KeyStone’s Stock Talk Podcast Episode 149

This week, coming off our Webinar Series, Summer School for your Portfolio, we are excited to take a look back and review a few of the questions answered during the past couple of weeks.

We have two YSOT segments for you. The first, is a comparison between tremendous Canadian tech consolidation success story Constellation Software Inc. (CSU:TSX) and Inc. (TOI:TSX-V), a Netherlands-based diversified vertical market software provider, which actually spun out of Constellation earlier this year. Aaron will compare the two and look into which may offer better value and growth potential at present.

Our second question also involves a comparison. A listener asked us to compare tech giants, Inc. (AMZN:NASDAQ) and Alibaba Group Holding Limited (BABA:NASDAQ) – Brennan will break down both business from a broad view and compare the growth, value, and weigh the risk factors in each stock.

Summer School for Your Portfolio: 

I selected a few questions from actual attendees that I will throw out there – I will answer and you two feel free to add your two cents.

Q&A from KeyStone’s July 2021 Live Webinar

Attendee: I see inflation as a huge global issue. What type of stocks can outperform or at least keep my portfolio ahead of inflation?

KeyStone Answer: Generally speaking, we view high-quality dividend growth stocks as a simple weapon to help client portfolios combat inflation. We stress the dividend “growth” element as key. Many of the high-quality dividend growth stocks we cover consistently increase their dividends by 5-15% annually which should help portfolios not only keep up with inflation but significantly best it over time. Vs. a fixed income bond which pays a fixed coupon of say $1 every year for 10 years – with significant inflation, in 10-years that coupon is worth far worse than $1. Contrast that to a dividend of $1.00 that is increased by 10% every year and 10 years forward that payment can be over $2.50 for example.

Attendee: “PHO is being acquired by MKS – would you now consider MKS?”

KeyStone Answer:  In May MKS Instruments (MKSI:NASDAQ), a global provider of technologies that enable advanced processes and improve productivity, announced it would acquire Photon Control Inc. (PHO:TSX:) for $3.60 per share, in an all-cash transaction valued at approximately CAD$387 million. PHO was recommended several years ago at $0.46 and then re-recommended last year in the $0.80 range. The $3.60 takeout is a great outcome for clients, and we have recommended tendering shares to the offer. While we continue to like PHO’s business, it will now only be a tiny component of MKS which has a US$9 billion market cap and US$2.4 billion in sales. MKS trades at relatively reasonable valuations, but we find better value and growth elsewhere. We recommend taking the big cash profits and reinvesting in other current focus buy recommendations.

Attendee: Can you please speak to why a Canadian investor may consider the US stocks vs your Canadian stocks?

KeyStone Answer: One of the biggest benefits of including US stocks in a Canadian portfolio is the breadth of companies. The US market is far more diverse and offers exposure to high-quality companies in sectors that are not available in a more limited Canadian market. Structurally, with around 50% of the Canadian markets comprised of resource and financial stocks, diversification into key sectors such as big technology is difficult. Quite frankly, if one limits a portfolio to only Canadian-listed stocks the selection of high-quality names in segments such as cybersecurity is almost non-existent. For example, several years ago we were looking to add one or two cybersecurity stocks to our client portfolios believing the market to be one with a strong long-term growth outlook. We scoured the Canadian market and came up with 5-7 names. None even came close to meeting our criteria for investment. We performed the same search in the US and came up with just under 60 stocks ending in a recommendation of Fortinet (FTNT: NASDAQ) which has jumped from the $60 range to over $250 in the past 2-years. Without expanding our research universe outside of the Canadian market, we could not have found this type of quality business and gained exposure to the high growth booming cybersecurity market. The breadth of companies in the US market makes it an essential part of any Canadian investor’s portfolio.

Attendee: Do you continue to recommend Aritzia (ATZ) – my wife loves their clothes!

KeyStone Answer: In reference to Aritzia Inc. (ATZ:TSX) – the stock has been on our Focus Buy list since the start of 2019 when it shares traded in the $16 range. Despite facing challenges in its traditional retail stores due to the COVID restrictions, online sales have sky-rocketed, and the brand continues to gain ground in Canada and the US. shares have performed well with the stock trading beyond $35 driven by a return to growth in the last quarter and a growth outlook for the current year and into 2022. Near-term, the stock is not cheap trading at 36 and 26 times our EPS forecasts for Fiscal 2022 and 2023 respectively, compared with its historical average of 19.9x. It remains our top and only Canadian retail stock in coverage at present.

Attendee: What would your top pick be to become a new Boyd?

KeyStone Answer: We field this question a great deal. Boyd (BYD:TSX),  is a stock we recommended over 12 years ago now which was literally the best performing stock on the TSX over the past decade – up around 10,000% since that time.  It is a very, very tough act to follow. A few years ago, our answer to this question was XPEL Inc. (XPEL:NASDAQ), an automobile paint protection film provider and installer. The company then traded on the TSX venture in the $1.40 range. The stock has since graduated to the NASDAQ and recently closed in the $85.00 range. It is well on its way to becoming the next Boyd. Having said this, pinpointing what stock will actually be the best performing stock for the next 10-years on the TSX with a high degree of certainty is a fool’s errand. What we try to do, is search for businesses with a certain profile that lines up with the Boyd’s and XPEL’s of the word and have our clients build portfolios consisting of 15-25 stocks that align with that profile. This gives investors a fighting chance of holding one of these game-changing stocks in their portfolio over the next decade.

