Title: Follow the Money: How to Profit From the Government Spending Boom Show: In the Money with Amber Kanwar (guest interview show — the pundit is the guest) Guest: Bryden Teich — Chief Investment Officer, Avenue Investment Management (Toronto) Date: 2026-07-07 URL: https://youtu.be/ugK-k9nVsEQ Length: ~1h04m Note: Auto-caption transcript, cleaned. Verbal fillers (um/uh/you know/stutters) removed and stray "[music]" / duplicated "N minutes, N seconds" duration artifacts stripped; wording otherwise verbatim, every (m:ss) cue kept in place. Auto-caption garbled the guest's name ("Brian Tish"/"Brien Tish"/"Brian Ty") — it is Bryden Teich. Garbled company names mapped in the analysis (e.g. "Kushar/Kushtard" = Alimentation Couche-Tard, "Tormmont" = Toromont, "Embridge" = Enbridge, "Southbo/SOBO" = South Bow, "into it" = Intuit, "Stantech" = Stantec).
0:03 The US is the biggest, biggest economy in the world and has the biggest fiscal impulse. Canada has now joined the party. Europe is like every country is now spending heavily on fiscal. This is the dominant story.
0:13 The world is on a spending spree. We've got Bryden Teich to tell us how to position your portfolio.
0:18 The US is going to spend more on interest this year than they're spending on defense or on Medicare.
0:22 The three sectors benefiting the most. This can all continue as long as governments can keep borrowing at attractive rates. I think everybody knows how it ends, right?
0:32 Parabolic moves don't correct sideways generally.
0:35 I think that's our word of 2026, by the way, is parabolic.
0:44 When you choose a Raymond James adviser, you're getting more than independent financial management. You're getting access to complete financial guidance
0:52 under one roof. From tax and estate planning to trust services for generational wealth and strategies for life's key milestones like buying a
1:00 home, funding your children's education, or preparing for retirement. They bring it together in one financial plan. What also makes Raymond James Advisors unique
1:08 is their complete independence with no proprietary product to promote. You will benefit from personalized services, all
1:16 backed by the strength and resources of Raymond James, a powerhouse with a hundred billion in assets and over 520
1:23 advisers nationwide. Discover how Raymond James can help you live a life well planned. Visit raymondjames.ca.
1:34 The content provided in this podcast is for informational purposes only and does not constitute financial, investment, or professional advice. The views expressed
1:41 by the host and the guest are their own and do not necessarily reflect the opinions of any organization or company.
1:46 The host and guest may maintain positions in any securities discussed on the podcast. Always consult with a qualified financial adviser or professional before making any
1:54 investment decisions. In this episode, we discuss Canadian Natural Resources and Alimentation Couche-Tard, which are both stocks that I own. Hey everyone, welcome
2:02 to a brand new episode of In the Money with Amber Kanwar. On this episode, we've got Bryden Teich on the show. He's with Avenue Investment Management. He is
2:10 looking for durable businesses that have resilience no matter where we are in the cycle. But he says the big story right
2:17 now, not just AI, is the fact that governments around the world are spending and he wants to position the portfolio in areas that are poised to benefit from all of that fiscal impulse.
2:29 It's a great stock picking episode. If you want to make sure you get those pro picks right to your inbox, make sure you go to our website inthemoneypod.com and smash that subscribe button. Let's get into it.
2:47 Bryden Teich, thank you so much for joining me on the podcast.
2:49 Thank you for having me, Amber. It's great to be here.
2:51 I'm so excited to chat with you. You do both Canada, both US investing. You look at dividends, you look for growth. So, you've got a bunch
2:59 of different different strategies. And I followed your work for years, your annual letters, and you concluded
3:06 last year saying, "As we enter 2026, we believe there's better days ahead for the great white north." Here we are in
3:14 the middle of 2026, we've had to absorb a lot. The USMCA ultimately was not renewed. Not a surprise, but
3:22 perhaps a painful road ahead. We had what is a technical recession. Although it seems like we're emerging
3:29 strong out of that. Are you still as optimistic about the road ahead for Canada?
3:35 Well, thank you for quoting that line because it means you read all the way to the end. That was the last line in our letter. But no, we've been more optimistic on Canada the last
3:43 couple of years. Part of this is you see the cycles emerging and I think that there was so
3:50 much negativity on Canada three, four, five years ago and we heard that in meetings, we heard that from clients,
3:58 we meet with companies and it was sort of a similar not a great vibe in the country economically and but directionally we could
4:07 sense in the last year and a half that things were improving. I think the economic file for the country was really adrift for many years. And I think
4:16 we've clearly turned a direction. Canada has, our view has been there's been many great things about the Canadian economy and the
4:23 Canadian workforce, Canadian companies, but we have to as a country lean into that and not be sort of shy,
4:31 in a way that we had been for the last decade. The link between the Canadian economy and the Canadian stock market can be very tenuous, right?
4:39 Because we've got so much commodities that are linked to things overseas. At a high level, what does a Canada strong portfolio look like for
4:48 you? What are we buying if you believe the road ahead is bright?
4:51 Yeah. So I think as an overall view of how we try to build a portfolio and how we try to invest is we're always looking for parts of the stock
5:00 market or businesses that we think are the most consistent. And so we have certain criteria that we look for that drive consistent profitability and
5:08 we'll go through any sector in the economy and our investment process is such that we rank what we think are the highest quartile quality per
5:17 sector and then we're constantly going through trying to own as many of those as possible. So we own banks, we own consumer, we own energy companies, we own energy infrastructure.
5:27 There are certain parts of our portfolio where we feel like growth is better in the US because there's just so many more companies, but
5:35 we also want to be sure that we're making sure we own the best Canadian companies that we can find as well. I think what's different in the last year as you sort of led off
5:44 with is that we're now focusing on almost an industrial policy for the country in a different way that wasn't being discussed before. And so there are
5:52 certain businesses that are benefiting from that. And at the same time we have to be wary that government getting more involved in
5:59 the economy is not always the best thing and we are sort of pushing that to a degree in Canada, the US is doing it, but really every country around the
6:07 world is doing that. So I think we're trying to find what we think are the highest quality in each sector and so we can go through that in any way
6:15 you want from a sector perspective, but we want to own what are the best Canadian companies across the board. So high level what are those sectors right now, top three?
