Stockchase Insights

We think DOL is a very high quality name and are quite comfortable with it for a long-term hold. We are comfortable buying at the current price, but a good entry price would be $140. DOL would be our top pick for exposure here, but another option with more of a growth tilt could be ATZ. 
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The last quarter was a bit mixed, and thus the stock has not done a whole lot this year (down 16%). The balance sheet has a bit of leverage (1.5X cash flow net), but is in significantly better shape than it was in prior cycles. It is expensive on current valution but very strong EPS growth is forecast for 2025 (more than 3X). It has seen a few broker downgrades since the quarter, but if it can execute on its growth plan in '25 we would expect investors to sit up and pay attention. It remains fairly cyclical so the economy does need to co-operate here. There has been a small amount of recent insider buying, which is positive. 
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SMCI has decided to replace the CFO and add more senior legal leadership. It says it will not need to restate any prior issued financials. This is also positive. But...the company did not specifically affirm guidance. Customers certainly may have backed off on purchase orders, so for the moment we would not rely on projections. The stock is very cheap and momentum and short covering will likely take it higher. But we will be more comfortable when we actually see a reported quarter which shows growth has not been negatively impacted by recent events. 
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iShares S&P/TSX Canadian Preferred Share Index ETF (CPD):

We can see that as interest rates were aggressively hiked in Canada from 2022 onwards, CPD’s performance declined. Rates had previously been cut due to COVID-19, and CPD reached a price of $14 at the end of 2021. An interesting point brought up was that expectations of future rate cuts are priced into CPD which suggests limited upside. The expectation is that rates will be cut in December so to an extent, this is priced in. However, further cuts are certainly on the table and the economic response will be the determining factor. We think the Canadian economy still has plenty of progress to be made and future rate cuts would help CPD. Additionally, if corporations are able to effectively grow earnings, then the equity features of CPD’s holdings offer more upside potential than a bond ETF.

CPD has done well in 2024, up 19% due to the declining rate environment we have entered. CPD also offers a high yield at 5.25% so we see the potential in holding it in the short-to-midterm as it offers both income and a some growth upside.
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CJT was under tremendous pressure in FY2023 as the industry experienced a cyclical downturn while CJT invested heavily in capital expenditures. CJT’s profitability and cash flow were significantly affected in FY2023, which was reflected in its share price. That being said, the company has started to show signs of a turnaround as CJT downsized its capex investment, sold off assets to pay down debt, and aggressively repurchased shares. Given what CJT’s management has done, we think CJT could be a solid turnaround candidate, and the company’s prospects are better now than ever before. CJT is expected to grow its topline by around 6% over the next few years. We would be comfortable holding CJT here or adding some as the company continues to execute.
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RSI beat EPS estimates of 13c coming in at 14c. Revenue also beat estimates of $304.7M coming in at $333.03M increasing 10% year-over-year. Adjusted EBITDA was $141.6M up 28% year-over-year. The quarterly and full-year results look solid, with increasing sales driven by price increases and volume growth. The sales volume expectation for sugar in FY2025 is set at 800,000 metric tonnes. The sales volume for maple is expected to grow moderately by 0.5M pounds. We think the earnings were solid and RSI continues to be an OK value/income stock. 
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For its fourth fiscal quarter, XTC matched EPS estimates of 20c. Revenue missed estimates of $160M coming in at $155.4M, declining 3% year-over-year. The company's outlook for next year calls for $750M in  revenue, $120M in EBITDA, and EPS of approximately $1.50. XTC cited, "Despite current macro-economic challenges, including slightly increasing levels of unemployment, relatively high interest rates, persistent inflation, policy shifts which may occur related to the US election, the overall outlook is favorable across Exco's segments into the medium term." Despite the headwinds and decline in EPS, XTC was able to generate strong free cash flows and improve EBITDA margin from the prior quarter. There are some headwinds in the space and it is already a cyclical business, but our prior comments still largely stand. 
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Payfare (PAY.TO):

PAY.TO is a Canadian fintech company that provides earned wage access (EWA) to gig economy workers. A gig economy worker is a contractor, freelancer, or flexible/temporary employee (Ex. food delivery driver and Uber drivers). Through PAY’s digital banking platform, it helps these workers get instant access to their money. Earnings are paid out instantly through a free digital bank account powered by PAY. This was a very strong value add where the traditional direct deposit system would take a few days for money to reach these workers accounts, and for many gig-employees that delay would be troublesome (Ex. Uber drivers needing to pay gas expenses after a day of rides). The business model made plenty of sense and PAY had contracts with blue-chip customers and the biggest employers of gig-workers including Uber, DoorDash, and Lyft.

