The markets had a pretty positive week, with most major indexes returning over 3.5%. The TSX lagged with returns of only 1.25%, and overall high valuation tech stocks started the week out well but finished sluggish again.
The most notable one, at least here in Canada, was Nuvei (TSE:NVEI). And the reasons for its fall are all too similar to Stocktrades Premium members, especially if you’re a shareholder of Lightspeed (TSE:LSPD), and that is a short report issued by Spruce Point Capital.
Our opinion on the Nuvei short report
Much like the Lightspeed report, the Nuvei one contained a plethora of speculative and vague assumptions. There are rarely any concrete accusations in these reports, likely to avoid defamation. Instead, the primary aim of these reports is to instill fear and doubt into the minds of retail investors with a series of “worst cases” and “what-ifs”.
And with this report, it certainly worked. The company plummeted over 50% on the morning of its release and it is clear that Spruce Point, judging by its short reports on Dollarama, Canadian Tire, Lightspeed, and now Nuvei, likes to target Canadian companies.
Why? Well, there are likely a few reasons. For one, companies are smaller, lesser-known, and have lower volumes. Secondly, the regulations in terms of the production of these reports, what is contained within them, and how they are distributed are much less stringent than those in the United States. This makes Canada the easier target for short-selling firms to take advantage of panicking retail investors.
The reports (Lightspeed and Nuvei) contained much of the same accusations. Internal troubles confessed by former employees, the company fabricating its total customer base, and even as far as to state Nuvei is hiding its real growth by picking and choosing the data it presents in shareholder reports.
But, there was a bit of uniqueness to this report as well. This was a very aggressive attempt to smear company management. The report makes claims that the company’s management didn’t graduate from universities they say they did and even goes as far as to mention traffic violations from a very long time ago. And although it doesn’t state it outright, points to the company’s management being involved in former Ponzi schemes.
Much like Lightspeed, Nuvei disregarded the report, saying it contained multiple inaccuracies and that it will simply focus on growing its business and delivering on its yearly guidance, which it still expects to hit. And, many analysts and major institutions maintained their price targets and ratings on the company, RBC being one of the larger estimations at $145 USD/share.
Our opinion? Although the report is clearly outlandish, panicked retail investors dumped the stock and overall, it worked. Spruce Point stated the company should see 40% downside, and it practically saw that at the open. In fact, I would imagine the short firm didn’t even expect it to happen this fast.
I believe retail investors may have witnessed how badly Lightspeed was damaged by the firm’s short report and simply panicked. This is why it’s absolutely critical to know what you own, and why you own it.
It did not take much time to sift through the report and disregard most all of the information within it. Which, gives us the impression that retail investors simply panicked and sold based on simply the issuance of the report, and not what was inside of it.
Does Nuvei present an opportunity now?
Nuvei has been a company we’ve had our eyes on for quite some time for inclusion on the Bull List. Mat owns the company and has for some time now. In fact, he added on this recent dip.
Valuations were stretched when the company got into the high hundred dollar range, and we never found the right opportunity to add this one in at a price point where we felt an addition made sense. Nuvei is an outstanding company. But, you still have to take valuation into consideration.
As of right now, the company reiterated its guidance after the short report. Guidance that investors were more than happy to pay $150+ a share for. So now that the company is trading nearly 60% off those highs, it does present a much better opportunity.
However make no mistake about it, Nuvei is still far from “cheap” at these levels. The company is trading at 9 times forward sales and just over 30 times forward earnings. Valuations that will have the marketing expecting big growth out of Nuvei moving forward, and the company will need to deliver.
Nuvei will remain off the Bull List. Not because we don’t view it as a solid company, but more so because of the uncertainty in the forward outlook for tech options. Technology, especially payment processors like Lightspeed, Paypal, Nuvei, and Square (Block now), have been undergoing a significant correction over the last couple of months. We’d like to see the dust settle a bit and prices to stabilize.
