KeyStone’s Stock Talk Show, Episode 181

Great to be back with you again this week. As we prepare for our upcoming live webinars and special in-person seminars, we have a busy show for you, starting with a brief look at some news of the past week including Biden’s pardons all federal offenses of simple marijuana possession as a first step toward decriminalization. Brennan has prepared a segment I am looking forward to as a cautionary tale looking into the precipitous drop of once market darling Xebec Adsorption (XBC:TSX), a company we have reviewed a number of times on behalf of listeners dating back to 2019. Each time while we saw revenue growth, we noted red flags and have avoided the stock. This past week, Xebec which is a provider of sustainable gas solutions used in energy, mobility and industry applications, saw its share price halted after it sought creditor protection. Brennan looks back at the cautionary tale.  Brett hits our mailbag and answers a listener question on how the Ukraine-Russia war impacted agriculture and medical supplies, the impact of farming yields and the effect on grocery prices. I have prepared a brief segment on bear markets generally where the current bear ranks historically. And finally, in our Your Stock, Our Take segment, Aaron answers a viewer question on Micron Technology  Inc. (MU: NASDAQ), which designs, manufactures, and sells memory and storage products worldwide. The viewer asks while what appears to be a growth stock is trading at only 6 times earnings and asks if it offers value.


Welcome, my cohosts, Aaron and the killer B’s, Brennan and Brett!

Kim Rivers – Trulieve CEO.

“I can tell you that in terms of full-blown legalization, again, that is going to take some work,” she said. “We do need to make sure that it is a thoughtful program that is— does ensure that folks who are currently utilizing cannabis are able to continue.”

But Rivers is hopeful that this move “is the first of many steps to come.”

Because cannabis is a Schedule I drug, a cannabis business is subject to Internal Revenue Service (IRS) Code Section 280E which disallows the use of standard business deductions by any company that traffics in federally controlled substances.

Educational Segment for the Podcast:

Bear Market Primer

Such a scary topic – for many investors the word bear is akin to mentioning the name Voldemort in the world of Harry Potter or the idea of a girlfriend around Brennan. Something surrounded by fear and certainty to hide from.

The reality is, steep and sustained drawdowns in stocks are an absolute fact of investing life. Markets go through cycles; always have, always will.

It’s also true that despite being inevitable and unpleasant, bear markets are not entirely all bad. In fact, for those looking to deploy capital long-term, they are tremendous opportunities.

Why is it called a “Bear Market”?

Believe it or not, the term “bear market” originates with pioneer bearskin traders. The country’s early traders would sell skins they’d not yet received – or paid for. Because the traders hoped to buy the fur from trappers at a lower price than what they’d sold it for, “bears” became synonymous with a declining market.

There is, however, an alternative explanation, according to Wall Street lore: A bear attacks by swiping its claws downward, similar to the downward trend of a declining market.

How do we define a bear?

Quite simply, a bear market is when a broad market index, such as the S&P 500, falls 20% or more from its peak.

By this definition are major North American Markets in a bear?


The Nasdaq Composite index entered a bear market on March 7, when it closed 20% below its Nov. 19, 2021, high. The S&P 500, for its part, entered a bear market on June 13, 2022, when it finished the session more than 20% below its Jan. 3, 2022 record close.

The Dow held out the longest, not entering a bear market until Sept. 26, 2022, when it closed below 29,439.72.

In Canada, the S&P/TSX Composite Index is now down approximately 20% from its March 2022 highs, but is actually down only 14.32% year-to-date. Basically, every component segment is down aside from energy which has been powered higher by oil and gas stocks extreme outperformance – however, this has started to breakdown.

But before you say – wow Canadian markets are doing great – if we look back 5 years the Canadian markets are up in the range of 15% where the NASDAQ is up 58%.

How Often Do Bear Markets Occur?

Since 1932, bear markets have occurred, on average, every 56 months (about four years and eight months), according to S&P Dow Jones Indices.

How long do they last?

The average length of a bear market since 1929 is just 9.6 months, according to Ned Davis Research. True, those months will be agonizing, but consider the bright side: bears don’t live as long as bulls. Indeed, since 1929, the average lifespan of a bull market is 2.7 years.

Average declines during a bear market.

Since 1929, S&P 500’s average bear-market decline stands at 33.5%, according to Dow Jones Market Data. The median drawdown comes to 33.2%.

Where are North American Markets today – down from their highs?


S&P 500: 25.3%

More random bear thoughts.

The worst bear market in history: The bear market that began just ahead of Black Monday that precipitated the Crash of 1929 was the worst one to date.

This bear from September 1929 to June 1932 resulted in an 86.2% loss for the S&P. Other historical bears aren’t even close, including the 56.8% decline in the 2007-09 crash when the financial crisis ushered in the Great Recession or the 49.1% the tech wreck drop from 2000-02 when dot-com stocks collapsed, or the 48.2% drop during the drawn-out decline from the start of 1973 through the fall of 1974 – during which the Arab oil embargo sent oil prices soaring, the so-called Nifty-Fifty stocks sank, and Richard Nixon resigned the presidency. Again, all pale in comparison to the bear of 1929 – the great depression.

