This week’s newsletter will contain some new moves and projected moves inside my portfolio, along with the final couple of companies that have reported earnings this quarter, including an interesting one in Boyd Group Services (TSE:BYD).
This newsletter is jam-packed with insights and commentary, so I’ll waste no time and just get right into it.
My portfolio moves
Buying Cargojet (TSE:CJT)
Although my portfolio has not fully moved to Wealthsimple yet, as some hidden Constellation warrants that were effectively useless have caused some delays, I did have enough initial contributions to my Questrade account to take a starter position in recent Bull List stock Cargojet (TSE:CJT).
Once my capital is fully over to Questrade, I will likely double my position in the company, if not more. I’m hoping that happens within the next few business days.
I will be selling Lightspeed (TSE:LSPD)
It has been an interesting 5~ years or so as a holder of Lightspeed. After realizing significant gains on rebalancing positions in 2020/2021, my final position in the company is in the red.
Many investors at this stage would fall victim to “sunk cost fallacy.” For me, I stay pretty dedicated to my overall strategy: when the thesis changes, I sell. When my Lightspeed shares hit my Questrade account, I will move on from the company.
Operationally, Lightspeed has the ability to grow. However, what has changed for me is primarily the actions of management. I have lost confidence in this team’s ability to grow the company.
Numerous puzzling decisions, including Dax leaving the company, returning, publicly stating the company was for sale, and even recently issuing a share buyback despite not even being profitable, this is, unfortunately, a rock-solid company with the potential for exceptional growth being dragged down by a poor management team who’s focus seems on trying to pump up the stock price with headlines (the sale, share buybacks, CEO return, etc.) rather than attempting to grow the share price through strengthened operations.
I’m going to maintain my cash position for now
I’ve been 100% invested in equities throughout my investing career and have never really worried about it. If I had not gone through the process of transferring brokerages, I’d likely be pretty close to 100% invested right now.
However, amid the transfer of my brokerages, I have not been able to deploy the capital I have collected, particularly the sale of Alaris Equity Partners, the trimming of Aritzia, and the sale of all my fractional shares. This has resulted in my portfolio accumulating around 11.5% cash.
I got a bit lucky here, as the vast majority of the market decline has been while I held this cash, moving brokerages. And, at this point in time, I’m in no rush to deploy that cash.
I will periodically make some additions using the cash. And, of course, members will know when I do and what I place it in. But I likely won’t do much until we get some clarification on the impact of tariffs and the length of time the tariffs might persist. At the moment, it is hard to tell what will happen next week, let alone in the next 6 months.
These are truly unprecedented times. This is the largest tariff rollout by the United States since before the Second World War. They didn’t work then; in fact, the tariffs contributed heavily to the impact the Great Depression had on the world, and they’re doubtful to work now.
I know many investors would view this as some form of market timing. However, as mentioned, this environment is nothing any investor alive today has experienced. Unless, of course, you count Warren Buffett, currently 94 years old, who would have been about 6 months old when tariffs were last implemented at this scale.
Make no mistake, however, if I were fully invested, I wouldn’t be looking to sell any equities simply based on the economic and political uncertainty we have right now. I just got a bit lucky with a brokerage move at the right time that has left me sitting on 11.5%~ cash, which has been largely immune to the considerable market selloffs we’ve witnessed over the last month.
As with most market events, we’ll likely look back on this as an immaterial issue to long-term wealth generation. I can look no further than the COVID market crash in 2020. My portfolio fell by over 30%~ in a month. That was difficult at the time, but a complete non-factor 5 years later.
Boyd Group Services (TSE:BYD)
Boyd reported strong numbers on a headline basis, topping earnings expectations and meeting revenue estimates. However, short-term headwinds continue to hold the company back.
The company saw same-store sales decline by 2.5% on the quarter, as lower claims continue to put pressure on the company’s business. The lower claims are a result of multiple things, but the two major ones would be falling prices in automobiles, causing insurers to write vehicles off over opting for repairs, plus non-insurance claims being lower due to the current economic environment.
With this being the final quarter of 2024, I want to compare Boyd’s year to 2023. In this regard, sales increased by 4.2%, but same-store sales declined by 1.8% (see chart below).
Boyd is typically a company that has achieved mid-single-digit same-store sales growth, but right now, it is primarily having to grow sales through acquisitions and new store openings, which is certainly the more capital-intensive method of growth.
