Stock Talk Podcast Episode 148 Show Notes

This week, we are excited to be announcing the launch of our next Live Webinar Series entitled: Summer School for your Portfolio. In the webinar, Ryan and Aaron will give a preview and some advice on how to construct your portfolio to take advantage of long-term winners.

We have two YSOT segments this week. The first, Linamar Corporation (LNR: TSX), manufactures powertrains and drivelines for vehicle and power generation markets. The majority of the company’s revenue comes from the vehicle segment. A listener asks us if it offers good value as a re-opening investment with the economy continuing to open up once again.

Our second question came in from a listener on a new IPO or initial public offering, Element Nutritional Sciences Inc. (ELMT: CSE), a Canadian nutraceutical company specializing in the development of science­based products for the global consumer packaged goods market, focused specifically on men and women over the age of 50. The listener asks us about the company specifically, but also if we have any recommendations regarding what information we would typically like to know about a new IPO to make an informed decision regarding investigating or even following the stock as a possible future investment?

Summer School for Your Portfolio:

Show you how to start with our simple and time-tested strategy – no gimmicks, no games, solid stocks you will get nowhere else – and how to avoid many the many landmines that exist in the current market environment – and there are many, with fears of inflation, high valuations, central banks endlessly printing money, meme stock distortion, and a general fear-of-missing-out.

Whether you are just beginning your investing journey and want to know where to start or need a sober second opinion class is in session.

1. Inflation 101 – Investing in an Inflationary Environment.
2. Growth versus Value Stocks – the 2021 Reversal.
3. New Age Investment Themes 101
   1. Tech – AI and Digitalization Stocks.
   2. Renewables and Cleantech.
   3. Cannabis
   4. Cryptocurrency and Blockchain.
   5. Healthcare Trends.
4. Old School Investment Themes 101
   1. Commodities and Cyclicals.
   2. Are Gold Stocks right for your portfolio?
   3. Staple and Essential Businesses.
5. Portfolio Tune-Up 101
   1. Building a new portfolio from the bottom up.
   2. Reviewing and repairing your existing portfolio.
   3. Portfolio maintenance.

PLUS a DIY Starter Portfolio: full details & analysis on 5-7 great stocks you can buy today. Our crisis investing portfolio from KeyStone’s April 2020 DIY Webinar has already gained 100.7%. Do not miss out on these unique, profitable growth and dividend growth stocks.

Why 2-3 Great Investment Ideas can Change your Life:

Recommended by Keystone in 2008 at $2.30 per share, Boyd has generated a return of over 10,000% and has paid out $5.50 in dividends. With the stock recently closing over $218.99. XPEL Inc., recommended at just $1.42 in late 2017, today it trades at $90.27 for a total return of over 6,257%.

Relay a story…

At the tail end of the last decade – so around 2 years ago – around the time it becomes clear that Boyd would end up ranking as the best-performing stock in Canada for that decade – we were asked many times – which stock would be the next Boyd. We live in a “what have you done for me lately world” – we listed a couple of potential companies – the highest-ranking was XPEL Inc. which then traded on the TSX-Venture. While it has yet to eclipse Boyd, it has rocketed from $1.42 to the $90 range – again, not up 10,000% since our recommendation, but in just under 4 years it has gained over 6,000%

The question now becomes – what is the next XPEL. And how do you find these types of businesses? Let me be perfectly clear – these types of businesses are very, very rare. But we continue to utilize a strategy that gives our clients’ portfolios the chance to hit on one of these businesses.

In fact, one of the segments in our upcoming Live Webinar – we will talk about how you can set up your portfolio to have a fighting chance of investing in one of these businesses. Just one can have life-altering effects on your portfolio.

There are two general elements in our process 1) To look at over 3,500 companies in Canada and 5,000 plus in the US to find under-researched, great profitable businesses – this is the most important step. Without it – step 2, is moot.

Step 2 is important, however, and that is our strategy on how to build your portfolio – how many stocks, what type of stock, and over what period should you build and maintain your portfolio.

If you want to truly benefit from owning one of these game-changing stocks you cannot do it by building a portfolio with the traditional model.

Sounds controversial – it’s not. It’s simple. We have been detailing this for decades

What does the Traditional Portfolio Model look like?

Big bank advisor drops your nest egg into 5-10 or more funds or EFTs and calls it a day. Now, if you just want to mirror the market – the basic concept is ok – but you do not need to pay an advisor 1-2% to achieve this. You can 2-4 market mirroring low-cost EFTs and you are good.

But if you want to try to beat the market – then if you buy 5-10 mutual funds or ETFs which each own 100+ stock, you have set yourself up for failure. You will mirror the market and underperform due to the fees you are charged.

Even if a Boyd or XPEL happens to be one of the hundreds of stocks in that ETF it will make up 1 quarter to half a percentage of your portfolio – this is not enough to make any difference in terms of your wealth creation.

Real examples from our research in how $20,000 invested in Boyd Group (BYD: TSX) became over $2 million in 12 years & $20,000 invested in XPEL (XPEL: NASDAQ) became $697,000 in just 3 years. Find out how we uncover these great growth stocks and what to look for in a capital compounding investment such as Boyd and XPEL

Your Stock, Our Take

Linamar Corporation (LNR: TSX)

Current Price: $80

Market Cap: $5.2 billion

 What does the company do?

