Stock Talk Podcast Episode 124 Show Notes

KeyStone’s Stock Talk Podcast Episode 124

This week, on the precipice of a historic U.S. election I will start with a brief commentary on making portfolio decisions based on election outcomes. Back by popular demand we have decided to make our new Case For, Case Against segment a permanent fixture. Our head of income research, Mr. Aaron Dunn will make his highly anticipated first argument facing off against Brennan. In the line fire is Apple Inc. (AAPL: NASDAQ), the iPhone company which should need no introduction. While the stock sold off this week after its quarterly results included a lack of forward guidance, the consumer tech giant is up 47% this year. We argue both sides of the BUY/SELL argument for the stock. With a hat tip to Movember and men’s cancer prevention and treatment, this week’s Your Stock, Our Take was sent in from a listener on Profound Medical Corp. (PRN: TSX), a medical technology company developing medical treatments with its core technology used to ablate the prostate gland. We let you know if the share price gains are justifiable based on the underlying cash flow at present.

Webinar: Build a Modern Stock Portfolio with 15-25 Quality Stocks.

Learn to build a stock portfolio designed to enrich you, not your advisor. 

1. November 10 @ 10:00pm Eastern / 7:00pm Pacific
2. November 17 @ 7:00pm Eastern / 4:00pm Pacific 

Portfolio Decisions Based on Election Outcomes – Practical Advice 

We are recording this on the morning of the U.S. election – I thought I would provide some very brief comments on elections generally and how to address your portfolio. 

For months, many stock pundits and advisors have been placing their bets on sectors and individual stocks they assume will benefit in the event of a Biden or Trump win in tomorrow’s historical U.S. election. It is a strategy fought with peril. Polls can be misleading or simply wrong. Look no further than the most recent U.S. election for proof of this. If you positioned your portfolio going for a Clinton/Democrat win, as was the consensus, you may, have had your hat handed to you.
 
Even if you pick the right horse, many politicians, once in power are suddenly unwilling or unable to act on campaign promises which may have benefited the sector you invested in. Your investment thesis then becomes worthless.
 
The stock market has seen no shortage of terrible policy from both sides of the political spectrum in the U.S. over the past 100 years and, in most cases, good companies find ways to pay and increase dividends and create shareholder value long-term. Take heart ahead of today’s big U.S. vote, in most cases, an individual politician or party’s impact on your portfolio to the upside or downside is greatly exaggerated. 
 
My Advice: Focus on What You Can Control
 
There will always be a great deal of noise and worry surrounding the stock market and investing in general. Be it low interest rates, debt levels, war, social unrest, or a coming election. Most of this, you have little control over.
 
Fortunately, what you do have control over is far more important to your long-term wealth creation and success than any one election. Those two elements are: 1) Portfolio Composition (what you put in it) and 2) Portfolio Construction (how to build your portfolio).
 
1. Portfolio Composition: What you put in your portfolio – literally the most important decision you can make. In our upcoming seminar we show you why you should focus on high quality growth and dividend growth stocks trading at reasonable prices. And where to find them. 
2. Portfolio Construction: KeyStone will show you how to construct a simple portfolio, save on fees and build long-term wealth. How many stocks to buy, what type of stocks and over what period of time. Simple strategies designed to enrich you, not your advisor. 

Webinar: Build a Modern Stock Portfolio with 15-25 Quality Stocks.

In this live interactive Webinar, we use a case study approach to illustrate a simple solution for investors fed up with big bank fees and meager returns. Practical steps and tips to building (or repair) any stock portfolio at key stages of an investor’s life including: 

1. Retired or Close to Retirement (60 to 80+).
2. Middle Stage Investors (35 to 60).
3. Early Stage Investors (20 to 35).

Special Topics Include: Renewable Energy Stocks for the Next Decade, The FAANG Stocks – Buy or Sell?, Is Gold or are Gold Stocks right for your portfolio?, Opportunities in Telemedicine & New Healthcare Opportunities, and why Dividend Growth Stocks outperform all others. Attend if you want to learn from the only analyst team that recommended both the best performing stock in Canada over the past decade, Boyd Group (BYD:TSX) and the 4th best performing stock, Enghouse Systems (ENGH:TSX). Two great companies that you would not have found through your Big Bank advisor, but would have made a game changing difference to your portfolio. 

Today, we are on the hunt for the next game changing stocks for your portfolio. Join the thousands of Canadians who have already made the simple switch – start by spending just a couple of hours with our analysts and become a better investor. 

Plus, we will detail 5 unique BUY recommendations you can add to your portfolio today including our top renewable energy stock which trades at a 49% discount to its fair value and pays a 6.1% dividend. What are you waiting for?

There are two types of tickets as follows. 

 1) Early Bird Tickets – ($29.95). KeyStone’s 2020 Canadian Green/Alternative Energy Stock Report ($599 value)

2) VIP Tickets – ($79.95). Includes the 2020 Canadian Green/Alternative Energy Stock Report ($599 value), On-Demand Webinar: Dividend Growth Stock Investing ($79), and KeyStone’s 2020 U.S. Profitable Small & Micro-Cap Growth Special Report ($599)

To order, go to: https://keystocks.com/fall-2020-live-webinar/

Here is the schedule.

1. November 10 @ 10:00pm Eastern / 7:00pm Pacific
2. November 17 @ 7:00pm Eastern / 4:00pm Pacific 

The segment will be called The Case For & Against a Stock. This week, Brennan will be providing the case for investing in Apple Inc. (AAPL: NASDAQ), and I will be apposing him with the case against slapping your hard earnings dollars down on this stock and Ryan will be arguing the case against Canopy at present.  Aaron will act as the judge, jury, and ultimate executioner to determine who wins this grudge match.

