Forget Cineplex (TSX:CGX): Here’s a Better Battered Bargain to Bet On!

Cineplex Inc. (TSX:CGX) stock has taken a beating on the COVID-19 crisis, but there’s another deep-value TSX play that has a far better risk/reward.

| More on:
Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance

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

Cineplex (TSX:CGX) stock has been in the doghouse ever since I called its demise back in the summer of 2017 when the stock was a market darling that some income-oriented investors saw as a “safety” play. Fast-forward to today and the stock is down a staggering 70%.

From peak to trough, shares of Cineplex got cut in half twice, punishing those who attempted to catch the rapidly falling knife on hopes that the box office would recover.

While I am a raging bull on the longer-term recovery of the movie theatre industry (movie theatres and streamers can co-exist), I don’t think a name like Cineplex is guaranteed to survive long enough to see an industry comeback.

Cineplex’s financial footing is way too weak given the unprecedented uncertainties

The company has both a meagre liquidity and solvency position, making the iconic Canadian entertainment kingpin at high risk of going bankrupt amid the coronavirus crisis. There’s also no telling how many more coronavirus-induced shutdowns will be in the cards over the intermediate-term, so it’s impossible to gauge when cash flows will sustainably recover.

Moreover, given that densely crowded venues are among the last of establishments to be reopened in a phase-based return to normalcy, Cineplex is essentially nothing more than a bet on either an approved takeover (by Cineworld or not) or a timely arrival of a vaccine.

Investment Canada is currently reviewing the Cineplex-Cineworld potential takeover. The deadline for such a deal is June 30 and is still subject to a handful of conditions. The odds of such a deal falling through, I believe, are high as uncertainties relating to COVID-19 continue to mount.

As such, I would encourage investors to steer clear of a name like Cineplex, given its alarmingly high risk of insolvency, even for those comfortable with placing an “all-or-nothing” type of bet.

Got deep value? Check out Corus at these depths

For those seeking significant gains in an upside correction, I’d urge investors to consider shares of Corus Entertainment (TSX:CJR.B), a deep-value play that’s in a much healthier financial position than its longer-term stock chart would suggest. Shares are also more battered than the likes of a Cineplex, now down 85% from its 2014 heights.

Sure, Corus is a play on old-school media and TV advertising, which is in secular decline. But as a deep value investor, one has to look at what they’re getting for the ridiculously low price of admission.

While it is risky to bet on a company that’s on the wrong side of a secular trend (cord-cutting continues picking up traction), the line has to be drawn somewhere for a firm that’s still pulling in ample amounts of free cash flow. And that line, I believe, ought to have been drawn back at $8.

Call Corus a cigar butt of an investment if you like. But it’s one that still has plenty of puffs left for those willing to pick it up at its dirt-cheap multiple. The coronavirus crisis has affected cash flows, but I expect it to normalize back to around $300 million over the next year as the economy continues on its V-shaped recovery trajectory.

There are a few catalysts that could move the needle for Corus over the longer term, and with shares trading at 0.48 times book, I’d say now is time to back up the truck if you’re looking for an unprecedented bargain that’s disconnected from its underlying fundamentals.

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 Joey Frenette has no position in any of the stocks mentioned.

More on Stocks for Beginners

growing plant shoots on stacked coins
Stocks for Beginners

3 TSX Stocks With High Dividend Yields

Are you looking for a great opportunity to bolster your portfolio? Here are three TSX stocks with high dividend yields.

Read more »

financial freedom sign
Stocks for Beginners

1st-Time Investors: 2 Cheap Canadian ETFs to Buy for Financial Freedom 

Investing for the first time but don’t know where to start? Here are two cheap Canadian ETFs that can grow…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Got $4,000? 4 Simple TSX Stocks to Buy Right Now

The macroeconomic environment is tense but investing can be simple. Here are four stocks to buy now and book your…

Read more »

Dollar symbol and Canadian flag on keyboard
Stocks for Beginners

The 2 Best Canadian Stocks for Beginners Right Now

Stock market beginners in Canada could kickstart their investing journey by buying these two stocks right now.

Read more »

Arrowings ascending on a chalkboard
Stocks for Beginners

3 Growth Stocks You’ll Want for the Next 5 Years

These three growth stocks offer Motley Fool investors double-digit growth year after year in the next half decade.

Read more »

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

2 Big Bank Stocks to Own for Lifelong Income

These two Big Bank stocks are ideal staple holdings for newbie investors seeking a lifetime of passive income.

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Superb Income and Growth Stocks for Every Portfolio

The market is full of superb income and growth stocks, but not all belong in your portfolio. Here are three…

Read more »

stock market
Stocks for Beginners

Worried About Stagflation? 2 Canadian Stocks for All Market Cycles 

Stagflation delays economic recovery. You can keep your portfolio stagflation ready with these Canadian stocks that are suitable for all…

Read more »