Linamar manufactures powertrains and drivelines for vehicle and power generation markets. The majority of the company’s revenue comes from the vehicle segment. Linamar has over 26,000 employees in 61 manufacturing locations globally.

Key Points:

I think that Linamar has an interesting story right now. The company primarily services the auto sector which is cyclical. This is evident in the company’s historic financial performance with revenue growing and declining in line with global auto sales and demand.

I find the company interesting because, after 2 years of consecutive revenue declines, it appears that 2021 may be a return to growth for the company and its industry. Demand for autos is strong. Covid-19 hit the industry hard so there is pent-up demand as the economy reopens. However, even relative to 2019, demand in 2021 is higher. There is also the transition to electric vehicles which further supports demand over the next several years.

Recent Financial Performance

• 2020 was a weak year for Linamar overall but the company produced double-digit revenue growth and doubled earnings in the first quarter of this year.
• Revenue increased 15% in Q1 and earnings per share were $2.41 compared to $1.04 in the previous year.
• Analyst consensus is for $7.60 in earnings per share in 2021 and $8.25 in 2022.
• The company trades at about 10 to 11 times analyst consensus which is a discount to the overall market.
• Linamar’s balance sheet appears healthy with debt to equity of 0.2 and debt-to-EBITDA of less that 0.3 times.

Conclusion

Overall, the fundamentals of Linamar look strong and the stock price is only moderately above where it was just before the start of the pandemic. The valuation right now looks inexpensive.

This isn’t a company that I am extremely familiar with as the yield of 0.8% is too low to really qualify it for our Canadian dividend research.

It’s a cyclical company and the revenue and earnings will move up and down with the auto sector.

Your Stock Our Take

Came in from a client:

• I was hoping you could tell me what you know/think of Element Nutrition (ELMT)?
• Do you have any recommendations regarding what information you would typically like to know about a new IPO to make an informed decision regarding investigating or even following for possible future investments?

First off, for any business regardless of if it’s an IPO or has been publicly traded for a long time, the general checklist that we look at to justify an investment include:

• Good runway for growth (Revenue)
• Profitability (Net Income OR EBITDA)
• Reasonable Valuation (Price-to-Sales, Price-to-Earnings, Enterprise Value-to-EBITDA)
• Healthy balance sheet (not too much debt)

——————–

Element Nutritional Sciences Inc. (ELMT:CSE)

Current Price: $0.73

Market Cap: $69.8 million

What does the company do?

Element is a Canadian nutraceutical company specializing in the development of science­based products for the global consumer packaged goods market, focused specifically on men and women over the age of 50.

Element’s flagship product is Rejuvenate™, which is an organic plant protein drink, and it also offers JAKTRX™, a brand of performance supplements.

Key Points:

• The company IPO’d on the Canadian Securities Exchange at a price of $0.88 cents on May 26, 2021.
• Element recently completed a $5 million private placement on June 4^th, for a[proximately 8.3 million shares.
• The company’s products are gaining decent traction, now in about 15,500 locations in the U.S., 750 locations across Canada, and multiple e-commerce platforms. A few of these recent deals include getting into:
  • 8,400 Walgreens across the U.S.
  • Purchase orders from Sam’s Club e-commerce platform and iHerb – the company expects to rejuvenate to be available to order in July 2021 on both of these online channels.

Now that I have given you some background on the business, let’s take a look at the Recent Financial Results (Q1, 2021)

• Revenue growth does appear good. But keep in mind, the comparable period last year was weak due to Covid. But over this period Revenue did increase 95% to $ 345K.
• Net Loss for the Quarter was approximate $(1.5M) but about $400k of this was from increased professional fees as the company went public.
• Looking at the balance sheet – If we include the recent $5 million equity raise, it does appear healthy with a net cash position after leases and debt of approximately $3.9 million.
• And if we annualize the company’s most recent Q1, 2021 revenue, it is currently trading with a P/S multiple of about 50x which is expensive.
  • But keep in mind the company has recently gotten into some new sales channels. But it is of my opinion that even with the new revenue from these deals – I still believe the P/S multiple will be pricey.
  • And nonetheless, without forwarding financial guidance including these additional sales channels, we are still sort of in the dark and must speculate if we are getting a good deal or not.

Conclusion:

So, to conclude, let’s go through the investment checklist that I proposed earlier:

1. Does the company have a good runway for growth? 1) I think that we can provide a checkmark here – the company is getting into new locations, but, we are still a little uncertain if the product will sell-through in its new channels.
2. Profitability (Net Income OR EBITDA)
   1. Unfortunately, on both a Net Income and Adjusted EBITDA basis the company is still far from profit. So, we can give the company an X here.

3. Does the company have a Reasonable Valuation?
   1. On a P/S basis, I think the company also deserves an X here with it trading at 50x annualized Q1, 2021 sales. Going forward this might change, but as I said before, I personally speculate that once these sales channels come online I still think the company will be generally pricey.

4. Does it have a healthy balance sheet?
   1. Right now, I am sort of conflicted about giving the company a checkmark here. Although it has a net cash position right now due to the recent $5 million equity raise. The company is not profitable and has a cash burn rate of approximately $1 million per quarter. So seeing this, I am only going to give the company half a checkmark here.

So, with these 4 basic criteria for investment – only 1 and a half of the 4 conditions have been met, meaning Element wouldn’t meet our investment criteria. It is certainly an interesting company with decent traction, but its operating in a very competitive space and is essentially too speculative right now for our liking.