Concerns For Investors:

1. Concentration Risk- PAY was evidently overly reliant on its DoorDash contract. This was actually a risk that had been identified in the company filings. In its second quarter MD&A filing under the Liquidity and Consumer Concentration risk section, PAY notes, “Customer concentration risk is the risk whereby the Company’s ongoing business is materially dependent on one or a small number of clients. At present, the Company is largely economically dependent on its payment services agreement with DoorDash. A loss or non-renewal of this payment service agreement would have a significant financial impact on the Company. The Company is mitigating the counterparty risk by initiating business diversification strategies and the implementation of new customer prefunded instant payment solution programs and services.”
2. Replicability- While Fintech can be an exciting space it has been highly penetrated as barriers to entry are quite low. We thought a plausible risk was some of PAY’s large customers developing their own solutions in house, or other competitors entering the space and saturating the market.

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It did miss cash flow per unit estimates in the Q3. Not by a lot, but a miss is a miss (15.9c vs 16.1c expected). The yield curve, despite Bank of Canada rate cuts, has still managed to shift upward. The recent government moves on immigration likely has some investors worried. Canada's population will actually likely decline for a couple of years now. Finally, IIP has had a premium valuation for some time. Even now it is above the peer group average at 17X cash flow. We would consider it a HOLD but it is getting interesting here. It historically has been one of the better REITs. 
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CRBG has done well, up 49% this year, yet remains very cheap at 6.7X earnings with a 2.84% yield. The recent quarter was solid with an 18% 'beat' over earnings estimates. Corebridge is well-positioned to reach consensus for double-digit EPS gains in 2025-26 given solid organic growth in its flagship individual annuities business and robust reserve gains in the institutional spread operations. Life insurance sales have also expanded, rising 14% in 3Q. In traditional fixed annuities, deposits have doubled year to date, to $9.5 billion, the surrender pace is down 5 percentage points vs. a year ago and general account assets are up 16% to $58 billion. For fixed-index annuities, the general account has increased 30% vs. 3Q23. Corebridge’s results are also benefiting from recent expense savings of about $400 million and accelerating share buybacks. The share count declined 8% in 3Q. Things continue to look very good here. 
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Under activists' pressure, the CEO has decided to step down, which was likely because the company decided it was going to lose anyway in the upcoming special shareholders' meeting. DND says it has received expressions of interest from ''inbound parties', at 'attractive premiums' but has paused its strategic review while it focuses on the special meeting and possible revamp of its board. Investors liked the news and the shares rose. But the future of the company is still very much in flux. The meeting is Dec 17 and if Engine Capital wins we could see a new board composition and a new direction for the company. It has potential, but a massive amount of debt. It is probably better off selling itself, in our view, due to its debt and small size, but right now it is hard to call. We would see it as a HOLD until the meeting is resolved and some clarity comes out. 
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Basic Investing Concept: Preferred Shares

For those who are unfamiliar, a preferred share is a class above a common share, with holders having a higher priority claim to dividends and assets in the event of liquidation. Preferred shares typically pay higher yields than common shares, where the dividend payment can be fixed or floating, tied to a benchmark rate. Preferred shares also do not have voting rights, which is a key feature of common shares. There are other differences and numerous types of preferred shares, but the key concept is higher rights to dividends and assets while still maintaining equity ownership.
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ATKR is somewhat of an AI name. It provides equipment for data center and electrical infrastructure. We think its fudamentals are strong. Net debt is $599.8B currently, which we are fine with given a Net dbet/EBITDA ratio at 0.8x. Total debt-to-equity is also 0.618x and EBIT/Interest Expense is 17.5x. While ATKR has some debt, it generates more than enough cash to cover interest payments and has not been issuing more debt recently. On the tax loss front, it certainly could be a candidate with it down over 40% year-to-date where recent quarterly results were not great with sales and earnings guidance for FY2025 coming in well below expected. Tax loss selling tends to peak this week or next. We think the weak results may be a drag to get investors interested in the near-term. It is cheap still at 11x forward earnings but we would revisit it in January if interested. 
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KD has done well year-to-date, up nearly 60%. Revenues are still declining but its recent quarter had improved cash from operations and positive free cash flows. The company has also had positive adjusted EPS for two quarters now and beat estimates for the recent quarter. KD also authorized a $300M buyback yesterday which gave the stock a further bump. We are seeing some improvement here and while it is not a cheap turnaround opportunity at 20x forward earnings, this could be a decent time for interested investors to start stepping in.
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We have done more work on its ability to compete in a crowded market and are more comfortable there. The recent results and the stock momentum have also certainly been big positive factors. It has good potential, we think, if it can continue to execute. One minor concern: it is a very very popular social media stock. While still relatively small, it is hardly unknown. This is not necessarily bad but can increase volatility if the majority of holders are trading/retail. 
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