What a wild week on the markets. I know I have mentioned that a lot of this feels like 2021. With the entire Beyond Meat situation this week, it feels even more like 2021.
If I had to sum the situation up in a few sentences, Beyond Meat went up by more than 600% last week (before crashing back down) on the news that some of its debt holders were willing to extend the debt that was maturing in 2027 to 2030.
It is highly unlikely that Beyond Meat would have been able to pay this maturing debt. So effectively, the company went up by 600% because it kicked the potential bankruptcy can down the road for 3-4 more years.
Yep. The markets are that crazy right now.
That said, I do want to mention that when the meme stock bubble burst in 2021, it didn’t take the market down with it. Stocks like AMC, GameStop, Blackberry, Very Good Food, etc., back then largely formed their own area of the market, and when they ultimately collapsed, investors didn’t really care.
Outside of that, it was a strong week for the markets, reaching yet another all-time high. If the S&P 500 manages to close the year out with gains of 20% or more (it needs around 4% more), it will be only the second time in history that it has posted 3 consecutive 20%+ year returns.
The last time it happened was 1996 – 1999, leading up to the dot com bubble.
In this week’s newsletter, I’m going to focus on some portfolio moves in my own portfolio, and then get into some early earnings reports from Premium highlighted companies.
One of these companies is my recent Value Call, Waste Connections, which reported a strong quarter.
Let’s get into it.
My portfolio moves
I made a few moves this week, some notable ones.
The easiest one to discuss first is my routine addition of Bull List stock Topicus. I have been adding to this one and Foundational Stock Constellation Software a bit more aggressively now that they’ve drawn down in price.
I do believe the AI fears and the CEO resignation are largely overblown, and we are now getting the opportunity to add some of the highest-quality compounders in Canada at discounted prices.
As long as valuations remain lower, these two companies will likely soak up the largest amount of my Canadian portfolio contributions.
Probably the most notable move this week was my decision to sell Foundational Stock Granite REIT (TSE:GRT.UN).
The decision for me to sell Granite had nothing to do with the underlying thesis for Granite. In fact, the company is almost certain to make another appearance on the 2026 Foundational Stock list, because I believe it is still the best REIT in the country.
However, for my own personal portfolio, I just do not feel the need to have exposure to REITs overall. These used to be larger portions of my portfolio. In previous years, I’ve not only owned rental condos but also REITs that touched a lot of areas of the market. Residential, commercial, auto dealers, industrial buildings, etc.
I find the exposure and large amount of equity I have in my current home is enough real estate exposure for me, and my equity portfolio will be allocated to non-real estate holdings. Again, I do realize Granite is an industrial warehouse REIT. However, there is just no need in my specific portfolio for an income-based REIT.
I took the money I received from my Granite sale, converted it to USD via Norbert’s Gambit, and took a position in recent Bull List addition Taiwan Semiconductor.
I want to reiterate that this position in Taiwan Semiconductor is a long-term hold for me. I’ll embrace any sort of volatility to the downside and add on weakness, and I’ll also continue to add on increasing prices.
I won’t speak much on the company in this newsletter, as I just created a full custom report on the company here.
Earnings
Waste Connections (TSE:WCN)
There was a lot of eyes on Waste Connection’s earnings from members, primarily because this was a recent Value Call by me and also a company I recently took a position in.
The good news? They didn’t disappoint at all. In fact, it was a great quarter from them.
Revenue came in at $2.46 billion, up 5.1% year over year, with adjusted EBITDA of $830 million. This works out to be an EBITDA margin of 33.8%, which is around 10 basis points higher than last year.
The impressive thing about this is the company is expanding margins on not only softer volumes, but also weaker commodity prices.
Core pricing increased by 6.6%, continuing to drive solid waste margin expansion even as reported volumes declined 2.7%. Again, this has been the main thesis for me with Waste Connections for quite some time.
During periods of lower economic activity, it can simply offset declining volumes with higher prices. When volumes pick back up, pricing increases turn from a buffer into a tailwind.
Volume trends remained in line with previous quarters.
Construction remains soft, which is putting a drag on results. Despite softness in overall volumes, earnings continued to grow by 6.6%, and free cash flow came in at $1.08 billion. Keep in mind, the company had annual targets of around $1.3B. They are on pace to exceed that target.
The margin story continues to separate Waste Connections from peers. Underlying solid waste margins expanded 80 basis points. Safety incident rates hit new record lows, which ultimately results in lower labor and repair costs, along with better route stability and service quality.
Waste Connections also continues to find attractive deals on the market, which is what I love about this company. This quarter was another above-average quarter in terms of deal activity, bringing YTD acquisition-related revenue to over $300M.
