Is it Time to Revisit These 2 Former Greats?

When the market stutters, an opportunity to invest in long-forgotten investments emerges. Here’s what that means for Cameco Corp. (TSX:CCO)(NYSE:CCJ) and this other company.

| More on:
edit Person using calculator next to charts and graphs

Image source: Getty Images.

When the markets retreat as they have in recent weeks, an opportunity to revisit certain underperforming stocks emerges. This is particularly true for those stocks that recently completed a turnaround and haven’t fully proven themselves in the eyes of investors.

Two such investment options are Bausch Health Companies (TSX:BHC)(NYSE:BHC) and Cameco (TSX:CCO)(NYSE:CCJ). Let’s take a look at both of these companies and determine if the recent market pullback translates into a buying opportunity.

You might be surprised how healthy this company is

There are few companies still on the market today that have endured a turnaround on the scale that Bausch has. Following a failed business model that was built on cheap loans and successive acquisitions, Bausch has finally amassed a nicely sized portfolio of products with significant earnings potential (which the company has rightfully referred to as the Significant Seven). Adding to that appeal is the fact that Bausch has clawed away at its massive debt and is nearing a return to profitability.

Why would you want to consider Bausch for your portfolio? Apart from the growing number of profitable products in its portfolio, Bausch is finally a viable option to consider. That may leave a bitter taste to one-time investors under the company’s former incarnation, but this really is a different company.

In the most recent quarter, Bausch registered 3% organic growth — the company’s sixth successive quarter of growth. The company also managed to generate US$339 million in cash from operations while paying down US$100 million in debt in the most recent quarter.

If you have an appetite for risk and are a long-term investor, a small position in Bausch may be justified.

Will this stock finally go nuclear?

Unlike Bausch, Cameco isn’t suffering from a broken business model but rather a lack of growth. As one of the largest uranium miners on the planet, Cameco provides fuel to nuclear reactors around the globe under long-term contracts, not unlike the PPA contracts that utilities use. While this shields Cameco from immediate fluctuations in the market price of uranium, it’s still dependent on there being demand for uranium on the market.

Following the Fukushima disaster in 2011, demand for nuclear power, and, by extension, the uranium the Cameco mines, dropped significantly. This resulted in the market price for a pound of uranium dropping from near US$60 to the low US$20s. This left the company mining a product that was decreasing in value and nobody was buying. Adding to those woes was the fact that Cameco didn’t reduce production to match that much lower demand, which resulted in a glut of uranium hitting the market. A longstanding dispute with the CRA also weighed in on Cameco, with a potential $2 billion tax bill driving the stock even lower.

So, what has changed, and why now?

There are three factors that point to a better future for Cameco. First, we have Cameco’s steep production cuts. Cameco shuttered many of its higher-quality facilities, which slashed costs significantly. The company also began fulfilling orders from its existing supply reserves, buying excess uranium off the market itself, which has helped to kickstart demand, as did an influx of new reactors under construction around the world. Finally, a favourable decision in the CRA dispute removed a massive cloud over the company’s delicate finances.

Whether or not this makes the company a viable investment remains to be seen. Cameco is not without risk, and while nuclear power is steadily making a renaissance in some markets, it could be a few more quarters before the production cuts provide the jolt the market needs.

Investors with an appetite for risk may want to consider a small position in the stock, while others with shorter timelines or who want an income stream may be better off looking elsewhere.

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 Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool owns shares of Bausch Health Companies.

More on Investing

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »