Before I get started with this week’s newsletter, which features the addition of a Canadian company to the Bull List, I just want to go over some housekeeping first.
I’d like to wish everyone at Stocktrades Premium a happy holidays. Ultimately, I could not do what I do without our members, and I hope that by utilizing Premium over the years, you’ve grown your portfolio to new levels.
After a wild year from me, including twins, a subsequent new SUV, and developing my basement, my portfolio still sits near all-time highs. It has been a monumental run, and although we’re getting to the point where the odds are stacking up against another exceptional run in 2026, it’s still anyone’s guess as to where the markets go.
If you asked many pundits and experts (myself included) if the markets would return double-digits in 2025, most would have said no.
The best solution for those who are wondering about the short term is to think about it, but not make decisions based on it. What we instead need to do is make decisions based on the long-term prospects of the market. If we do that, we’ll be just fine.
Holiday newsletter schedule
Typically, I take a few weeks off from our weekly newsletters here at Premium.
There will be no newsletter on Sunday, December 28th.
The Canadian Foundational Stocks will be released on Wednesday, January 7th.
The US Foundational Stocks will be released on Wednesday, January 18th.
Why the gap this year? I had a ton of requests from members to spread the Foundational Stocks out to avoid “information overload.” Which does make sense. Those reports are gigantic, and often take an entire week to dive into completely.
With all that said, let’s dive into this week’s newsletter, first with the Bull List addition.
I’ve added Canadian Apartments REIT (TSE:CAR.UN) to the Bull List
The REIT landscape has been a complicated one for investors over the years. Post-financial crisis, REITs were a favorite among Canadian investors. However, record low interest rates ballooned real estate values, pulling forward many years of growth for REITs, particularly in the residential space.
Once we acknowledge that it was government policies that sent many REITs into the gutter price-wise, we can view the industry through a more objective lens. Canadian Apartment REIT has done nothing but execute for years. Yet, its price continues to decline. At some point, the sentiment has to shift, and when it does, the REIT looks deeply discounted.
The company is trading at a 33%+ discount to its Net Asset Value, that being, the underlying value of the properties it owns. A contrarian might say the bulk of its properties are in Toronto, where asset values are falling. I would agree with this, which is why I take a more conservative approach and say the discount to NAV could be closer to 20% if we wanted, and we still get an attractive risk/reward prospect.
The company is recycling underperforming and poor assets, both here in Canada and Europe. The company is getting fair value for these assets and then turning around and buying their own units back. This effectively trades lower-quality, high-capex assets for high-quality, low-capex assets while reducing overall unit counts, which is bullish for investors.
It also moves CAP REIT back toward being a pure-play Canadian apartment REIT, which makes it much easier for investors to evaluate. Personally, I have no idea about the European real estate landscape, and I believe the Canadian market is large enough that it can grow just fine here.
One of the core theses behind CAP REIT is the fact that the company has plenty of buffer room in regards to rental increases, despite rent falling pretty much across the country. Because CAP REIT’s average rent prices are a double-digit discount to average rents in particular regions, this allows them to navigate a declining rent environment with ease. While residential REITs who are tighter to average rent prices will need to keep pace with those, CAP REIT will still be able to raise rents.
There are plenty of rent caps in place that limit landlords to low single-digit increases in rent. However, newer units in Ontario built after 2018 are generally allowed to raise rents to market prices, assuming proper notice is issued. This is precisely why you will see CAP REIT target newer units. It gives them more flexibility.
A primary attraction for REIT investors is the monthly distribution, and CAP REIT remains one of the safest bets in the sector. Because of the drawdown in price, CAP REIT now yields north of 4%, which is a rarity. In addition to this, a 60.4% FFO payout ratio illustrates a dividend that is well covered, with plenty of room to grow.
Finally, approximately 98% of its Canadian mortgage portfolio is CMHC-insured. This allows CAP REIT to borrow at rates significantly below conventional commercial loans.
Overall, I’d normally view REITs as a conservative investment, good for the fund’s yield, plus maybe a percent or two in terms of capital appreciation. However, I do feel there is a large valuation gap here, and the market is overreacting to headlines of rental prices falling. Even though these headlines are factual, CAP REIT is in a position where they can still benefit despite falling rents.
You can read my full report on CAP REIT here.
I’ve removed PayPal (PYPL) from the Bull List
Removing PayPal from the Bull List is a move that I have contemplated for a while, and the latest numbers really justify it. While the company is still a massive cash cow, I believe the growth story has fundamentally changed, and not necessarily for the better.
We’ve seen transaction margins continue to be an area of concern; even as total payment volume (TPV) grows, the profit they keep from those transactions is under constant pressure because of the shift toward unbranded processing, such as Braintree, which has much lower margins than the classic PayPal checkout button.
The competition has also moved from being a possible threat to a daily reality. Although I don’t want to say they’re eating PayPal’s lunch just yet, it’s getting close.
Apple Pay and Google Pay have integrated so seamlessly into mobile hardware that the friction of using PayPal is starting to show. In their own results, they admit that branded checkout growth is a battle.
We’re also seeing a plateau in active user accounts. They are hovering around 430-440 million, and getting that number to move north again is proving to be expensive and slow.
Financially, the stock looks cheap on paper at a low double-digit P/E, but I think the thesis here has shifted from a potential value play to the stock essentially being cheap for a reason.
The revenue growth has moved into the single digits, and the market is treating it more like a legacy utility than the high-growth disruptor it used to be. They are doing a massive $5-6 billion buyback program, which is great for propping up EPS; however, you have to ask yourself if they are buying back shares because they truly see value or because they lack better places to reinvest that cash for actual growth.
The new CEO, Alex Chriss, is definitely making the right moves by trimming the fat and focusing on “profitable growth.” But a turnaround of this size takes years, not quarters. Until I see a clear way for them to win back the mobile checkout experience from the tech giants, there’s better risk-reward weightings elsewhere, in my opinion. It’s still a fine company, but it no longer fits the original value thesis.