Each participant will only get one minute to get out their argument. 

The Case for and Against:

Apple Inc. (AAPL: NASDAQ)

Quick description: Apple really needs no introduction, but for the sake of consistency, Apple, the iPhone company designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. It also sells various related services.

Current Price: $110.58

Market Cap: $ 1.9 Trillion

For Case:

• One of the greatest investors of all time Warren Buffet owns over 5.7% of Apple’s outstanding shares – coming in at just under 50% of Berkshire Hathaway’s overall portfolio.

• Apple has an economic moat as their customers are loyal and are willing to open their wallets for premium products – w/ Warren Buffet stating that this is one of the reasons he likes the company. 

• Privacy – In a world with a lack of privacy, Apple is leading the charge for consumer privacy which I believe will lead to further brand loyalty. As the New IOS 14 system defaults users to be opted out of data being collected on them. 

• The iPhone 12 has just been released which could give a boost to the company’s sales in the short term. 

• According to Statista Apple has 52% of the smartphone market in the US. And globally they only have about 26% of the market, showing an opportunity for increased expansion outside of North America. 

• The stock is trading at a reasonable P/E multiple of ~33x. 

Case Against

1. Growth has slowed substantially. Revenue increased only 1% in the most recent quarter and 5.5% in the last year. Reported earnings per share were down 4% in the most recent quarter and up only 10% for the year. 
2. The valuation is high. Apple trades at a valuation of 34 times earnings. This is expensive relative to Apple’s historical range of about 15 to 20 times over the past 5 years and concerning when taking into account the decline in growth. 
3. There are better tech stocks to own that offer higher growth for a similar valuation. Two examples are Microsoft and Facebook which both just reported quarterly earnings growth approximately 30% and trade at a slightly lower price to earnings valuations. 
4. iPhone sales have declined. The iphone is Apple’s top product accounting for over 50% of total sales. However, iPhone sales were down over 20% in the last quarter and down 3% over the last year. 
5. Technological innovation is waning. As a customer, I have noticed very few meaningful improvements in the iPhone over the last several versions. 

Win: Aaron

Your Stock Our Take

Client via Email – She said she purchased the stock a while ago, has made a nice return and is wanting to know whether it is a buy/sell/hold. 

——————–

Profound Medical Corp. (PRN: TSX)

Current Price: $23.25

Market Cap: $450 Million

What does the company do?

Profound Medical is a medical technology company developing treatments to ablate the prostate gland, uterine fibroids and nerves for palliative pain relief for patients with metastatic bone disease.

Its lead product is its TULSA-PRO system which is a technology which is used for the ablation of the prostate tissue. The product comprises of one-time use disposables and durable equipment that are used in conjunction with a customer’s existing MRI scanner. 

Key Points: 

In August of 2019, the TULSA-PRO system received FDA clearance as a class II device in the U.S. and initiated the commercial launch of the TULSA-PRO system in Q4, 2019 – causing the share price to surge from ~$9.00 to $25.00 in the beginning of 2020. (Right before the COVID-19 Pandemic).  

To date, Profound has generated majority of its revenues from the limited commercialization of its systems in Europe (principally in Germany) and Asia. The company also continues to seek regulatory approvals of its products in additional international jurisdictions. 

For the period ended June 30, 2020, its sales comprised of approximately: 

• 56% – EU 
• 14% – U.S. 
• 30% – Asia

Recent Financial Results: (Q2, 2020)

• Revenue was up 148% to $1.4 million from approximately $600K in Q2, 2019. So good growth there but it is growing off of a pretty small base.
• GAAP Net Loss per share for the quarter was ($0.46) compared to a loss of ($0.54) for the same quarter last year.
• TTM Adjusted EBITDA was a loss of ($18.7) million.
• The company is trading with a P/S multiple of ~58x 
• They have a net debt position of $2.8 million (which is primarily made up of leases) but they are not making any money. So they may need access to additional funding in the future. 

Conclusion:

It is promising that the company has received FDA approval for its flagship product and revenues are growing at a decent pace. But the company is far from breaking into profitability or even achieving positive EBITDA and it appears that the company also understands that it still has work to do to gain traction for its TULSA-PRO system in the US.  

If the company is able to gain further clinical evidence and adoption for its products it may be able to fast-track into profitability. But this is certainly speculation at this point. So, based on the company trading at an expensive P/S multiple and the fact that it is still far from breaking into profit or achieving positive EBITDA, it is not a stock that we would recommend investors to hold. 

Webinar: Build a Modern Stock Portfolio with 15-25 Quality Stocks.

There are two types of tickets as follows. 

1) Early Bird Tickets – ($29.95). KeyStone’s 2020 Canadian Green/Alternative Energy Stock Report ($599 value)

2) VIP Tickets – ($79.95). Includes the 2020 Canadian Green/Alternative Energy Stock Report ($599 value), On-Demand Webinar: Dividend Growth Stock Investing ($79) 4 great dividend stocks to buy today, and KeyStone’s 2020 U.S. Profitable Small & Micro-Cap Growth Special Report ($599)

To order, go to: https://keystocks.com/fall-2020-live-webinar/

Here is the schedule.

1. November 10 @ 10:00pm Eastern / 7:00pm Pacific
2. November 17 @ 7:00pm Eastern / 4:00pm Pacific