History’s shortest bear market (we just experienced it) was the 2020 downturn, prompted by pandemic-related shutdowns and uncertainty. Stock prices fell for only 33 days before returning to growth. Also, will likely go down as the strangest bear, due largely to the V-shaped recover.

Final Thoughts.

The stock market is an early warning indicator. It starts declining, in this case in mid-November 2021, long before a recession hits. On the flipside, the markets typically bottom long before it ends. Using the last significant recession as an example in 2009. The financial world could not have had a more pathetic outlook on March 9 of that year. The S&P 500 had fallen 57% since the bear crash began in 2007 and pessimism reigned supreme.

But what happened on that day? The stock market suddenly turned around and embarked on the longest bull run in history. By 2013, the S&P 500 had gained back all the losses of the Great Recession.

From a valuation perspective, there is not yet blood in the streets, but we are starting to see value where we have not seen it in nearly 5-years (other than in the 2020 flash crash).

Come to our upcoming seminar or become a client and we will tell you exactly where!


Listener Question: What is going on with Micron? It is a growing technology company and trades at 6 times earnings. Is this a value opportunity? – Greg from Delta.

Micron Technology (MU: NASDAQ)
Price: $51.38
Market Cap: $55 billion

Company Description:

  • Micron Technology, Inc. designs, manufactures, and sells memory and storage products worldwide.
  • The company is particularly strong in the storage and memory segments and services the PC, mobile, data center, industrial, and automotive end markets.

Micron’s Growth and Current Valuation

  • The question posed its specifically about Micron’s growth and current valuation.
  • The company recently issued its Q4 and year end results for the 2022 fiscal year on September 29th.
  • The full year financial performance was pretty good across the board. Revenue was up 11% and earnings increased 38% to $8.35 per share. Margin improvement as well.
  • This puts the price to earning valuation at about 6 times a huge discount to the market average.
  • So, what gives? The company grew earnings by 38% over the last year and trades at 6 times earnings.
  • The problem right now is that it doesn’t trade at 6 times earnings. It trades closer to 170 times earnings.
  • That’s right…the company’s annual financial performance was strong but it ended the year with a weak Q4. For the fourth quarter of fiscal 2022, revenue was down 20%, margins declined and earnings were down 40%.

Near Term Outlook

  • I’ve gathered a couple of quick comments from management to shed some light on what happened in the fourth quarter.
    •  “The memory and storage industry environment has deteriorated sharply since our last earnings call.”
    • “Our fiscal Q4 financial results were impacted by rapidly weakening consumer demand and significant customer inventory adjustments across all end markets.”
    • An unprecedented confluence of events has affected overall demand including COVID-related lockdowns in China, the Ukraine War, the inflationary environment impacting consumer spending and the macroeconomic environment influencing customers’ buying behavior in multiple segments.
  • Based on company guidance this weakness is expected to continue at least through the next quarter. The company expects a sizeable drop in revenue and earnings in the next quarter. Earnings are expected to come in $0.04 to $0.10 per share. This is compared to $2.15 per share in the previous year.
  • Looking at analyst estimates, the consensus is for Micron to report earning per share of about $0.29 for 2023. This would seem about right if the weakness in Q1 persists through the year.
  • At $0.29 in earnings for the current year and a $53 share price, we get to a valuation of about 170 times. Not exactly screaming value at the moment.
  • What’s important to understand is that Micron is a cyclical company. Historically, we have seen fairly sizeable swings in revenue and earnings, although the general trend has been up over time.

Long-Term Growth Drivers

  • Long-term the demand drivers do appear very solid.
    • “Artificial intelligence, cloud computing, electric vehicles and the ubiquitous connectivity offered by 5G are strong long-term demand drivers for memory and storage.”
    • “Following passage of the CHIPS Act, Micron announced our intent to invest $40 billion through the end of the decade in leading-edge memory manufacturing in the U.S., contingent on CHIPS Act support.”
    • “Looking ahead in calendar 2023, while macroeconomic uncertainty is high and visibility is low, we currently expect demand growth to be closer to the long-term growth rates of both DRAM and NAND bouncing back from very weak levels in calendar 2022.”
    • “Following a weak first half of fiscal 2023, we expect strong revenue growth in the second half of fiscal 2023 as bit demand rebounds following substantial improvement in customer inventories.”

Conclusion – Our Take

  • Significant near-term uncertainty and weak management outlook for at least the next 2 quarters (potentially longer).
  • Strong long-term growth drivers driven by technology innovation and reshoring of chip manufacturing in North America.
  • Potential long-term buy opportunity but no hurry to take sizeable position in the near term.


Russia and Ukraine War’s impact on Inflation


Tyler K asked how the Ukraine-Russia war impacted agriculture and medical supplies, the impact of farming yields and the effect on grocery prices.


The Russian invasion of Ukraine had an immediate impact on prices, notably on grains and energy, as they are major exports for both countries. Prices were already rising across much of the world, but following the initial invasion, prices spiked. Wheat prices shot up roughly 50%, potash, a key ingredient for fertilizer, by 50%, and crude oil by 30%. However, these commodity prices have come down closer to pre-invasion levels in the last few months.


