2 Stocks Under $5: Could They Double?

Bombardier, Inc. (TSX:BBD.B) and Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) are attracting some contrarian interest. Do they have big upside potential?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Contrarian investors are looking for beaten-up stocks that might be ready to start a recovery.

Let’s take a look at Bombardier, Inc. (TSX:BBD.B) and Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) to see if one is attractive right now.

Bombardier

Bombardier’s CSeries jet program is finally getting off the ground, but years of delays and cost overruns on the program have taken a toll on the balance sheet and the stock price.

At one point in early 2016, it looked like Bombardier might be headed for bankruptcy, despite receiving US$2.5 billion in funding commitments from Quebec and the province’s pension plan.

CSeries sales were struggling, and the drop in oil prices made the plane’s fuel efficiency less appealing to airlines. Panic started to set in, and the stock fell below $1 per share as investors figured it was just a matter of time before the company would seek creditor protection.

Then things began to turn around.

Bombardier secured large CSeries orders from Air Canada and Delta Air Lines and delivered seven planes by the end of last year. The company hopes to ship as many as 30 CSeries jets in 2017.

Bombardier’s stock is now at $2.30 per share, and investors are wondering if another double is on the way.

The company is still facing some strong challenges, so there would have to be a significant catalyst to move the stock much higher.

Debt remains a concern, and weak market conditions in the business jet segment coupled with competitive threats in the train business are strong headwinds to further gains.

If Bombardier secures another major CSeries order with a global carrier and does so at attractive margins, the stock could take off, but a 100% gain from here is unlikely in the near term.

Baytex

Baytex was a $48 stock in the summer of 2014. Today, investors can pick it up for about $4.30.

The ride down has been a painful one, and Baytex remains at the mercy of oil prices.

The company continues to carry a heavy debt load and is only targeting 3-4% production growth this year, so oil prices have to move higher for the business to generate enough cash flow to boost drilling.

Fans of the stock say it is oversold.

There might be merit to that line of thinking, given improvements on production costs and the fact that Baytex can comfortably live within its cash flow at current prices.

Baytex itself figures it is undervalued. The company says its net asset value is about $9 per share right now, based on a reserve value of close to $4 billion, less long-term debt and other obligations.

Is one a buy?

Both stocks remain volatile, so I would keep any contrarian position small just in case things start to go sideways again.

That said, if you have an appetite for roller coasters and think oil is eventually headed higher, Baytex might be worth a small contrarian pick. If oil rallies, the stock could quickly double from the current price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

More on Energy Stocks

Oil pipes in an oil field
Energy Stocks

2 TSX Energy Stocks to Buy Before They Heat Up Again

Suncor Energy (TSX:SU)(NYSE:SU) and another high-yielding TSX energy stock seem like great buys after recent weakness.

Read more »

data analyze research
Energy Stocks

Market Correction: 2 Dividend Stocks to Hold for Dear Life

These two top defensive dividend stocks could provide you with a degree of protection through the current market downturn.

Read more »

A meter measures energy use.
Energy Stocks

Energy Investing: What Every Canadian Needs to Know

Here’s what savvy Canadian investors need to know about energy investing today, straight from Motley Fool Hidden Gems advisor Jim…

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Gold vs. Oil: Which Commodity Is a Stronger Bet for Inflation?

Increasing commodity prices make gold stocks and oil stocks attractive assets to own, but oil stocks might be the better…

Read more »

TSX Today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, June 23

The U.S. Federal Reserve chair Jerome Powell’s testimony before Congress could continue to keep TSX stocks highly volatile today.

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Why Tourmaline Oil Stock Still Looks Strong

Tourmaline Oil has been on a dividend-hike streak this year.

Read more »

oil and natural gas
Energy Stocks

3 Cheap TSX Energy Stocks With Fast-Growing Dividends

TSX energy stocks are down 10% in the past week. Here are three cheap oil stocks I'd pick up for…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

From a Big Bank: Suncor (TSX:SU) Is the Best-in-Class Operator

A big bank recommends a buy rating for an oil bellwether because of its strong free cash flows and restored…

Read more »