6:23 So financials, like our largest position is one of the Canadian banks. Energy companies, we've owned one of the Canadian energy companies
6:30 for now 12 years. We own energy infrastructure. We own some of what we think are the higher quality industrial businesses, consumer businesses. I can
6:38 start naming names, but we're going to get into that, don't worry. But I want to pick that apart. I think financials is so interesting because
6:46 it seemed really disconnected from the economic malaise and then you're looking at these Canadian banks in particular, the financials index
6:55 for sure, but the banks in particular hitting these record highs and it seems to be making some people nervous, the valuations are high, they're more
7:02 expensive than US banks. Are you still comfortable with how much you're paying for Canadian banks? Yeah, so that's a great question. So if we were to back up the last six
7:11 years I think we were very nervous, and I would even say, I speak of Avenue and it was me internally that was the most nervous
7:18 about the banks into 2021 and 2022 because we had been on such a mortgage growth frenzy for a long time. And if
7:26 you looked at just simply go through some of the where the growth in the loan books were, it was all in unsecured mortgages. And
7:34 everyone in Canada or Toronto, you have the anecdotal stories of someone who bought a condo or did a second condo or is renting out this property. And so
7:43 there was a lot of excess in the real estate market. And then when interest rates went from zero to 2, 3, 4%, the concern is, oh, this mortgage
7:51 cliff is going to be enormous and you could have a pretty nasty credit cycle.
7:55 The banks being what they are, were very good at managing that risk, extending amortization and sort of
8:03 figuring out ways to get people through. I think we didn't have a credit cycle like we would have thought in that period. And I
8:10 think if I were to try to figure out why, I would say that there was a lot of built-in home
8:17 equity in Canada. So yes, mortgage growth was high, but there was a lot of embedded equity in the bank on the balance sheet. So we kind of were able to get through that.
8:27 Okay.
8:27 And they started not lending, right? Like other non-bank financials started to take on the riskier parts.
8:34 We've seen some of that issues with goeasy or whatever. And then their wealth business which was small 10 years ago, that's a real driving force.
8:44 Well I think this is the other thing, you had a couple banks make missteps on acquisitions and one was sort of a regulatory
8:52 issue. The other one he went through, that's one particular bank, and we've been in a period where the banks haven't been able to do international acquisitions
9:01 which has obviously been the right thing for shares because you can focus on your domestic business, you can drive higher fee business. I
9:09 think anyone walking into a bank branch today or having any experience that needs a physical person there to help you, I'm sure you
9:16 know, many people, we have clients that have had issues with, I just need this resolved, I need to talk to someone at the bank who can solve this. So if
9:25 anything they've kind of lapsed on the service side in their personal banking because it's not been, they don't view it as a high growth
9:33 business and they're trying to cut costs and all of this. So if anything, that's where they should focus. Making sure that your customer
9:40 experiences are better, but you've had no credit cycle. You have strong financial markets both in Canada and the US. So investment banking has been
9:48 good. You have high ROIs in the wealth management business. And so the fee side of their businesses has been a core sector of growth for them
9:55 for the last decade. And that's really benefiting. And you feel comfortable with this?
10:01 Comfortable. Yeah. Comfortable. There are two that we like better than the others. What are they? Because I don't think you brought them to us.
10:08 No. So National Bank is our biggest position. And then we owned Royal Bank. We've owned Royal Bank I think since 2004. So 22 years we've owned it.
10:16 And again, you want to own a couple Canadian banks. I think that our view on the index is that you own everything in really big weights. We think that there are other interesting
10:24 things to do. We think the banks here are still fine. I mean, at some point, if you now get cut in half, you're just going back to where you
10:32 were a year ago. So a lot of these stocks have really taken off. I think it would be healthy for the parabolic move to stop because parabolic moves don't correct sideways generally.
10:43 That's our word of 2026, by the way, is parabolic.
10:46 Yeah. And so you don't want bank stocks to go parabolic because then again, you're going to have an issue.
10:52 And if you look at these on a return on asset, they're not high return businesses, but the more fee revenue that they can generate, it
11:00 drives better return on equity, they can do buybacks, dividend growth is there. But to your point, valuations are now at the high end of
11:07 where they've been. Although we like the banks, if they pause here, that would be great as well because there's a lot
11:14 of catchup in a couple of the banks that were not well owned, people are kind of now getting back to index weight, I think there's a lot of that going on. So
11:23 we think it would be healthy if they took a break here, but we still like them as long-term. Okay, good. It was a mouthful, but yeah.
11:29 No, no, no. But I think it's important to understand the nuance of what's going on because it's such a big part of many people's portfolios. I also want to circle back to something you were saying
11:37 about essentially the fiscal impulse not just in Canada but the US and around the world. As a money manager, how is
11:46 that affecting where you're looking? If it's a sector that the government says this sector I'm going to underwrite, I'm going to make sure it grows. They're really doing it in the US.
11:55 They're doing it here in Canada as well.
11:56 Think about areas like defense. Are you following that money as well? Yeah, I think that is the biggest story.
12:03 I know AI is a big story, but we are in one of the biggest fiscal impulses really now. I mean the
12:11 US is the biggest, biggest economy in the world and has the biggest fiscal impulse. Canada has now joined the party. Europe is like every country
12:18 is now spending heavily on fiscal. This is the dominant story. I think the challenge with fiscal and
12:25 policy and incorporating it into equity analysis is you'll have long periods of time where policy doesn't
12:33 really matter and it's very easy to get caught in trying to read through something that doesn't move the needle
12:40 and I think but we've seen this sort of trend direction and if we were to put a flag pole in the road, map the 2016 election in the US where
12:49 they cut taxes into a full employment, strong economy. It's like, whoa, that's different. And then the economy was strong.
12:57 It's almost like fiscal is now being used for partisan purposes of you're trying to make the economy look as strong as possible into an election.
13:05 And it's probably going to happen here, too. And then you had spending through COVID, you had build back better, you've had the chips act, there's a huge
13:14 amount of fiscal spending, that big beautiful bill, that is the growth in the economy. And so the challenge is then
13:22 filtering through where is this impacting actual profitability of companies and we started to really see this in 2020 where you'd be on a
13:30 conference call listening to a company's results and one of the companies on my picks list we could talk about later was on this list and
13:38 the CEO is like we had great results, our customers received the check from the government and so they're spending it in the store and I remember
13:46 we had an investment meeting internally after, I was like, is this a good thing? Is it a bad thing? Does this
13:53 mean that earnings are going to roll over when these checks stop? It was a confusing moment because you don't
14:01 know how to read, are then earnings not a real number? Because if earnings are just being driven by these fiscal checks,
14:08 is that temporary? And so we've now been in this period of years of excessive fiscal spending into the economy and you're now doing it in almost like the new ZIRP.
14:19 Yes, absolutely. Central banks.
14:20 Well, you probably remember this, there was a book, The Only Game in Town in 2014 or 13 where it
14:28 was all that mattered was interest rates and interest rates were zero and they were never going to rise. And through COVID I think the government woke up to saying
14:35 oh we can actually pump fiscal spending into the economy. It can be direct. It moves inflation. It will move the
14:42 nominal growth in the economy. And then there are clearly sectors in the economy that are benefiting more so than others.
