A Comment -- General Comments From an Expert (A Commentary)

That's right. They've been severely beaten up over the last few years. Massive outflow of funds out of Canada, and it hits the smaller stocks even more. A lot of retail investors put in fund redemptions last year, so that created many bargains.

Over the last 6 months, he added to many of his small- and mid-cap positions. Companies like QTRH, JWEL, and EQB.

Yes. He certainly wouldn't buy them all, but likes Telus and ENB a lot. As rates come down, the higher-yielding stocks that are still beaten up should start to stage a nice rally between now and the end of the year.

Real estate in the public markets has probably been the most unloved sector since the beginning of 2022. Record underweight fund flows into the sector. But all that's changing.

Fall 2023, with pivot from the Fed signalling the end of Fed rate tightening, was very constructive for publicly traded real estate. Historically at the end of a Fed rate-hiking cycle, REITs typically outperform to the tune of 24%, on average, in the 4 quarters after the cycle ends. 

Looking at the private markets, fundamentals in the right sectors continue to be quite strong. Pricing is now becoming more evident with interest rates no longer going up, companies can figure out their cost of capital. Public market should be a winner coming out of this.

Thinking about real estate valuation, so much focus is on interest rates. Why? Because interest rates dictate the cap rate, which is the going-in yield when a property is bought. There's nothing you can do about the cap rate, so you have to apply the cap rate to the net operating income of the property. Meaning where is income going in the future?

That's all he focuses on. Supply/demand fundamentals of different markets. He's intensely focused today on industrial warehouse real estate, such an easy call. Canada, US, globally. Rents today are 40% above where in-place rents are in leases, so that's a tremendous opportunity.

Also focused on housing including manufactured, and grocery-anchored shopping centres with defensive income and strong internal growth.

Definitely. You have to go asset by asset, bottom-up. Typical office building? Large-block user? Multiple users? Law firms? Tech?

For example, AP.UN's bread and butter has typically been the smaller tenant that typically will stay in their space but doesn't take as much space.

That potential is probably the #1 thing that makes him so excited about the publicly traded space today. You can buy this sector on sale relative to the private market. 

He can't overstate how important it is to the sector to be able to understand its cost of capital in this new environment. For example, Blackstone is taking over TCN. It will need to take on debt to accomplish this, yet it could still offer a 30% premium on the price, because its costs of capital were clear.

Huge opportunity when publicly traded market is trading at a discount and the private market has billions in dry powder. The fact that Blackstone is the largest buyer of REITs, and is focused on Canada, can only be a positive.

#1 factor in Canadian apartments and seniors housing. A large portion of immigrants are seniors, in the prime renting cohort that will look more and more to retirement living. Inter-provincial migration is another factor that makes provinces like Alberta so attractive.

Company Highlight - Docebo Inc (DCBO):

The No 1 performer on the TSX in February was Docebo Inc (DCBO) - whose stock was up 25% in the month; 16%YTD and 54% over the past year. From a low of $40.60 in early May, the stock price has risen jaggedly to close at $74.08 recently.

DCBO is a leading learning platform provider with a foundation in its mission to redefine the way enterprises, including their internal and external workforces, partners and customers, learn by applying new technologies to the traditional corporate Learning Management System market.

DCBO generates revenue primarily from the provision of access to its platform, which is typically provided on the basis of an annual subscription fee and prepaid on a quarterly or annual basis.

With over 900 employees across eight global offices, Docebo sells its products in approximately 70 countries and empowers nearly 3,700 companies of all sizes, providing access to learners situated around the world in a variety of languages   

Results for the quarter ended  Dec 31, 2023 (announced February 29, 2024) had revenues at $49.3 million, up 27%; net income at $3.2 million was up by 100%. Adjusted EBITDA $16 million with cash on hand of $71,950 million.
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At the end of Q1, we're nearing 5 straight months of gains with earnings expectations in the US will exceed 10% and 13% for 2025. Good news is market breadth: 80% of the S&P is above its 200-day moving average and 75% of the world MSCI too. Not just tech is rallying. But the RSI is high, so we're overbought. A near-term pause is possible before the next leg up, and healthy. This US presidential cycle could see some volatility this year, but since 1950 every presidential year with a first-time president has never seen a negative return, but 12.2%. The futures market expects three interest rate cuts this year.

Market Update:

Canada’s inflation rate in February unexpectedly dropped to an annual rate of 2.8%, the result was better than expected at 2.9%, indicating the Bank of Canada will have ample room to begin interest rates cut in the coming months. On the other hand, despite some hotter-than-expected inflation prints, the US Federal Reserve held interest rates steady in the range of 5.25% to 5.5% and maintained its outlook for three rate cuts this year. The Canadian dollar was 73.96 cents USD. The U.S. S&P500 ended the week up 2.3%, while the TSX was up 1.6%.

All but one sector rose this week. Real estate and industrials added 2.3%, each. While technology, financials, and consumer discretionary added 2.0%, each. Materials edged up 1.7%, and energy rose 1.4%. Consumer staples ended the week flat down 1.4%. The most heavily traded shares by volume were Lundin Mining Corporation, Power Corporation and WELL Health Technologies.
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The American economy is on a path to a soft landing which basically means no major recession and no spectacular growth. There have been little recessions over the last two years in different sectors, eg, the tech sector. He thinks Powell doesn't want a recession and that the market thinks there is now room to push rates lower, anticipating maybe three cuts. Market leadership is broadening out which is a good sign. He could see a 4% to 5% correction which would be healthy for the market and a buying opportunity.

The question was on his opinion of Telcos. They have been under pressure and performing poorly. They are still spending on Capex but their pricing powers are being lost. There is a real price war on cell phone packages now. Rate cuts in Canada will help dividend payers like BCE to rally. He is definitely not overweight in Telcos.

Markets at all time highs with strong commodity prices combined with tech strength. Not seeing rising interest rates taking any momentum of out markets. Seeing small amounts of rotation out of strong tech stocks into under valued sectors like energy. Rebound in China providing support to global economy. Demand for copper will continue to rise with increase in economic strength in China. 

Call Option vs. Put Option:

1. Call Option: Current Stock Price > Strike Price. This allows call option holders to benefit by purchasing securities below market value.
2. Put Option: Strike Price > Current Stock Price. Put option holders will benefit from stock prices declining below the strike price, indicating that they have the right to sell at a price higher than what the stock is currently worth.

Since options will only be exercised when the holder receives a positive payoff, the option seller charges a premium. Sellers get to keep the option premium no matter what, and the most profitable scenario for them is when options are not exercised.
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