Stockchase Insights

We would be fine with a full position in the company, assuming a growth-focused investor and an appropriate timeframe. Earnings dates can result in high volatility around a stock. It is a two-sided coin: earnings surprises can see a stock get called away. But upcoming earnings also tends to increase options premiums, so shareholders can still benefit. If doing an options strategy, since earnings are a regular occurence, we would not specifically work around or try to optimize strategies around earnings dates. Consistency is usually better.
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ZDV is a large, liquid, solid dividend fund with a 3.58% yield and 5-year annualized return of 14.01%. We would be fine buying at $23 or better but with a diversified fund we would not get too stressed about pricing over a 5-year term. With the fund owning 95% Canadian stocks, for most investor a non-reg account would be best, so as to get the benefit of the dividend tax credit.
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Investing 101: Proper Position Sizing

The first key risk management practice we want to discuss is proper position sizing within an investment portfolio. Position sizing is a personal decision, but there are a few key factors to consider when deciding how much weight an individual position should be given within a portfolio:

• The position should be large enough that if an investor is right, it contributes to their net worth
• The position should be small enough that if that investor is wrong, it will not be a major setback
• The volatility of an individual name should be taken into consideration – less volatile names can have a higher weighting and vice versa
• Beware of overconfidence – if it seems too easy, it probably is

A lot of the practices around proper position sizing involve effective diversification. While this is a personal decision, in general, we are comfortable with letting a position reach a maximum weighting of around 7%. The theory is that on average the market returns somewhere between 6% to 8% per year, and if an investor has a stock position at a 7% weighting that subsequently goes to 0% while all other positions in the portfolio remain flat for the year, the investor is only setback by about one year (assuming the market returns ~7% in that year).

There is no right or wrong number of stocks that an investor should hold in one’s portfolio, however, many studies have shown that a portfolio with 20 or more stocks helps to remove company-specific risk from a portfolio. To use an example, at the extreme end, a portfolio with only one stock will be severely exposed to the individual risks of that company, whereas an investor that increases the number of stocks in a portfolio will reduce the individual risks from the underlying companies. The investor is then theoretically only left with the risks of the broader market (interest rates, inflation, recession, etc.). There is also a risk of over-diversifying, where too many individual stocks will begin to erode one’s ability for higher returns.
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At 205X earnings, the stock is vulnerable to sentiment swings, as we saw on Thursday with politicians worrying about it having 'too much power'. In a way, though, this exemplifies how well it has done, and its potential moat. It seems to have a better AI/data mousetrap, and can solve company and government problems effectively and cheaply. We admire what the company has done and its growth and its outlook potential. BUT....it has also become somewhat of a 'cult' stock. The CEO is brilliant, but also perhaps a little crazy (not necessary in a bad way!). Everyone loves it right now, but this is dangerous if the love affair goes the wrong way or a company problem develops. Even at half the valuation, it is still very expensive. So investors we think need to be prepared, as this is a stock that could decline 50%, pretty much overnight, on some bad news. We think sizing a position correctly to reflect this makes sense, and trimming into more declines to maintain a position, but also to manage risks. We do think it will be higher in five years: but it may be all over the map during that time.
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CRNC had a very strong recent quarter, with EPS nearly double estimates. Sales were 4% better than expected. EBITDA was 48% better. It is up 200% in a year and trades at 44X earnings. Certainly stock and fundamental momentum is very solid here. Net debt is a bit high at 3X cash flow, and its small size adds risks. EPS is also expected to dip this year from very strong recent numbers. Insiders own 9% and have been buyers this year. The 2025 forecast did beat estimates. It has some good partnerships with companies such as ARM. The sector is also poised for growth, as noted with some regulatory help. It looks good for a small cap, though is pricey and due to its size risk we would size a position accordingly. 
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AQN is cheap, trading at 11.8X forward EV/EBITDA and 1.0X book. Its assets are likely worth more individually than its current market cap, making a good case for the sum-of-parts equation. But, management has recently outlined a plan to turn the company around, and acquirers generally don't like buying during recovery phases. We think if its price stagnates around these levels for several months, it would more likely become a takeover target. 
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Investing 101: Price-to-sales (P/S) and Price-to-Book (P/B)

Two other ratios, being P/S and P/B, are useful for further comparison or when P/E is inapplicable due to the limitations surrounding earnings and other industry specific factors. The calculation for P/S takes a company’s market capitalization (number of shares outstanding x share price) and divides by its total revenue. The interpretation of P/S is quite similar to P/E as it tells investors how much the market values every dollar of a company’s sales. Similarly, to P/E investors typically want to target a low P/S ratio.