14:48 And so we try to think about that in corporate results. And the more that we've seen corporate results and corporate earnings impacted by fiscal,
14:57 we've tried to be able to sort of not always anticipate that, but be aware of it.
15:02 Can you give me the three sectors benefiting the most?
15:05 Industrials has been huge. I think consumer as well, like when the government is providing consumer benefits or money to people
15:13 that's tough though, look at Nike, look at General Mills, right? When you say do you
15:20 want to get into the names or I can wait, describe the characteristics. I'll describe the characteristics. There are certain parts of the consumer market that are
15:29 more essential services and so I totally take your point, discretionary consumer has been hurt and this is sort of the K-shaped world that
15:38 we're in. There's impacts of tariffs and whatnot, but there are some segments of the consumer market that are more resilient. They're
15:47 more essential purchases. They're smaller dollar purchases, but on a repeat basis. Those parts of the
15:54 market have been supported. But the problem is you'll have these fiscal impulses where if benefits get increased, you'll have a
16:02 wave of consumer spending. You wait for the thing at the beginning of this year was it's going to be a big year for tax returns or tax
16:10 refunds in the US so that was going to drive consumer and so on the consumer side we try to be more focused on durable trends in consumer spending. But
16:19 consumer, industrials, obviously technology which are now benefiting from a lot of this, the chips activity going on, defense, so there's a lot of
16:27 sectors in the market that are benefiting from this fiscal and this can all continue as long as governments can keep borrowing at
16:34 attractive rates. And I think everybody knows how it ends, right? The yield spikes and it becomes untenable. No one
16:42 knows what's the catalyst going to be for that.
16:44 Well, I think, and when. Yeah.
16:46 The story of 2026 that hasn't been told yet because there's been so many other stories is that long-term interest rates are at the high everywhere in the
16:54 world. Japan 30-year rates, Germany, France, Canada, US. So the long end of the interest rate curve is saying, you
17:01 can get 5% rates of return on 30-year bonds, which it used to be 2%, we're back to levels of mid-2000s. So the sleight of hand that the
17:09 governments and the treasuries departments do is they don't fund at the long end. They fund 12 months and 18 months. So that's where all of
17:18 the fiscal issuance has landed. That gets put through the banking system which gets rehypothecated and leveraged into the market. So that is the
17:27 playbook though, is yeah interest rates will go higher. The dynamic though is that your fiscal spending is so high and it is increasing that you're
17:35 getting to this overall level of debt burden where even at these interest rates the US is going to spend more on interest this year than they're
17:42 spending on defense or on Medicare. And so if the debt continues to get bigger that number is going to go higher.
17:48 Say that again because how much they spend on defense is already so large.
17:53 Yeah. I think what's so interesting, and we started looking at the US fiscal situation really kind of mid-2010s,
18:01 it's very simple to look at and run a forecast, it's probably the thing that's easiest to forecast because
18:08 Social Security, Medicare and Medicaid are legally mandated payments and when Americans turn 65
18:17 payments grow, so all of those line items are compounding between five and 7% a year. So when we looked at this,
18:24 in 2019, US debt was about 20 trillion. We said, well, it's probably going to be 40 trillion in a decade and we were wrong because it's 40 trillion now.
18:33 So it's less than a decade. So we play with these scenarios in the office and try to figure out what it means. But why aren't you all golded up? Why don't you have gold bars in the office?
18:42 So we did, we owned a lot of gold for a long time, and we had been positive when it was less fashionable to be positive, which we had to ride through for a couple
18:51 years. Anecdotally, we wrote a letter or a quarterly letter in September last year that was like all about
18:59 gold. We're very positive on why we own gold, why we liked it.
19:02 It was as positive a gold piece you could write as a non-gold.
19:07 Yeah. I don't think of you guys as, yeah. So the feedback we got was why don't we own more gold for clients. It was like, whoa, that is like
19:15 as a phase shift of sentiment it was beginning to be there last fall and then through January and February when you have that sort of
19:23 panic, again parabolic move, it made us take pause, we've cut several of our gold positions in half
19:30 we still own it, we would own it for the long term, we are a core weight in gold, but we had got up to almost mid-teens weight and so we just said it's too much and they've run too much. Okay.
19:42 So that was actually a great time to sell January, February, and it sounds like you'd be willing to be opportunistic again if it came down enough, but we're not there yet.
19:52 Yeah. I think a lot of the move in gold had become overextended. I think the long-term
19:59 positive outlook for gold is still there. But the way we think about managing
20:06 our exposure for clients is just making sure that we're not too far mispositioned at the wrong time because
20:15 if you're full weight in gold into the high and you then have to ride it for a year or two years, we
20:23 could be in a multi-year correction now for gold because we had a big run. It would make sense, it would be healthy.
20:29 So we're trying to be thoughtful of not overtrading, but also treating our more cyclical businesses
20:37 with the idea that they could mean revert. We don't want to be too overweight at the wrong time. And so taking profits on gold at the beginning of the year, we felt was
20:45 hard to do, but it felt like it was the right thing at the time.
20:48 And you were right. And we've talked, so you're overweight financials, you like industrials, the consumer sector. Does this mean you're
20:55 underweight tech and underweight the AI trade? So we are, that is like the one part where we are underweight from, if you were to say from an index
21:04 level, and that might not mean you don't have exposure because the index exposure is like 35, 40%.
21:12 Yeah. So we've stayed away from that space and we're exposed or trying to own things that
21:21 benefit from this AI spending value chain if you want to call it that. So there are industrial businesses that we've owned. There's a couple we own
21:28 now. We've owned some in the past that are in that theme, if you want to call it that. We try to be, again, when
21:36 you're in a sector that is benefiting so immensely from an animal spirits capital spending boom, this is a boom
21:44 bust cycle. So by definition then it's not in the super stable consistent business bucket. And so for that reason
21:52 it's just something that we've said, we have views on what's happening but we think there are more consistent things to own. So that is the
22:01 one sector where we're not in this sort of full-bore like many people have been.
22:09 Does that mean how willing have you been to be contrarian in software because that sector's really
22:17 been beaten up thanks to AI.
22:20 Yeah. So if I were to describe where we're spending our time is going through the list of
22:27 businesses that are profitable, have high profitability, but are at risk of AI disruption. And that's
22:35 been a space that's been really hurt this year. But we think that there's a lot of interesting opportunities. And so we're trying to go through that
22:42 thoughtfully. I think it's hard because you're in a market where the results for software
22:49 haven't even been bad yet. You've just had this dramatic multiple compression.
22:54 And so the concern is that when you get to the point where AI actually hurts the numbers, you could have much
23:03 further to fall. At the same time, if some of this base level profitability for software can remain where it is and
23:11 they can start doing buybacks and all of this, it can be very accretive to buy back your stock at 10 times earnings. The problem is the
23:20 shareholder base for a lot of these companies are used to a certain growth rate that might not be the case anymore.
23:25 And so you're probably in the early stage of turning over a lot of the shareholder base, which can then be a very choppy period, which is what you're
23:33 starting to see. A lot of them are trying to bottom, but you're still having, they'll rally and it'll get sold. They'll rally and so you're in that
23:41 turnover phase. And I think the AI threat is still real, and I think people have to be wary and concerned of that.
23:48 Well, let's see if we can find some of those early opportunities and get into the mailbag.
23:55 The mailbag is brought to you by Hamilton ETFs. The traditional 60/40 portfolio, 60% stocks and 40% bonds, has been a cornerstone of investing for
24:04 decades. But it relies on one key idea that stocks and bonds offset each other.
24:09 And in today's market, that hasn't always held up. And it isn't always about performance. It's about managing volatility. That's where the Hamilton
24:17 enhanced mixed asset allocation ETF, ticker MIX, comes in. Think of it as an evolution of 60/40. It combines 60% equities, 20% bonds, and 20% gold.
24:30 Gold acts as a third layer of diversification, which has historically been a safe haven during market stress and inflation hedge, and less correlated
24:38 to bonds and stocks. So, instead of relying on two asset classes, you now have three. When you back test the mixed
24:46 asset index back to 2004, you get similar returns to the S&P 500. And when you add leverage, modest leverage 25%, the index has historically outperformed.
24:57 And importantly, the index's volatility has been lower with this 60/20/20 approach. Even after modest leverage, and the index's drawdowns during market
25:06 selloffs has been less. An example is during the financial crisis, the S&P 500 fell 55% peak to trough. The mixed asset
25:14 index only fell 27% and even with leverage, it only fell 33%. So you get historically shallower declines,
25:23 smoother returns, and typically faster recoveries. And that can matter because investing is not just about returns.
25:29 It's about whether you can stay invested long enough to achieve them. Mix is designed to seek long-term growth with a more balanced and more manageable
25:38 investing experience. A modern mix of stocks, bonds, and gold built for today's market. For more information, visit hamiltonetfs.com or visit the link in the show notes.
25:53 Okay, we've got a question from Amy.
25:55 Would you consider picking up shares of Thomson Reuters after the big software selloff?
26:00 So, Thomson Reuters is one that we're looking at. They've had a really stable business in legal
26:08 software, legal services, tax and accounting for a long time. I think the challenge we had when we looked at it a couple years ago is it was at a very
26:18 high multiple and so it was a good business at a high multiple which just meant that expectations were really high and if anything were to have
26:26 changed you were likely to be in a scenario where the share price could decline. Would not have guessed that the shares would have declined like they have. They've started doing
26:35 buybacks, or announced that they're starting to do more buybacks here, but again I think you're in a transition period for this business
26:42 where the market had priced their legal business like it was bulletproof. Is it going to be disrupted
26:50 by AI? Probably not fully, but in some ways it might. And so, no matter what, the multiple for the business has to come down.
26:58 People will say, I don't think a big company's going to rip out this software. I think it's less about that.
27:05 It's about the next big company that just doesn't even use Thomson Reuters, right? Because they start with
27:13 something else. They start with something more AI native.
27:16 Well, the other thing too is that's definitely the case, but also pricing power, pricing power for most of these businesses has basically evaporated
27:24 because at best if you're a software provider, if you're keeping your customers, that's great. But the idea of
27:32 going to your customers and saying, "Oh, hey, we're going to raise prices 5% or 10% next year," good luck because you are then going to be on the radar
27:39 for a chief information officer to say hey we're not paying, you're not feeding price increases through. So the
27:47 pricing power for a lot of these companies has kind of evaporated. The profitability has not yet. And so that's sort of the, what do you
27:55 pay for a really profitable business that is growing at a lower rate that has lost some of its pricing power and you're kind of in the midst of
28:03 figuring that out. I would say that if these things are going to be at 10 times earnings I think that's way too low because if you're a
28:09 Thomson Reuters, capital expenditures are not that high and so if you just take your cash flow after capex and just buy back stock, over 10 years you'll
28:18 buy back more than half the float. So you're in a phase where the market has to figure out what that multiple is. We're looking at that
28:27 name. It's a big, would have been a big index name. It's probably now in the top 20. Mhm.
28:32 It's not one that we own, but we're actively looking at it. And I'm just looking at the revenue growth projections. They're not slowing down. If anything, they're picking up.
28:41 And is that wrong or, we shy away from projections because we look at, we like to look at, we go through financial
28:49 statements a lot, but we look at profitability. We look at capital allocation, and this was something you experienced early in your career.
28:58 You realize you can basically make a model look like whatever you want it to be based on what assumptions you feed it. So whatever the assumptions
29:06 are, it's better to look at capital allocation and is it profitable rather than kind of make up the numbers.
29:12 What about in the US like Accenture and Intuit, do these all fall into the same bucket? They've also been run over.
29:17 Yeah. So those two are similar but a little bit different, and Accenture is probably the closest comparison to Reuters. If you were to
29:26 put that basket together, I think Accenture is at risk of people revisiting their consulting
29:34 budgets, and if you're having consultants, maybe your consultants are using AI, you're probably using less consultants
29:43 and companies are going to be less willing to eat a large consulting bill. So again, the pricing power is gone.
29:50 Again, it's a high margin, high return on capital business. I think return on capital is in the 20% range. Intuit I think is the most interesting
29:58 because it is so profitable. There are so few businesses that have 80% gross margins that need almost virtually no capital investment in the business.
30:08 Again the challenge, they operate sort of QuickBooks. They do Mailchimp, they do a lot of the other tax software.
30:17 I don't think those things are going away but are they going to have their prices raised every year? Probably not, and we were in a decade where these
30:24 companies could raise prices every year without having new capital in the business and so people were willing to pay 30, 40 times earnings and that's
30:33 quickly evaporated. But Intuit I think is around close to 10, 11 times earnings, if they can maintain anywhere near this level of profitability shares
30:42 are completely mispriced. If AI disrupts their business maybe it's a fair price. So you're trying to figure that out, which again, time will
30:50 tell how AI affects these businesses.
30:53 Another painful area in the market has been healthcare. We've got a question from Eric about Boston Scientific and GE Healthcare. Both down for different
31:01 reasons. Boston Scientific had some issues with their Watchman product and GE Healthcare because of their margins
31:09 and order growth. Are these stock specific selloffs or is it a broader warning for medtech? So I think medtech
31:17 is an interesting sector because a lot of the companies in that space, so Boston Scientific,
31:24 Stryker, GE Healthcare, each company is so dominant in its
31:31 high-touch device or service that it sells to hospitals and doctors. I think part of what happened is that you
31:38 had, for several years through COVID surgeries were lower. You had the sort of healthcare reshuffle and
31:46 then you had all these surgeries come back online. So profits look great and everyone needed more devices. And now I think you're back at a point where
31:53 growth is sort of moderating and again the challenge with any kind of growth equity is that when growth slows,
32:01 multiple compression is the next thing that happens. These can be great businesses. But I don't think they
32:08 are necessarily going to trade at the same high multiple that they were priced at previously. And so that kind of puts it in the too hard for us bucket. We have
32:17 healthcare that we own, a company that we've owned for now just about a year, but we think is really interesting. It's called Medpace Holdings. Okay.
32:24 And what we like about it is they do essentially clinical research trials. They run the sites for
32:33 like pharmaceutical companies or venture capital, they're doing healthcare pharmacy development. So Medpace
32:40 actually operates the facilities that these pharmaceutical companies are then using. It's run by a gentleman who's a doctor in Ohio and he's a large
32:49 shareholder and started, he was essentially a doctor in the 90s and realized that this was going to be a growth industry where more and more money was going to be
32:58 spent on research and development in the pharmaceutical industry and could they build a high free cash flow, high margin healthcare
33:07 business but you're not subject to pricing on drugs, you're not subject to sort of regulatory threats, you're
33:14 not subject to slowing growth in your devices. You're essentially the toll booth on R&D spending, which is
33:21 a great business. And its market cap is probably 10 billion or something. So, it's a smaller one.
33:29 So, the ticker is MEDP. Yeah.
33:32 I'm curious how this will do with AI drug discovery. Is it a net
33:39 winner or a net loser? Because AI in theory should help expedite drug discovery, shorten clinical trials, how do you think about that?
33:49 Yeah. So, it's a good question. So, you could frame it in, does that mean more R&D spending for pharma
33:56 because there's more drug discoveries and sort of pharmaceutical benefits that you could find. What I think
34:02 we've learned now owning it for about a year that was interesting, we didn't understand or appreciate this at the outset, is their results and when you
34:11 listen to the quarterly results, I know the analysts sort of have a heyday on this, but they're driven by the cycles in venture capital funding for pharma
34:19 and so where is the cycle good right now?
34:25 Yeah, it's been, so expectations two years ago were really low and the results were like out of the park and
34:33 the results were good in the last quarter but I think the expectations were that they would be better. So the shares had come off a little bit this year. But we think, where
34:42 they're really good and this goes back to our consistent sort of filter we look at, there is very little capital needed to be reinvested in the business. And so, where they've been
34:51 really good is they'll accumulate cash on their balance sheet. Shares will go down and two years ago they bought back 10% of the float very quickly. So,
34:58 they're very good at allocating capital, but the business does not need high levels of capital spending. So, AI could
35:05 be a threat. But I think it's more likely that AI is probably going to lead to more R&D spending, which is good for them in the long run.
35:12 Okay, MEDP. I like that. Kind of an unusual, not a typical name that you'd hear about. So, something to do your homework on. One name we get a lot
35:22 of questions about shifting to the energy sector, Canadian Natural Resources. Mindy asks, it's often one of those names that people say, you just
35:30 can't go wrong, just own it. I mean, it is down 20% since March. What do you do?
35:35 Yeah, it's a good question. So this is one that we've owned since 2014. And I think the challenge, we discussed this in January, February
35:43 internally is, into that oil price spike shares were up and we debated, should we cut it in
35:50 half? Should we sell some here? The challenge is if we were to cut it in half, it's the only oil name that we own and if we were to have sold some we
35:59 would have gone to probably a 2% weight in energy or for oil which felt way too low. And so the problem when you own
36:06 these quality long-term businesses, even if they're in the energy space, is that you kind of want to own it and not
36:14 think about it. It's a bellwether. It's one that, there's not a lot of embedded growth, but they are so
36:22 efficient and so profitable at running their projects and their oil projects. So,
36:30 it's one that you want to have exposure to. Did you ever talk about switching out to Suncor, like when Rich Kruger
36:38 came on the scene and there's a lot more low-hanging fruit, right? CNQ is excellent. It's always excellent. It's supposed to be excellent,
36:46 right? Suncor had that opportunity. It had fallen and then you had kind of a change come on.
36:52 Suncor has done amazing. It would have been nice to own that as well. I think, but again you're, so new CEO did a great job. I
37:01 think there were some legacy issues internally that he was able to sort of clean up a little bit. Obviously they were benefiting from
37:08 their refining business in this crack spread blowout through the first couple months of the Iran war.
37:15 Again, it's one that you could probably own for a long time, but if you're buying a full position here, you're just, look on a 30-year
37:23 chart, you're buying a parabolic. And again, it's a great business to own. We think that their low cost profile, their ability to
37:32 manage through different cycles, for those reasons, we prefer to own CNQ.
37:36 Let's talk about energy infrastructure pipelines. South Bow kind of went nowhere for a while and it
37:43 has taken off really in March and June. What do you think about South Bow?
37:48 They're having a good year. This question from Dean. It's the Keystone, spun off from TC Energy
37:56 and they've got some potential growth, right? Down the pipeline.
38:01 Yeah. No, it's one that we own. We like it. We were very familiar with that asset. We had previously
38:08 owned TC and when they spun that out, we really like South Bow. I think the question at the time was it was spun out with a little bit higher debt levels
38:16 than I think would have been ideal and the question is you don't have a lot of embedded growth or they didn't at the time but again, what makes South Bow unique
38:26 and some of the other energy infrastructure is similar, but they're able to fund their dividend through cash flow and so we like it
38:34 because it's a pure play project that does not have substantial capital investment needs and so through that it just means that we view the dividend
38:43 to be much more sustainable. If they have a little bit of growth in the future, that's great, too. But we really like it from the dividend.
38:50 So that's interesting because I think what excites people recently is that they've got this Prairie connector which would revive parts of
38:58 Keystone XL and bring it right to the border, right from Alberta, bring it right to the US border. So,
39:06 we're kind of there and then you need another asset to plug into at the border. Are you there for that story
39:14 or is that a nice to have but not a need to have?
39:16 It would be a nice to have and not a need to have. And the question we would ask is how are you going to fund it? And if it's not internally generated cash
39:24 flow, then it would be okay. We try to avoid companies that are either using debt or need to
39:33 issue equity to be able to fund their projects. In the energy infrastructure space, we went through this a couple years ago. Our concern was
39:41 that interest rates were higher. Some of the debt levels for many of the companies was getting really high and we wanted to make sure we own things that
39:48 had sustainable dividends that were living within their means in terms of cash flow. So the concise
39:57 answer would be it depends on how they're funding it. The debt levels on South Bow are high. So even thinking of it on the spot,
40:05 the stock's up. I'm sure if you were an investment banker you'd say hey you should sell some equity here because your stock's up like that.
