Keeping your Tax-Free Savings Account (TFSA) safe from rising prices and the ups and downs of our loonie compared to the U.S. dollar is a smart move to help your investments grow and stay strong. One good way to do this is to include companies that make their money in U.S. dollars but pay their bills in Canadian dollars. This creates a natural shield against currency changes. Bombardier (TSX: BBD.B) is one stock that fits this picture as a Canadian company with a big international business.
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About Bombardier
Bombardier is a Canadian stock that builds airplanes, specifically business jets. For the fiscal year 2024, the company reported making US$8.7 billion in revenue. This was helped by the service business doing really well, bringing in over US$2.0 billion and delivering 146 aircraft. With orders worth US$14.4 billion in the backlog as of the end of 2024, Bombardier has a solid list of future work that will keep the money coming in.
Looking at how profitable Bombardier is, it achieved adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of US$1.36 billion in 2024. That’s an 11% increase from the year before. The adjusted EBITDA margin reached 15.7%, which shows it’s getting better at running its business efficiently. The company’s adjusted net income was US$547 million, and adjusted earnings per share was US$5.16, a big 31% jump from the previous year.
Bombardier’s financial health has also been improving. In 2024, it generated US$232 million in free cash flow (FCF). The company also reduced its adjusted net debt compared to its adjusted EBITDA from 3.3 times in 2023 to 2.9 times in 2024. This shows it’s making progress in paying down debt. Plus, it had US$2.1 billion in available cash, which gives it a good safety net if the economy gets a bit bumpy.
Hedging your investment
Now, here’s where the currency hedge comes in. Bombardier makes most of its money in U.S. dollars because that’s the main currency for buying and selling airplanes internationally. However, a lot of its costs, like paying its Canadian employees and running its Canadian operations, are in Canadian dollars. When the Canadian dollar gets weaker compared to the U.S. dollar, it means that the U.S. dollars Bombardier earns are worth more in Canadian dollars when converted. This effectively increases the company’s profit margins. For TFSA investors, this natural hedge can help protect the value of their investments from the Canadian dollar losing ground against the U.S. dollar.
Inflation is another worry for investors because it slowly eats away at the purchasing power of your money. Companies like Bombardier that operate in industries where they have some pricing power can often pass on increased costs to their customers. This helps maintain profit margins even when expenses go up due to inflation. Also, Bombardier’s focus on high-end business jets means its customers are probably less sensitive to small price changes compared to people buying economy cars. This gives Bombardier another layer of protection against inflationary pressures. It’s like selling luxury goods, as customers might be less worried about a small price increase.
One thing to keep in mind is that Bombardier doesn’t currently pay a dividend. For investors who are looking for a regular income stream from their investments, this might be a drawback. However, the company is reinvesting its earnings into growing the business. This can lead to the value of the company increasing over time. In a TFSA, any capital gains you make aren’t taxed, so this growth can still be very beneficial for your overall returns.
Bottom line
In conclusion, putting companies like Bombardier into your TFSA can be a smart way to protect your investments from both inflation and currency fluctuations. Because Bombardier makes its money in U.S. dollars and pays many of its bills in Canadian dollars, it has a natural hedge that can help preserve the value of your investments when the loonie weakens. While it doesn’t pay a dividend right now, its focus on growth and improving its financial health makes it an interesting option for long-term investors who want to safeguard their TFSA against economic uncertainties. It’s like having a well-built airplane that can weather different economic conditions.