P/B on the other hand measures price-to-book value of equity. The calculation for P/B is the current market cap divided by the book value of equity. To derive book value of equity, investors must look to the balance sheet to determine the difference between assets minus liabilities. P/B has a slightly different interpretation, as it focusses more internally, on how the company is being priced by the market relative to its assets. A P/B ratio of less than 1.0 indicates that the company is being valued less than its equity and can be an indicator of undervaluation. A P/B ratio of 1.0, indicates that the stock is being priced at a fair value compared to the book value of the company.

Although P/E is typically the most widely utilized of the three ratios, P/S and P/B display some advantages. For example, if an investor is analyzing a high growth company that is operating at a loss or has recently suffered a setback in earnings, P/S can provide a better insight. P/B can also be useful in identifying high growth stocks that are severely undervalued due to the company’s early stages. P/B can also be useful in analyzing capital intensive industries such as real estate and energy where earnings are not the primary indicator of current or future success.
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LB traded sideways for the past year, with a nice level of support around $24, and after its recent earnings it popped higher to $30. To help confirm an uptrend, we would like to see it rise above $32. We do not see any news regarding a potential sale, but it trades at a decent valuation of 9.5X forward earnings, and some major banks raised their price targets on the name following its recent results. Given the negative momentum and slow growth, we would prefer assessing this one from the sidelines.
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FL is now $120M market cap, up 20% this year. It has no revenue yet, losses and negative cash flow. It has about $20M cash. Insiders own 16%. The study shows a 31-year potential mine life for its PAK Ontario Lithium project.  The study talks up numbers a lot, but the expected rate of return is 17.9%, which is fairly low vs other studies, especially considering $1B in capital costs. This is not to say it is not a feasible project, but a higher IRR would be better. There is work to be done still here and of course financing will be needed. We would consider it OK, but there remains a lot of risks here too as well.
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EPS of $6.70 beat estimates of $5.80; revenue of $2.84B beat estimates of $2.79B. EBITDA of $473M beat estimates by 13%. Ulta Beauty's slight increase to fiscal 2025 sales and earnings guidance reflects better-than-expected 1Q results -- a positive signal that its bid to regain market share is working. Continued execution, including leaning into exclusive, new and higher-end brands, in coming quarters is essential, especially since the conservative outlook implies sales gains are poised to slow to an average 2% in 2Q-4Q -- less than half of 1Q's five-quarter best of 4.5%. Steady demand could allow for further surprises, especially since year-over-year comparisons should get easier. Rising costs still appear set to weigh on adjusted operating margin this year. Margin was better than anticipated in 1Q, though still lower year over year. There has certainly been an improvement here recently. Risks include continue economic uncertainty, tariffs and the usual market risks, but the stock is now up 8% YTD and we would have a bit move confidence overall.
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The Importance of Cash in an Investment Portfolio

A diversified portfolio typically includes a cash component to it, and this cash holding provides an investor with liquidity and convenience. Traditional portfolio theory suggests that investors should carry some static percentage of their portfolio in cash to act as a diversifier against volatility in one’s portfolio, for liquidity purposes to add to one’s existing bond or equity positions, or fund new purchases.

While cash in a savings account, bonds, GICs, and others, have usually offered lower yields than the returns that can be found in the stock market, the benefit that the liquidity and stability cash offers can sometimes outweigh the benefit from the higher returns that stocks offer.
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OXX is an ETF that holds several semiconductor names, and roughly 40% of its expsoure is to AVGO, NVDA, TXN, AMD, and QCOM. The industry has lagged the broader markets year-to-date and on a one-year basis, but for an investor who believes chips companies can outperform the broader markets due to the AI revolution, we think SOXX can perform well here. It trades at a 22X forward earnings multiple, in line with the broader markets, and is seeing a faster growth rate. We could see a pullback or correction in the space, but largely, over a long period of time, we think the space has a lot of upside potential as we will continue to need more chips, more innovation in AI hardware tech, etc.
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The company is small at $900M, even with a double this year, but priced very well at 8X earnings. Q1 earnings were very strong, and resulted in multiple broker upgrades. The balance sheet has net cash, and good earnings growth is expected over the next two years. It has lost money in prior years, and earnings can be volatile. Insiders own 15% and have been net buyers this year. Overall, it looks quite good to us for a small cap in the insurance sector. 
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NFG is down 12% year-to-date, but has had a nice bounce from its April lows and amid good earnings results in May. In late May it was up big as it increased the size of its bought deal financing to advance the Queensway Gold Project to the development stage. The news flow is improving for NFG, and a higher price of gold is also helping to lift goldstocks, but we would like to see its price rise above $3 to signal a potential reversal in its price trend. The company has seen negative price momentum since 2021 and we would prefer to see this reverse before getting more interested in the name.
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