40:10 So I don't like that. We try to avoid that. But from a corporate finance perspective that's what the textbook says you should do. So I
40:18 understand. So would you, if they make a final investment decision, they're going to go ahead with it. I've seen analysts say this is
40:26 worth five bucks a share to the business. Sounds like you're a little bit more skeptical.
40:32 So I'm skeptical whenever a company has to raise equity, that's where we get skeptical because the way to
40:40 think about this is ultimately you're selling part of the business to grow, which a lot of companies have to do. It's better when you
40:48 can do that through internally generated cash flow. And so right now South Bow I think has benefited from living within
40:55 their means. Dividend has been really sustainable. It's a great asset.
41:01 There may be some growth here. Our question would be how do they fund it?
41:04 And if anything were to change on our view on it, it would largely come down to that. We've got a question about Enbridge.
41:11 What do you think about that stock? And this question coming from Roman.
41:15 It's also done very well. Yeah. So, Enbridge is an interesting one. So, we had owned it for a long time and this
41:23 is going back to before I joined Avenue. So, when they bought Spectra and we looked at that deal, this would have been 2016, 2017. The
41:31 challenge we had at the time is there was a huge amount of equity issued and a lot of debt.
41:37 Every CEO will always tell you why every acquisition is transformational. And the challenge that they've run into
41:46 is that debt now is above 100 billion and they've had to do equity issuances over the last couple, not
41:54 in the last two years but three, four years ago, seven years ago they had to.
41:57 So the share count is now up and so the problem with Enbridge from a financial, but they did it, I'm looking at that issue, they did at 44 bucks stock, 75, it
42:06 was fine, totally. So will I, I love your sweatshirt on this, on the EBITDA. So Enbridge is a textbook example of why
42:14 EBITDA is a bad number because essentially they're not living within their cash flow. So simple numbers are, cash flow is 11
42:23 billion, capex is 9.5 billion, the dividend's eight. So the question is there's a deficit. Where does that come
42:30 from? Well, why do you think the debt on Enbridge has to grow every year? Because they can't fund all of this internally. The challenge they've
42:37 had with these equity issuances is that the cash outlay for the dividend is now over 8 billion a year.
42:43 So EBITDA, earnings before interest, taxes and depreciation, they're paying 5 billion a year on their interest. So
42:52 you were saying stripping that out is not honest. Well, it's not an accurate reflection.
42:58 The biggest challenge when we look at Enbridge or a business that has that same characteristic is that the way the depreciation on
43:06 their income statement is about half of what their actual capex is. So their depreciation cost is about 5 billion.
43:12 Their capex is about 10 billion. So the problem is EBITDA is a wrong number because they're having to invest more in their business. But without
43:20 getting too great, No, I've got Greg Abel coming on the show now, taking notes, without getting too wonky on the accounting, essentially the dividend on a dollar value
43:30 is really high and they're, I'm sure they've got great projects that they're investing in. The problem is they are not spending within their cash flow.
43:38 They have to raise, again that's a stock that probably should raise equity.
43:42 I'm sure that's probably a question that they'll get. And I think the risk is when you're in a lower return on asset business and a lower
43:50 return on capital business that is growing through acquisition by issuing equity and debt, you're putting yourself
43:56 in a weaker financial position and there's a risk that they run into challenges with how they try to finance some of their growth going forward if the window closes.
44:05 And that view is just a perspective but if you look at the share price you'd be like well that is a completely wrong view because the
44:12 shares have done well. So it's not to drive the disconnect between that, the shares have done well but when we went through this a couple years ago we
44:21 wanted to make sure we own things that could fund their growth internally. And so that's how we've repositioned some of our energy exposure. At a high level, we're at a
44:29 moment in time in the country where we're asking who's going to step up to help build this West Coast pipeline that's going to be proposed by Alberta.
44:40 So far, they're just a proponent and no private sector has put their hand up. And again, we've got Greg Abel coming up on the podcast and we'll get
44:48 to that. Yeah, we're going to talk about all of these things. I wonder if some of it is the financial constraint that you're talking about, why they're not
44:56 rushing to help finance some of these pipelines.
45:01 I'm not sure. And we, when we try to look at things and say, okay, what is really consistent, what lives within its cash
45:10 flow, what returns on capital is a business earning. If when you grow by acquisition through debt and by raising
45:18 equity, you put yourself in a financial constraint because the other challenge that Enbridge had or has, which is similar to the Telcos are now
45:26 kind of through the challenging part but are still in it, is that they built a shareholder base that was
45:34 really expecting not just high dividends but dividend growth. And the problem when you have a business that is a 5%
45:41 return on capital business and you're paying 5% interest on your debt, if you're growing by acquisition, those economics just don't work. So you
45:48 can grow and the market can support you and it's a large index component. Stock has done well.
45:54 It's a great business from a Canadian necessity perspective. It's a business that will always be around, but that doesn't mean that it has to be a good
46:02 business for equity holders. And the challenge is these projects are expensive and someone's going to have to finance them. Again, maybe you
46:10 have government or private partnership or some of the pension plans all come together. That's probably most likely to happen, I would guess.
46:19 especially because the last pipeline was supposed to cost 5 billion and it ended up costing 35 billion.
46:25 Yeah, the capex, the numbers on these companies is never going down. That's the takeaway. And so
46:33 again, living within your means is critically important. Interest rates could rise. We talked about this a little bit earlier. You're exposed,
46:40 you're exposed to refinancing risk. It doesn't mean that the shares can't do well or can't continue to be okay, but there's a risk
46:49 in their capital structure which is not reflected in the price of the stock.
46:52 Okay. A great discussion on those pipelines. We've got a question on WSP Global, which on one hand you would
47:01 think, you said industrials, fiscal impulse, people building, infrastructure, you'd think WSP, an
47:08 engineering company that consults and does construction would do well in that environment. Instead, the stock's down
47:15 30%, it's at a multi-year low. And it's because of AI, I think. People are afraid that you're just going to go
47:24 on Claude and say, "How can I build this building?" Yeah. Well, going back to our conversation from the beginning.
47:30 These kind of structural or engineering consulting firms were really at, had a huge tailwind from a lot of the
47:38 fiscal spending and had benefited. We've gone through, we don't own WSP, but we've gone through it. When you read some of their reports or
47:46 their presentations, the complexity of what they're building and the environmental standards, it's incredible what they're doing.
47:54 So why don't you own it?
47:55 Well, again, the challenge we had is that stock was expensive.
48:00 Expectations were high. So one of the picks we can talk about is more of the picks and shovels
48:07 in the ground play on this theme. But WSP again is on our list of companies that we're looking at. I think
48:15 the other concern more recently is they did an acquisition, has a little bit of debt. I think there's repricing on that. And again, you've
48:24 just had a huge run over the last decade in the shares and to have a little bit of a drawdown, I think would be healthy. The question is to get these shares moving again.