Grain Yields are higher in Canada, Russia, and the US. Canada had a poor yield last year, which contributed to the price increases before the invasion.

Ukraine has seen a significant decrease in the expected wheat yield of 38% due to the war, but yield forecasts have trended slightly up over the past few months. But, just because the crops are producing does not mean that prices will come down immediately or even over time.

In July 2022, Ukraine, Russia, Turkey and the UN agreed to open a safe passage corridor for grain exports through the black sea. This corridor was a core reason why grain prices fell to the pre-invasion level, so if it closes, we would likely see another spike in prices. The corridor highlights how important logistics are in a global economy, as the yields were similar to the previous years, but the restricted black sea shipping caused a massive spike in price. If you’re worried about the war impacting food prices, the black sea corridor access is what you should be conscious of.


I’ve been focusing on grain prices since that is the most impacted product due to the volume of both Russia and Ukraine produce and export, but not all food has followed that trend. Food as a whole has increased by 9.8% over the last year. Some notable changes are Flour, and flour-based mixes increased by 23.5%; this is due to being a near commodity, so it is more susceptible to changes in grain prices. On the other hand, we’ve actually seen a 1.8% drop in pork prices; this is the only drop in price across the food section of CPI, at least in part due to pork prices being already heightened before this recent burst of inflation. As well, just a reminder that CPI is an average, so regional variance may occur, as well as the grade and exact product may have different variations.

Going forward, assuming the current trends continue in the underlying commodity prices, food prices, on the whole, will start to plateau or at least only increase at a low rate. If commodity prices continue to drop, you’ll see the change in less processed products like flour first and heavily processed food such as pre-packaged meals last.


A quick note on Medical Supplies, Unlike food prices and energy, medical supplies are not impacted much by the invasion. Canada saw only a 4.4% increase in Health and personal care costs, significantly lower than many other segments. Medical prices are impacted indirectly through the increased oil & raw material prices. But, neither of these countries produces or imports a significant amount of medical products in the context of the world. In addition to the heightened raw materials, logistic strains have altered global and regional supplies. If a shortage occurs, it will likely be temporary as it is likely caused by logistic issues, not production issues. That being said, any shortage, even temporary is concerning due to the critical nature of the industry.

The Russian Medical industry has been severely impacted by sanctions, companies pulling out of the country, and failing logistics causing shortages and price increases regionally.

I hope that answers your questions.

Xebec Adsorption (XBC:TSX)

Price: $0.51 (HALTED)

XBC is a provider of sustainable gas solutions used in energy, mobility and industry applications. It specializes in deploying a portfolio of proprietary technologies for the distributed production of hydrogen, renewable natural gas, oxygen and nitrogen. By focusing on environmentally responsible gas generation, Xebec has helped thousands of customers around the world reduce their carbon footprints and operating costs. The company has 9 manufacturing facilities, 17 Cleantech Service Centers and 4 sales offices spanning over four continents.

We have covered the stock on the podcast a few times:

  • November 2019 @ $2.05. I covered it as a STAR of The Week after the share price was off to a strong year, up 185% YTD, driven by a hot green energy sector, good financial results, and growth in its backlog.
  • December 2020 @ $7.19 we discussed it again, in a Stock Vs. Stock battle 🡪 Ryan noted that “Insiders had been selling, with the CEO cashing out $2.3 million with no insider buying.” And that the company remained far from profit and traded at 12x sales.
  • And the third time we covered it was just 3 weeks @ $.77 when Brett revisited our previous Stock Battle of Xebec (XBC:TSX) and Greenlane Renewables (GRN:TSX) – which we all confirmed Greenlane was the better between the two due to being closer to profit and having a cash rich balance sheet. All while Xebec had significant topline revenue growth, but it continued to lack consistent profitability and was levered up.
Fiscal 2019 (Actual)Fiscal 2019 (Guidance)
Adj. EBITDA$7.0M$6.5M
Net Earnings$2.0M$4.5M


Fiscal 2020 (Actual)Fiscal 2020 (Guidance)
Adj. EBITDA$(22.0)M$10.2M
Net Earnings$(31.9)M$6.8M


Fiscal 2021 (Actual)Fiscal 2021 (Guidance)
Adj. EBITDA$(8.8)M$4.2M
Net Earnings$(23.5)MNA


In its MRQ (Q2 2022) the company had net debt of $(34.3)M…

On September 29, 2022 – the company announced that it was Seeking Creditor Protection under the Companies’ Creditors Arrangement Act (CCAA). As a result trading in the common shares of the Corp. Trading of the company’s common shares were HALTED. And the court issued an order authorizing the Corp. to conduct a sale and investment solicitation process with the goal of maximizing value for stakeholders.

Tell-tale of a stock with promising prospects, great top line growth, but in-ability to generate consistent profit. Even without considering the bankruptcy and that shareholders are essentially going to be left with 0, the stock is down over 95% since early 2021.


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