As a tease, in my next installment, we may introduce a company that holds this profile and game-changing potential. Without further ado, on to the updates!


Constellation Software Inc. (CSU)

Price: $1,920
Market Cap: $40.7 billion

Description: CSU acquires and manages a portfolio of industry specific software businesses that provide specialized, mission-critical solutions to public and private clients. Markets served include communications, credit unions, beverage distribution, tour operators, auto clubs, textiles and apparel, hospitality, and community care. The company has over 125,000 clients in over 100 countries. Inc.

Price: $92.00
Market Cap: $3.6 billion

Description: Same as CSU, TOI is a software company that provides mission-critical solutions to public and private clients. One of the big differences is of course size and also TOI is focused on Europe. TOI was spun out of CSU and started trading on the TSX-V exchange in February 2021. CSU maintains a 30% ownership interest in TOI.



Q1 2021:

–       Revenue up 23% (6% organic).

–       Cash flow from operations increased 37% to US$495 million.

–       $448 million in acquisitions (additional $198 million announced subsequent to quarter).



–       Revenue up 14% (-3% organic).

–       Cash flow from operations increased 55% to US$1,886 million.

–       $447 million in acquisitions.


Q1 2021:

–       Revenue up 50% (7% organic).

–       Cash flow from operations increased 33% to €159.8 million.



Balance Sheet

–       Healthy balance sheet with $300 million in net debt.

–       $1.25 billion in debt and $942 million in cash.


–       Balance sheet okay but noisier than CSU.

–       $180 million in debt and $86 million in cash.

–       $3.6 billion in convertible preferred shares.

–       $52 million in preferred dividends paid in the quarter.



–       ~16 times trailing cash flow (converting to CAD)

–       45 times 2021 analyst consensus EPS; analysts expect 23% EPS growth in 2022.


–       No trailing numbers or analyst estimates available.



–       Growth by acquisition.

–       Funds acquisitions primarily from free cash flow…doesn’t use much debt or share issues.


–       More complex capital structure and less certainty with respect to growth strategy.


Convertible preferreds – we would be careful looking at the business based on a EBITDA multiple – pulling out interest payments. Make sure it was based off an enterprise valuation. I am not a fan of more complex structures –

You also get an approx. 30% stake in


Your Stock, Our Take

 Stock Vs. Stock – Tyler Via Email Inc. (AMZN:NASDAQ)


Price: $3,645.16

Market Cap: $1.8 Trillion

Description: Inc. is an American multinational technology company which focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence.


Alibaba Group (BABA:NYSE)

Price: $213.30

Market Cap: $580 Billion

Description: Alibaba Group is a Chinese multinational technology company specializing in e-commerce, retail, Internet, and technology.






Revenue Growth

(Q-o-same Q last year)



Revenue grew 44%


Revenue grew 64%



Profitability Growth

(Q-o-same Q last year)



Net Income grew 220%

EPS grew 216%

Adj. EBITDA grew 67%



Net Income grew N/A%

EPS grew N/A%

Adj. EBITDA grew 18%






P/E = 68x

EV/Adj. EBITDA = 30x



P/E = 27x

EV/Adj. EBITDA = 18x



Balance Sheet


Net Cash = $7M

D/E = 0.90



Net Cash = $49.5M

D/E = 0.14

Economic Growth


(International monetary fund)

U.S. is predicted to post 3.8% GDP growth in 2022 and 2.5% in 2023China, the growth rate is projected to be 5.6% in 2022 and 5.4% in 2023




Amazon does have some risk of anti-trust violations in the U.S. and European Union, but I feel like we have been hearing about this for some time.Baba definitely has more risk than AMZN IMO. With the company fined $2.8 Billion in the spring of 2021 for competition violations.


To sum it up again:

  • Amazon’s topline is growing at a slower pace, (but keep in mind, it is working off of a much higher revenue base). As Amazon generated almost the exact amount of revenue in the last quarter than what BABA did in its Fiscal 2020 year.
  • Profitability wise, Amazon’s Adjusted EBITDA is growing at a much faster pace.
  • Valuation, Amazon is pricier which is expected due to risk of China and the fact that it is growing profitability at a higher pace.
  • BABA has a better balance sheet, but both are healthy.
  • Looking at each company’s key jurisdictions, the economic outlook in China is superior.
  • Finally on the risk front, again I think it is clear that BABA carries a higher degree of risk. Having been hit with an anti-trust fine earlier this year, and there was some concern that BABA’s CEO Jack Ma went “missing” after tensions grew with the Chinese government.


If I was forced to only pick one stock, I would likely go with Amazon due to the company’s higher profitability growth rate and less geopolitical risk – despite its more expensive valuation. However, if I was interested in adding one or either of these tech giants to my portfolio. Considering my own personal risk profile which is I believe is high to moderate. I think I would add both to my portfolio in equal weight. PLEASE NOTE THIS IS NOT A BUY RECOMMENDATION ON EITHER. If I could choose any tech giant to add to my portfolio, it would be one of the companies that we recommended to our clients several months back. And we have two of those under coverage.


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