48:33 The other one that we look at where we would put together with this is Stantec, which is similar chart, similar dynamic, similar tailwinds. I
48:40 think Stantec's returns on capital are a bit better. So, we kind of favor that at the outset. But to get these moving again, you probably have to
48:49 have another bigger next fiscal push to get the stocks rerating again because right now you're
48:57 just, you'll have concerns about backlog and backlogs roll over and you'll have an election in the US and is there any retrenchment on fiscal and so
49:05 you're kind of in a pause in that tailwind and the question is if it reignites again and there's fiscal for
49:12 more large scale infrastructure I think these stocks could work again. So again, they're on our list of things that we're looking at, but you're not there yet. We're not there yet.
49:19 Okay. We'll let you go off on National Bank, which you said was one of your favorites. We actually had a question from Charlie about, and
49:28 we've had a previous guest say National Bank was their favorite. Let's spend a minute on that National Bank story because small but
49:38 mighty, right? It really has become, maybe it was kind of an afterthought to portfolio managers like 10 years ago
49:46 to now I think it is, as you said, like Royal, National, these are names that now people are putting together, so it's interesting. Yeah that timeline's
49:54 interesting too because I remember when the oil price decline 2014, 2015 happened, National Bank
50:02 issued equity, but they had grown a lot in their oil and gas portfolio so they had oil and gas loan issues. I remember it was one that when
50:10 we went through we said, "Oh, there's exposure to the oil downturn," which, your legacy was as a Quebec based lender. They've got some
50:19 good fee businesses like their custodian business is a great business. They've got a good franchise in wealth, but it was, oh my gosh, you all of a
50:27 sudden have all this oil and gas exposure. And they sort of were in the penalty box. This would have been 2015, 2016. But they've really again
50:35 focused on the important client relationships and building a good resilient business in Quebec.
50:43 New CEO did a great job with the Canadian Western Bank acquisition. They acquired their Laurentian retail
50:52 portfolio in Quebec. So you're now even stronger in Quebec.
50:56 When we would look at the banks every year, National Bank was always the highest return on equity going back 10 years. When they started to clean up
51:04 their oil and gas loan portfolio and just focused on their key businesses.
51:09 It stands out in terms of profitability. It's probably at the higher end of valuation now for it and the sector, but we think
51:18 it deserves a higher multiple because of the quality of their earnings. And again, when we went through the banks four years ago, five years ago, their
51:27 mortgage book looked the best because they had been least aggressive with growing their mortgage portfolio through 2018, 19, 2020, 21.
51:37 So, we think they are more immune to a down credit cycle and we think they have high fee businesses which drive
51:44 better ROE. So, for us, it's one that we like.
51:47 That's a good point about it deserves a higher multiple. I think it's 17 times right now, which
51:55 expensive. That is not cheap. Are you saying this is the new normal?
52:01 I never want to say that. So, it's one that we've owned, I'd say, for probably four years.
52:07 And we're happy to own it, again we own Royal as well. We've owned Royal for 22 years. And Royal is always expensive.
52:16 Yeah. And again, Royal has always had kind of the crown multiple. Mhm.
52:20 They didn't get into some of the acquisition troubles that some of the other banks did and their core banking,
52:27 wealth management, capital markets arm is really strong. But all the banks have done well. So it's
52:35 not even, I'm sure some of the other banks like TD and BMO, I think BMO was up 40% on the year, so they've all done well. So
52:44 you're, we're just, again when we go through the banking sector we're trying to find the business lines that we think are the most consistent. You
52:51 know which banks are doing that the best and then let's pick two and stick with them and not own all of them because we think that there's other things to do.
52:59 All right, let's find out what those other things are and get into your pro pick.
53:09 Pro picks is brought to you by ATB Financial. With over 100 billion in assets, ATB Financial is powering possibilities for more than 843,000
53:18 financial services clients. ATB Cornmark Capital Markets is a leading North American investment firm providing holistic corporate and capital markets
53:26 advice and full-service financial solutions. Visit atb.com/inthemoney for more information.
53:34 All right. You've brought us three very different ideas, but they fit into your worldview where you're just looking
53:41 for resilient businesses. And the first one, I wouldn't say sounds resilient based on the sector that it's in. It's
53:49 AutoZone. The stock's under pressure. A distributor of auto parts, which sounds like a very cyclical, fickle kind
53:57 of business. Why do you like AutoZone here?
54:00 So, AutoZone is a really interesting business. So, we've owned it since 2020. And I think when we looked
54:06 at, again trying to find certain parts of the consumer market, consumer economy that we thought were resilient, when we
54:14 looked at AutoZone and the automotive retailer generally, I think what stood out to us is that it's very
54:23 separate from what the economic cycle is doing. And it's a proxy for the age of cars in the US and miles driven per
54:31 year. And the miles driven per year is very stable. So there's about 300 million cars in the US. The average car is driven 11,000 km a year. So it's
54:40 about 3.3 trillion miles driven.
54:44 That number is very stable and has been for almost decades.
54:47 The challenge in the car market right now is that the average age of cars is almost 13 years. So that means a majority of cars are off warranty.
54:56 People are keeping their cars for longer. Also the cost of new cars is higher and the cost of financing is higher. So I think there's a structural
55:04 demand behind automotive retail parts that has a long duration to it.
55:09 The other thing that's unique about it is that the sector as a whole is not growing. So AutoZone has a dominant
55:17 position in the do-it-yourself. They're smaller in the commercial part of the market. Their competitor is O'Reilly and that's been a great stock
55:25 as well. It's a great business, but the overall number of auto retailers is flat and has been over the last decade. So, this is something that we looked for as
55:34 well is what is a business that we think is going to be doing the same thing 10 years from now and is this supply in that industry growing and it's actually
55:43 shrinking and so the demand is there and growing. Again, the problem is you had a run. This was the company that benefited, on
55:51 their, the CEO had said we had a great quarter. Everyone spent their dividend checks, their fiscal checks at the store. That's
56:00 not great. But the other thing that is good about them or where they've been prolific on two things is that they've been one of the most prolific buyback
56:07 companies. So they've bought back more, their entire market cap several times over since the 1990s because they
56:14 do not need to invest as much in their stores and they already have a dominant position in the market and then their bigger growth sector is now actually
56:23 investing in South America. And they don't go out and buy companies either.