As a result of the slowdown, adjusted EBITDA came in 9.9% lower, operating cash flows were lower by 12%, and net earnings declined by 70%. The net earnings decline isn’t anything investors should be worried about, as it is more so the timing of some depreciation and amortization expenses. The operating cash flow and EBITDA numbers more accurately reflect the decline in results.
The company added 49 new locations on the year, 12 of which were brand new start-ups and 37 of which were acquisitions. As you can see below, even though Boyd is a Canadian listed company, the vast majority of its business (Gerber Collision) is located in the United States.
Despite a relatively rough economy and a slowdown in results, the company continues to execute in this regard and is likely getting a discount on these shops considering the environment, which should add to same-store sales growth when the environment inevitably improves.
The company launched “Project 360”, a project intended to reduce the operating costs of the business by around $100M~ a year. The company expects to lay out around $30M~ to realize these savings, of which 70% of them will be factoring into revenue by the end of 2026.
The company’s comments on tariffs were interesting. They expect them to be neutral, or potentially even positive impact. The quote below reiterates what I’ve been saying for Boyd since the tariffs surfaced: tariffs will push vehicle prices higher, ultimately resulting in insurance companies fixing more cars over writing them off:
“The other side of the inflationary or the tariff environment, what it could do is push new car prices higher, which increases demand for used cars and in turn pushes used car prices up as well, which as you know then pushes total losses down.”
And the final note I’ll speak on for the company is an additional headwind they had mentioned: consumers removing collision insurance from their policies and just keeping liability coverage in an attempt to save money. This is a high-risk and often disastrous decision, depending on the value of your vehicle, but one that people are doing nonetheless.
“So people are looking at the premium increases they have and making decisions to now switch. And our hope is that as they make those decisions to switch, they put themselves back in a position where they’re either reducing the deductibles as they’ve increased to mitigate the premium increases. They’re putting collision coverage back in place where they may have dropped collision coverage when the premium increases hit. So the reality is that consumers that are putting themselves in a position where they can’t afford to fix their vehicle or don’t have coverage to fix their vehicle if they were to get into an accident are really putting themselves at a fair amount of risk and you’re putting your livelihood at risk.”
Overall, it was a rough 2024 from Boyd, who acknowledges the situation. Realistically, there is nothing the company could have done about any of this, and it is just an element of the current environment. Eventually, the situation will normalize, and I believe we will get back to double-digit growth.
You can view my full report on Boyd Group Services here
Alimentation Couche-Tard (TSE:ATD)
Couche-Tard reported a relatively inline quarter, which considering how rocky it has been for this company over the last year or so is definitely a good sign. Earnings of $0.97 came in a penny better than estimates and revenue of $29.8B missed estimates by a negligible amount.
On a year-over-year basis, the company increased sales by 6.5% and earnings by 4.6%. These are not the numbers we’re typically used to seeing from Couche-Tard, but we do have to remember we’re speaking about a cyclical stock here at a relatively weak time for the economy.
As more people pinch pennies and cut back on travel, less people head to the convenience store to fill up and ultimately less people buy the junk food and gas station items inside of the store. It tends to be a ripple effect, but also not one that will last forever.
When we look to merchandise and service revenue, it increased by 5%. But one of the major focuses here should be the fuel sales, which declined by 6.1% in the United States and 1.6% in Canada. I’ve attached a chart below of the company’s US fuel sales, a very important KPI.
Considering the United States makes up over half of this company’s overall fuel sales, that larger than average drop is definitely going to be felt more. When we look to same store sales, which would not factor in any of the new stores Couche-Tard has opened or acquired, The US declined on both a merchandise and fuel basis, while Canada actually improved by low single-digits on both fronts.
On the margin side, fuel margins improved slightly across all areas while merchandise margins remained relatively flat.
Overall, it was a very strong rebound quarter from Couche-Tard. Despite slowing demand practically everywhere, it has been able to maintain margins and maintain its market share. With 40 acquisitions already year-to-date, 69 stores opened over the last 3 quarters, and 56 additional stores currently under construction, the company is flexing its blue-chip nature a bit here and utilizing its strong cash flows to develop stores even in a softer environment.
Couche-Tard should be in a good position to benefit from a recovering US and Canadian economy over the next few years, and investors will likely have some solid opportunities to accumulate this company at cheaper valuations.
