venture. However, some of that capital might be returning to quality micro-caps. Wild parties can’t last forever. Anyways, I’ll talk about my Q4 Top 10 Stocks (see table below) in this newsletter, but if you want a full Portfolio Update, with my Top Stocks, and Watchlist in 2017, check out how to become a member on Patreon. There’s over 20 members now – woohoo!

Canopy Growth (WEED, +177%) was the clear winner in my portfolio in Q4 (Oct – Dec). In fact, WEED has now become my first 30-bagger ever. Some of you know that in my book Market Masters, I revealed that I was investing in Tweed (former name of Canopy Growth), predicting that it would become the leader in the Marijuana market. That was all the way back in 2015. Since then, WEED has gone from ~$1 to $30. But, here’s the problem. WEED’s rapid price appreciation has defied enormously its underlying growth, and intrinsic value. I’m now seriously considering WEED’s future in my portfolio. But I also don’t want to be that guy who leaves the party early..

Match Group (MTCH, +35%) was another Q4 outperformer, and ‘no-brainer’ for me. Match owns Tinder, POF, OKCupid, and a bunch of other dating apps. This is how everyone dates (errr ‘hook-ups’) now. Plus, the Return on Equity (ROE) is amazingly high. I love my Capital Compounders, like Match Group, which is also among my Top Ideas for 2018.

Clairvest Group (CVG, +32%) was the surprise for me here. While I expected CVG, a private equity company with the prestigious Rotman family on the leadership team, to be a strong performer, I didn’t forecast their partnership with Great Canadian Gaming (GC) to operate and develop four Ontario Lottery and Gaming Corp. facilities west of Toronto. Though, this is exactly what I want to see; positive business developments, and pleasant surprises. I’ll be allocating more capital to Clairvest Group in 2018.

Savaria (SIS, +31%), Tucows (ATC, +21%), and Photon Control (PHO, +21%) have been long term holdings in my portfolio, and continue to perform very nicely over time. All three stocks represent some of my biggest stakes. Finally, Amazon’s (AMZN, +21%) continued ascent was really no surprise (although as an aside, Wal-Mart’s mega-rebound, which I don’t own, was a surprise).

My Top 10 Performers – Q4 (Oct – Dec), 2017:

Company Ticker  Q3 Return
CANOPY GROWTH WEED 177.43%
BEVO AGRO BVO 56.00%
MATCH GROUP MTCH 35.02%
CLAIRVEST GROUP CVG 32.42%
SAVARIA SIS 30.89%
ANDREW PELLER ADW.A 29.89%
PINETREE CAPITAL PNP 23.21%
AMAZON.COM AMZN 21.64%
TUCOWS ATC 21.33%
PHOTON CONTROL PHO 21.19%

Do you want to see my full results for 2017? Become a Patreon Member

January, 2, 2018 will sound the opening bell for the new year. In my last newsletter issue, I shared my Top 15 Best Ideas for 2018; all stocks that I currently hold in my portfolio. I really do hope that 2018 is another solid wealth-creating year in the stock market. Although, we will never know. What’s important to me is continuing to beat the indexes, especially the S&P 500, and achieve a ~15% compound annual return over time.

What about you? Tell me about your big winners in 2017, and also your top picks for 2018.

I wish you all the best in 2018! Have a Happy, Healthy New Year, and talk soon 🙂

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Top 3 Best Ideas (Stocks) for 2018

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In the Capital Compounders Club (Facebook Group) I asked all the members to share their Top 3 Best Ideas (Stocks) for 2018. There’s a bunch of ideas there now, and more will be shared leading up to December 31st.

Join the Club on Facebook to see members’ Best Ideas for 2018.

I launched the Capital Compounders Club in 2017 to bring together DIY growth investors, as a platform to share new growth investing ideas.

My Watchlist (Nov, 2017)

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Below you’ll find My Watchlist (November, 2017), but only a portion of my full list (i.e., the high-interest stocks).

You can learn more about my FULL Portfolio, Top Performers, and Watchlist by becoming an exclusive Patreon member. There’s currently over 20 members. Starting at $5.00, I’ll send you 12 issues / year. As a BONUS to all of my members, I’ll also be sending out my Portfolio Year-End Review on an annual basis. Learn more here.

My Watchlist – High Interest Stocks (Nov, 2017):

Company Ticker Date Added to Watchlist
Square SQ 10/15/2017
Nvidia NVDA 10/15/2017
Patrick Industries PATK 10/15/2017
Middleby MIDD 10/15/2017
Fonar FONR 10/29/2017
AlignTech ALGN 11/18/2017
Mettler-Toledo MTD 11/18/2017
Toro TTC 11/18/2017
Simulations Plus SLP 11/18/2017
Intuitive Surgical ISRG 11/18/2017
Arista Networks ANET 11/18/2017
Lexagene Holdings LXG 10/12/2017

/// ​Become a Patreon Member Now to Access My Top Performers, Portfolio, and More (12 issues / year, membership starts at only $5)