56:26 There's been no acquisitions ever. So it's just a pure organic growth. It's down almost 30%
56:33 over the past year. You've done so well since 2020, talk to me about why it's pulled back even if all these
56:41 fundamentals are great and whether now is an attractive entry. Yeah, I think the challenge that they've run into is that
56:49 they were at first exposed to tariffs and exposed to issues with China and then before the
56:57 liberation day tariffs it actually almost got a better multiple because I think people realized oh we're tariffing other countries, that's going
57:05 to mean less new cars so it means that domestic car supply has to get further which means more auto support. So you've been in a
57:14 market where the multiple on the stock has fluctuated and earnings have kind of stalled in the last couple of years and so we view this last drawdown as sort
57:21 of a multiple compression. But again that means that I think the shares are at a very interesting point and again they're good on buyback. So
57:30 they're taking cash flow after investing in their businesses. They're buying back shares. We think that they've done a good job on that over the
57:37 long term and so we think that the demand drivers for auto retail are really strong and we think that it's going to be a continued part of the essential economy for consumers.
57:47 You've mentioned you like industrials.
57:49 One way you want to play that is Toromont which is Canadian. It sells Caterpillar
57:57 equipment. So talk to me about that business and why you wouldn't just buy Caterpillar. So we've
58:04 known Toromont or followed it for a long time. It's the largest publicly traded Caterpillar dealer. It's very well-run company, has
58:13 been for a long time. I think they've done a really good job growing their service business and they've done a really good job at growing their other
58:20 segments. So they have a rental equipment business. They also do all of the ice rink ice machines.
58:26 So they've got these little other parts of the business that are good. Where we liked it is that we think that the service part of the business and their
58:34 part supply, you go to any construction site in North America, there's either Caterpillar or it's John
58:42 Deere. And so it's so embedded in this fiscal push of all of the spending.
58:47 And again, Toromont, any road construction site in Ontario, that is a Toromont site, you go to any construction site,
58:56 they're running the equipment on it and servicing it. We could own Caterpillar.
59:00 Again, it's trying to go through the list of Canadian industrial businesses and find ones that we thought were the most resilient.
59:06 And I wonder if these are kind of quasi AI plays, too, because you got to build data centers and that requires CAT or
59:14 John Deere equipment. One of the interesting things that Toromont did a year and a half ago, when we met with management a couple times, our
59:23 question was you accumulated all this cash on your balance sheet through the pandemic. You haven't really done anything with it. They're not a company that likes to do buybacks.
59:33 They're on the dividend aristocrat list. They probably raise their dividend every year, but they're very fiscally prudent on their
59:41 balance sheet. So he said, "Why don't you do buybacks?" and they said, "Well, we're waiting on a couple acquisitions." And again, my partner and I left and said,
59:48 "Okay, that could be good or that could be bad. We don't know." But they did a great acquisition a year ago, a year and a half ago, a company called
59:56 AVL Manufacturing based in Hamilton. And they had been a customer of theirs. But what they do is essentially these enclosure
1:00:03 modules for power systems, which has just completely taken off with AI. And so they're
1:00:12 building the modules that go into the backup power for all of these AI data centers. AVL had also been growing or
1:00:19 making investments in their Charlotte, North Carolina facility. So that's online. So you've got the benefits of fiscal push in Canada and you've got AI.
1:00:28 The problem, if we were to, Toromont is one we've owned for three years but it's in our good problem bucket now because expectations are
1:00:35 higher, the multiple higher, there's less room for error and I think again if you're going to have a slowdown in AI
1:00:42 spending which doesn't seem like it's going to happen yet, but this would then be rerated just because expectations now are much higher.
1:00:50 Your third pick, I own Couche-Tard, I bought it after during the 7-Eleven,
1:00:58 the market didn't like it and I said, "Okay, well, I'll just buy it. I'll just hang on to it." And then it did nothing.
1:01:03 And then last week it hit a record high. It seemed like all of a sudden it just, the market sort of moved on.
1:01:10 They're getting their mojo back it seems especially in their US convenience stores. Why do we like it here at this point?
1:01:19 So this is one that we've owned for many years. I think the interesting thing about them and I echo your thoughts on the
1:01:27 7-Eleven and sort of that playbook because, you probably remember this, remember when they were trying to buy Carrefour the French grocery,
1:01:35 didn't like it and then they said okay we're not going to do that, we'll stick to our core business. I think that the thing that's changed in the last quarter or in the
1:01:42 last 6 months is the overhang from the 7-Eleven is gone because you were going to have to issue, or they were going to have to issue equity and
1:01:49 do a huge debt deal to buy 7-Eleven, which we just don't like. We would prefer a company that can reinvest internally and grow. But what's changed
1:01:58 in the last couple of quarters is they're really now focusing on their merchandise and in-store experience in the US. The stock that's sort of again
1:02:06 parabolic has been Casey's General Stores. They've got the best consumer experience for gas station and convenience stores. So I think the
1:02:15 margins on fuel have been really good at Couche-Tard and I think that they're really now turning to their merchandising side of the business and if they can grow
1:02:22 that internally I think that kind of organic growth profile has people perk up and say, again stock had
1:02:30 good results, made new highs so we want to stick with things. Is the nicotine back too? I keep seeing what's driving these in store,
1:02:37 it's like all these new nicotine, yeah the patches, Zyn. Yeah, no I'm not in that Zyn
1:02:46 lifestyle. Yeah. But I think that's part of the business. And if you go to a Couche-Tard in Quebec or if you go to
1:02:52 a Couche-Tard in Florida, it's a different consumer experience, right? So they know where the large beer and slushies should be sold and where the
1:03:01 more Quebec food should be sold. So their consumer experience is really good. And I think if they can just drive better
1:03:09 productivity and better in-store experiences, they have such a large store network and they have a really good cost profile. So it's just so much
1:03:17 more incremental to the business by focusing on that.
1:03:20 What about the fact that it seems like they want to do a Carrefour, they want to do a 7-Eleven and they would have, had they not been in
1:03:29 both instances rebuffed by basically the countries, right? Who said, "No, you can't do this deal." Yeah. Well, I think it's, they'll find one eventually.
1:03:40 Well, I think they can't buy themselves, but I think they have a long history, Circle K was a big acquisition. They've
1:03:47 made other acquisitions over the years and they've actually been good at making acquisitions. They're in that rare category. A lot of them were funded by debt and then they
1:03:56 would pay down their debt. So, they're prudent. The other thing about Couche-Tard, which we like, is they also do buybacks. So they're consistently buying
1:04:04 back shares. We like companies that can be consistently profitable but also can shrink their share count over time because essentially you're as a
1:04:12 shareholder you're earning more of that economic value. So they're not taking advantage of the market. They have a lot of insider ownership. So their family is
1:04:20 still heavily involved in the business and owners. So there's alignment in that which is different from a lot of the companies that aren't like that.
1:04:28 All right. AutoZone, Toromont and Couche-Tard. Thanks so much for sharing these ideas with us.
1:04:32 Thanks for having me. Great to be with you.
1:04:34 That's Bryden Teich joining us of Avenue Investment Management. We're off to the Stampede for our next episode. We'll catch you then.