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CAUTION: Stay Away From These 2 Cash-Strapped TSX Stocks

Amid high volatility and uncertainty, investors shouldn’t rush to buy stocks just because they are trading cheap. Investors should note that few TSX stocks are trading low, because there are good reasons for that. Lack of growth, high debt, and an uncertain outlook continue to limit the upside. Thus, these cash-strapped TSX stocks could prove to be the wrong investments, even if they are available at huge discounts.

Bombardier

Bombardier (TSX:BBD.B) is one such TSX stock investors are better off buying cheap. The stock has destroyed investors’ wealth and is struggling to survive. Its stock is down by over 77% this year. Meanwhile, it has decreased by about 80% in one year, underperforming the benchmark index by a wide margin. The significant erosion in value has led to its removal from the blue-chip index.

The company is reeling under a mountain of debt and is struggling with cash overruns. As on March 31, the company reported long-term debt of US$9.3 billion, while its cash and cash equivalents stood at US$2 billion. The cash-strapped company is finding ways to deleverage its balance sheet, one of which is through the divestiture of its assets. The company has divested many businesses in the past to lower its liabilities and accelerate growth. However, business divestitures have exposed it to a lot of risks. The company’s decision to focus on the sole aviation business poses severe challenges. The business aviation segment is highly cyclical, and a delay in economic recovery could hurt its business significantly.

The pandemic has resulted in reduced market demand and a slowdown in order intake, which is likely to hurt its aviation business in 2020.

Air Canada

Air Canada (TSX:AC) stock is another stock that shouldn’t be on your investment list, despite a steep decline in its value. The travel restrictions and other safety measures announced by the governments around the world took a significant toll on passenger airline companies, and Air Canada is no exception. Its stock has declined over 65% year to date and could continue to stay low in the foreseeable future.

Air Canada has a significant amount of debt in its balance sheet and is burning cash, which is not an ideal operating environment for it. As about 95% of its flights remained grounded, it reported a loss of $1.05 billion in the most recent quarter.

While Air Canada is focusing on cost-control measures and boosting liquidity, the anticipated decline in traffic could continue to remain a major drag. The rising infections and safety risks associated with traveling could hurt traffic for airline companies. Besides, the uptick in business and leisure travels is likely to take time.

The resumption of operations and cost-control measures should help Air Canada to navigate the current crisis. However, it is unlikely to boost its share price, as the company will take a significant amount to time to reach the pre-pandemic levels.

Bottom line

Both these companies are focusing on bolstering liquidity and cutting costs to stay afloat amid challenges. However, I do not expect the recovery in these stocks anytime soon. An uncertain economic outlook and near-term challenges could continue to restrict the upside in these stocks.

While these two TSX stocks are in troubled waters, investors should look into these growth stocks:

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Fool contributor Sneha Nahata has no position in any of the stocks mentioned.

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