Should Bombardier, Inc. (TSX:BBD.B) Stock Be on Your Contrarian Buy List?

Bombardier (TSX:BBD.B) is up 40% in 2019. Are more gains on the way?

| More on:
question marks written reminders tickets

Image source: Getty Images

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 always searching for troubled stocks that might offer a shot at some big gains once the company turns things around and sentiment improves.

Let’s take a look at Bombardier (TSX:BBD.B) to see if it deserves to be in your portfolio right now.

Big moves

It’s easy to understand why contrarian types might be interested in this stock. Back in early 2016, the company appeared to be on the brink of a bankruptcy filing and the share price fell to about $0.80. Investors who had the courage or foresight to step in at that point did very well over the next two and half years.

What happened?

Big orders from Air Canada and Delta Air Lines for Bombardier’s former CSeries jet probably saved the company and put a line under the stock price. By the spring of 2016, the shares were back above $2 and eventually drifted higher until they peaked around $5.40 last summer, shortly after Airbus took control of the CSeries and renamed it A220.

Unfortunately, the stock tanked through the second half of 2018 and finished the year close to $2 per share. A disappointing Q3 earnings report showed the company still had cash flow issues and a brief uproar over a planned executive stock sale plan added fuel to the fire. The overall weakness in the equity markets in Q4 provided the final punch.

Better days ahead?

In 2019, however, the stock is up more than 40%, supported by an uptick in the stock market and a Q4 earnings report that appears to have calmed investor fears. Bombardier is still burning through cash, but it remains confident that its turnaround plan is on track.

The global business jet segment is doing well and is expected to drive stronger revenue and cash flow in the next few years. That’s important because the company has significant debt coming due. Bombardier just replaced some 2020 notes with a new US$2 billion issue of Senior Notes due in 2027 at a coupon of 7.875%, so there is at least some appetite in the market for the company’s debt.

Airbus recently picked up a new order for four A220s and Delta Air Lines added 15 planes to its original order in January, so interest is starting to build in the jets. American orders will be built by Airbus in the United States. The company thinks it could sell thousands of the planes over the next two decades, and many of those would come from international carriers, so Bombardier would likely build them in Canada.

Should you buy?

Bombardier’s rail division is still working through some manufacturing pains and the debt situation remains a concern. Given the company’s track record, investors should be careful chasing the stock today.

However, if you are a Bombardier bull and believe the company’s worst days are finally in the rearview mirror, a small contrarian position could certainly deliver some big upside from the current level, especially if a non-American airline makes a significant A220 purchase, or if the rail division starts to pick up additional deals in the United States after the recent win in New Jersey.

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 stock mentioned.

More on Investing

Target. Stand out from the crowd
Energy Stocks

3 Oversold TSX Stocks I’d Buy in Bulk

Recession fears impact oil prices, although three oversold stocks should remain resilient and generate substantial free funds flow throughout 2022.

Read more »

Stocks for Beginners

New Investors: 3 Top Dividend Stocks to Start a Simple Portfolio

These quality dividend stocks are worthy for new investors to consider for a simple passive-income portfolio.

Read more »

Dollar symbol and Canadian flag on keyboard
Tech Stocks

3 Top Canadian Growth Stocks to Buy in July

Here are three growth stocks you might want to add to your buy list in July.

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

CIBC Stock Could Be a Top TFSA Buy for a Rocky 2nd Half of 2022

CIBC (TSX:CM)(NYSE:CM) stock is a great dividend top pick to stash in a TFSA after the first-half market correction.

Read more »

exchange-traded funds
Dividend Stocks

2 Dividend ETFs With Significant Exposure to the TSX’s Top 2 Sectors

Two dividend ETFs offer ideal diversification because of their exposure to the TSX’s two strongest sectors.

Read more »

sale discount best price

RRSP Investors: Top Stock Pick on Sale After the Stock Market Correction

Quebecor (TSX:QBR.B) looks like a terrific dividend stock for RRSP investors to buy, as recession risks rise amid a market…

Read more »

edit Colleagues chat over ketchup chips

The Alternative Way to Look at Any Recession

Market down? Instead of losses, look for potential gains. This alternative way to look at any recession exposes a market…

Read more »

Arrow descending on a graph
Energy Stocks

Why Did Oil Stocks Crash so Suddenly?

Oil stocks like Cenovus Energy (TSX:CVE)(NYSE:CVE) crashed dramatically last week. Here's why.

Read more »