Management mentioned in a roundabout way that merger and acquisition activity will not slow down. The pipeline is too extensive and the company’s balance sheet is too strong. If you look to the chart below, you’ll likely see that acquisition activity is a bit “lumpy.” But the main point to take home here is the fact that acquisition activity has picked up extensively in the post-pandemic era.
In addition to this, capital isn’t just being spent on acquisitions, either.
The company issued a 11.1% increase to the dividend, the 15th consecutive year of double-digit hikes. They also bought back around 1% of shares outstanding on the quarter.
Now to the interesting stuff, at least for those interested in AI. AI-driven tools for pricing and forecasting have now been deployed to about one-seventh of its locations and are already delivering a 30–40% reduction in customer churn on comparable pricing actions.
That rollout will expand materially through 2026 and 2027, and it should expand from pricing to route efficiency, etc. The company has also tested pilot projects in terms of sorting, in which AI can detect particular products on conveyer belts and sort them into the appropriate disposal areas.
In terms of guidance for 2026, assuming a stable economic backdrop, Waste Connections expects mid-single-digit revenue growth, with 1% coming from acquisition carryover.
Solid waste margins should expand above average, but will me primarily offset by weaker commodities and acquisition-related activity. So, what you should expect is EBITDA margins to expand inline with what this company has historically done, which is 20-40 basis points a year.
Volume outlook remains conservative, which I don’t blame them. Management compared the current demand environment as flat, with limited signs of broad-based recovery.
However, no large contracts are expected to roll off in 2026, and pricing-driven volume tradeoffs should improve as customer retention continues to get better. Overall, volume recoveries will eventually come, and when they do, Waste Connections should benefit.
ASML (ASML)
Patience looks to have paid off with a company like ASML, at least over the last 6 months. I think this company’s share price movement is a perfect example of why buying companies, holding them for the long term, and completely ignoring short-term price movements is the easiest path to accumulating wealth.
If one were to have gotten frustrated with ASML’s year or so of flat returns and sold, they would have missed a subsequent 50%~ increase in share price over a 2.5 month timeframe.
Our mind loves to play tricks on us. When it comes to investing, one of the easiest tricks in the book is to convince us that we need to see immediate gratification from investments we make. This causes us to constantly be chasing the next best thing. When in reality, we just need to wait.
ASML reported a steady quarter. Keep in mind, this is more of a transitional quarter, and was far from a blowout. ASML is entering a point in its business cycle where geographical allocations are changing, product mix is shifting, and the company is gearing up for potential future acceleration.
Revenue’s were down 2% compared to last year. This is primarily due to the fact that there were 66 new systems sold, which is 1 less than last year.
In addition to this, management (or servicing) sales were down around 6% sequentially.
Some would begin to question why ASML has gone on such a run over the last while if sales are trending downward. It is primarily due to the upbeat nature of the forward environment, primarily from chip companies like Taiwan Semiconductor, AMD, Intel, etc.
Management confirmed their full-year guidance for ~15% revenue growth and ~52% margins. Bookings came in at €5.4 billion, including €3.6 billion in EUV orders, which kept the backlog steady.
However, they warned of a meaningful drop in Chinese demand starting in 2026. This is what I mean by geographical allocations.
Unfortunately, due to restrictions put in place that restricts China from gaining access to ASMLs most powerful machines, this is a headwind we will likely have to accept and deal with as shareholders. But, the company is priced appropriately for this.
Margins ticked down slightly Q2’s 53.7% to 51.6% in Q3. The main reasoning for this is lower overall servicing revenue, which is the higher margin side of the business. Because the servicing side of this business will be lumpy in regards to clients needing services, margins are prone to volatility.
As mentioned, the sharpest shift in narrative came on China. ASML now expects a material step-down in China-related system sales in 2026. They mentioned this was primarily because of a large pull-forward in terms of demand over the last few years.
China largely orders DUV machines from ASML. These are lower technology machines than EUV’s. However, restrictions don’t allow ASML to sell EUV’s to China. So, if you look to the chart below, which is ASML’s DUV sales, you can get a pretty good picture on Chinese demand.
The market has generally priced this in, but the company will need to continually adapt to mitigate the impacts of lower sales in China, which it seems to be doing.
Despite the lack of sales from China, the company still maintains the fact that revenue in 2026 will be higher than 2025. Considering how much this company relied on China in the past, this is a good sign.
As mentioned, this wasn’t a breakout quarter, but not a lot of people expected one. China weakness is a known headwind, but the broader investment cycle in AI infrastructure definitely creates a reasonable offset to this. What the company needs at this point in time is an order rebound form non-China regions. This should help ease the decline in China sales next year.
In my opinion, ASML will remain one of the most strategic and defensible franchises in global tech. Obviously there is execution risk here, but ASML has navigated the environment very well thus far.