On a price to sales basis, Nuvei has not been this cheap since its IPO. And if you’re looking to add another excellent Canadian tech company to your portfolio, Nuvei would be a strong option.
However, we can’t stress enough that even though this stock has dropped nearly 60%, there will be plenty of volatility ahead. So, the best strategy, and one that I (Dan) would certainly use if I bought Nuvei is to average in, taking half or even quarter positions over a span of multiple months.
Portfolio shuffling and addition of Intact Financial
I (Dan) made some adjustments to my portfolio on Friday, primarily in anticipation of my decision to move out of ETFs for international exposure and into individual US equities.
All of my US holdings will be held inside of my RRSP, while many of my Canadian dividend payers will be tax-sheltered in my TFSA and LIRA, and my higher growth plays in my taxable account. However, I plan to wait to shift and rebalance most of my high growth plays as I feel now is not the optimal time due to market sentiment.
If you aren’t aware, the RRSP is a tax-sheltered account where US dividends aren’t charged the 15% withholding tax. So if you can, it is best to place dividend-paying US equities inside of your RRSP.
And as we’ve stated before, we’ve been working in the background for quite some time now and will continue to work on the completion of our US Foundational Stock List for 2022. The timing couldn’t be better, and we’re excited to bring this forward.
The newest addition to my portfolio would be Dividend Bull List stock Intact Financial (TSE:IFC)
My exposure to the Canadian financial sector is in the high teens, through companies like Royal Bank, TD Bank, Bank of Montreal, Equitable Bank, and Manulife Financial. However, as my holdings in RBC, TD, BMO and EQB have risen, my allocation to Manulife Financial has dipped due to a multi-year price slide.
So I needed to boost my exposure to the Canadian insurance sector either through a top-up of Manulife or a new company.
I’m still fairly bullish on Manulife. The company is undervalued and overall underappreciated. However, I felt adding Intact Financial to my portfolio was a nice addition to not only my financial holdings but also to give me broader exposure in the insurance sector, as Intact is a P&C (Property and Casualty) insurer while Manulife is primarily a life insurer.
Changes to and announcement of some Premium features
We are going to discontinue the regular updates/reports on the IPO Centre. When we launched the IPO centre, interest was very high. However, considering the current market environment, interest has certainly soured and it is now by far the least used feature here at Premium and is also the most work-intensive.
Reading through prospectuses, analyzing the industry, pricing etc, and breaking that down into a digestible format for members requires a considerable amount of work. Our platform is never stale, nor will it ever be. We will continue to evolve as we listen to the needs and wants of the community.
That being said, we aren’t going to drop the IPO Centre completely. We are still going to track upcoming IPOs so investors can go and check at any given time what is coming soon. Likewise, we are going to continue to track performance – this is a resource that is unavailable anywhere else in Canada.
But in terms of reports, we will move to an on-demand model. So, if you’re interested in our thoughts on a particular IPO, simply drop it in the Q&A on the website or in the #ipo-talk channel and Discord.
We are happy to go through the reports for members who have a particular interest in an upcoming IPO. We just won’t be digging into every single IPO and posting updates on them moving forward.
It has taken longer than expected, but we are finally at a point where we are ready to release our REIT screener. There are many nuances with respect to REIT financials and there is no single automatic data source that has all the information we need.
In particular, Funds From Operations (FFO) and Net Asset Value (NAV) are near impossible to accurately capture automatically with available data sources. As such, we need to manually update this information by digging into quarterly reports.
Given this, the REIT screener will be updated weekly, and ranking will be based on growth, value, and dividend. As the REIT screener is an all-encompassing screener, the REITs will be removed from the Dividend and Growth screeners.
They didn’t really fit there to begin with which is why we’ve been working on this REIT screener for the better part of the past year.
Since we need to wait for quarterly results for certain metrics, the screener will be launched in mid-January once we’ve manually updated all the information from the Oct-Dec reporting period.
Very excited about this one. There is nothing quite like it that exists on the market today and members will finally have access to yet another unique resource that should provide much value to those seeking REIT investments.