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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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Was downgraded last Friday and today over fears they won't meet expectations this quarter, including disappointment over MCD's new chicken strips dish, that it won't turn things around. Rather, customer prefer heavily breaded chicken and the find these strips ugly. However, history says it has never paid to downgrade MCD. It's the king, offering good value and is highly well-run. The CEO will figure it out.
They held their developer's conference today, with no big news. As long as you didn't hear "switch" from that conference, then hold onto Apple. This has been dowgraded, but he thinks that downside will be limited. He's long been a believer in this name. The company has been in a dry spell, offering no new products, but it can always buy another company. Also, Apple could lose the Google or Epic case, but likely not both. Also, Apple never stands still; the CEO has been busy dealing with Trump (i.e. shifting production from China to India).
It sold off after last Thursday's report: revenues +2-% YOY, EPS +44% YOY with semis and infrastructure software numbers also impressing. Also, guidance was healthy. However, shares ran up before that report, their non-AI semis business disappointed and guidance says it will be slow to recover. Also, AVGO didn't comment on current or prospective cuctoemrs. Gross margins for Q2 were in-line, but guidance was weak. He still likes the stock: AI semis revenues beat and are expected to grow next quarter from $4.4 to $5.1 billion. Their networking side is also growing.
It started trading last Thursday, over 100% from its deal price. CRCL deals in stablecoin, +272% since its IPO. Primarily, CRCL makes money by investing their dollar reserves. Also, they have a Euro-denominated stablecoin and other businesses. But the US stablecoin accounts for 99% of business. Their Q1 numbers impress: 59% revenue growth, 75% net income growth. But at the current price, CRCL is selling at 165x 2024's PE (Coinbase was 27x). Overall, he likes CRCL, but not at this price.
The TSX has lots of gold, silver and mining equities which are doing well along with tech. Bank stocks are doing OK too. The TSX is in sort of a catch-up trade since it is not as related to the domestic economy as other markets are. He is definitely seeing a softening in Canada, more than in the U.S. We should begin to see sales and tariff effects reflected in GDP numbers. The second quarter should be hugely positive but in the back half of the year we'll see how consumers and businesses are reacting. We can expect some global tariff resolution but not as in the past. Companies are going to become more efficient, more lean, and implement more AI.
It owns the technology that processes transactions so it is basically a tech business. However it is very expensive with P/E in the 30 times range so you have to believe they're going to grow. It is a solid business and inflation actually helps them. There are disruptions in the payment space which are chipping away at Visa's moat. Change is coming but how fast - this will affect growth in their business.
EPS of ($0.15) beat estimates of ($0.32) and revenues of $278.48M beat estimates of $260.4M. ARR grew 38% and sales grew by 49%. Its results exceeded all of its guided metrics. Its gross margin was 78.3%, a significant growth against the prior years' 48.8%. It generated strong free cash flows in the quarter of $33.3M. Management guided for subscription ARR between $1.38B and $1.388B, EPS of ($1.02) to ($0.96), and free cash flow of $65M to $75M.
It is expected to be profitable in the next couple of years, and it currently generates positive free cash flows. Analyst estimates are rising, and it is not cheap at 15X forward sales, but it is growing fast, and it is repurchasing shares with its free cash flows. We would be OK adding to this name.
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