MENU

First Brexit… then Trump… Now, it’s time for Pro

Is your portfolio really prepared for what’s coming next?

To help investors like you navigate this historically uncertain — yet high-flying — market and prepare for an inevitable downturn, we’re re-opening our Motley Fool Pro Canada service to a select few new members for a short time.

To discover how Pro Canada could help you to increase your upside potential… reduce your downside risk… and earn paycheque-like income in the process, simply click here — before the small number of spots we have left are all gone!

Sell Bombardier, Inc. and Buy Textron Inc. Instead

Earlier this week a spokesperson for Textron Inc. (NYSE:TXT) admitted that it would be interested in buying Learjet, the light business jet manufactured by Bombardier, Inc. (TSX:BBD.B), but only if the price was right.

Well, Bombardier shareholders shouldn’t waste their time wondering if this little morsel of news is good for its stock price, because it’s not. Bombardier has more serious cash flow problems that won’t be solved by hiving off a small part of its business that contributed a grand total of just six planes to the overall sales tally in the first half of the year.

Impressive? Not in the least.

No, serious investors, especially those who want to make money over the long term, should contemplate selling their shares in Bombardier and buying Textron stock with the proceeds. Here’s why.

Textron makes money

In the first six months of fiscal 2016 Textron generated earnings before taxes and after interest expenses of US$475 million on US$6.7 billion in revenue. On a year-over-year basis, Textron’s segment profits and revenues increased 11.7% and 6.2%, respectively.

Bombardier’s loss before taxes and after interest expenses for the first half of 2016 was US$195 million on US$8.2 billion in revenue. Both numbers on a year-over-year basis were significantly lower than in the same period a year earlier.

Analysts consider TXT a buy

I’m not suggesting that you should take this as the gospel truth because analysts, like everyone else in this world, make mistakes. However, out of 14 analysts covering its stock, eight believe it’s either a buy or a strong buy against just one sell and four hold recommendations. On average, analysts have set a 12-month price target of $47.85–about 17% higher than its $41 closing price on August 23.

Bombardier has 21 analysts covering its stock with 11 giving it a hold recommendation, another four giving it an underperform rating, and one sell call. Just 24% of analysts are positive on Bombardier stock compared to 57% for Textron.

Textron’s balance sheet much healthier

In the most recent quarter ended June 30, Bombardier’s adjusted debt was US$9.3 billion, or 39% of its total assets compared to US$3.8 billion for Textron, or 25% of total assets. It’s a little closer when you net out Bombardier’s cash, but Textron isn’t losing money.

In terms of leverage, Bombardier’s adjusted debt is approximately 9.4 times adjusted EBITDA compared to 2.4 times EBITDA for Textron.

Textron pays a dividend

I’ll grant you it isn’t much at US$0.02 per quarter–a rate that’s been permanently set since 2009. However, it does buy back its shares. In Q2 2016 it repurchased 6.2 million of its shares for $215 million. That’s almost a 19% return on its investment through August 23.

Bombardier gives you zip.

Drones

Textron’s unmanned systems, which includes the commercial development of drones by company, had a great second quarter ended July 2 with the division’s segment profit increasing 187% to US$60 million on US$487 million in revenue. More importantly, profit margins increased by 580 basis points to 12.3%. Just ask Amazon.com, Inc. about the importance of drones.

Bottom line

Fool contributor Ryan Vanzo is big on Bombardier. He believes recent events portend bigger things to come for the company. And while he might ultimately be proven right, successful investing is about preservation of capital ahead of everything else.

For that reason, I’d be much inclined to own the $40 stock over the $2 one.

The exclusive buy "signal" you can't ignore

Over the course of The Motley Fool U.S.'s 23-year history, this rare buy "signal" has generated massive wealth for those that have been smart enough to pay attention to it. It's so rare, that it's happened less than two dozen times... but when it does, it's made investors undoubtedly rich. If you're interested in knowing the stock behind this rare buy "signal"--and you're excited to take advantage of this golden opportunity, then you're going to want to read this. Click here to unlock all the details behind this new recommendation from Stock Advisor Canada.

Fool contributor Will Ashworth has no position in any stocks mentioned. David Gardner owns shares of Amazon.com. The Motley Fool owns shares of Amazon.com.

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.