Turnaround stocks can be rewarding if bought near the dip. The TSX has seen some remarkable turnaround stories from Bombardier to TC Energy. While a few companies are in the midst of a turnaround, their struggles remind us that not every turnaround stock delivers hyper growth.
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Air Canada: A struggling turnaround
Air Canada (TSX:AC), for instance, accumulated massive debt during the pandemic just to stay afloat. It reduced debt in the next two years of recovery. However, the stock never fully recovered. Challenges kept piling up — first the 2022 oil price rally, then the pilot wage hike, the Pratt & Whitney engine issue, and now escalating geopolitical tensions like the Iran war, which cancelled flights and increased oil prices. This is a classic example of a turnaround stock whose recovery is stalled by external headwinds.
Bombardier: A successful story
Bombardier’s (TSX:BBD.B) five‑year turnaround is one for the books. The business jet maker repaid debt and completed its restructuring, rewarding early investors in its turnaround story – a $10,000 investment grew to $135,275 in the last five years. Such stocks are rare, but they highlight the potential when execution aligns with strategy.
BlackBerry: A murky turnaround
BlackBerry stock is struggling to turn around. It offloaded some business segments for a lean structure of returns-driving businesses, which turned its operating cash flow positive. This offloading worked for Bombardier and TC Energy. But BlackBerry’s turnaround remains uncertain as its leaner structure has yet to deliver sustainable growth.
How to Identify the Right Turnaround Stock
Several companies are undergoing a turnaround, from Lightspeed Commerce (TSX:LSPD) to BCE (TSX:BCE) and Algonquin Power & Utilities (TSX:AQN). To identify the investment-worthy stock, look at:
- The root cause that led to the restructuring. Whether it was high expenses, too much debt, or revenue decline.
- Evidence of these problems being addressed and a turnaround materializing through improving quarterly earnings.
- Sustainability of the improvement. Because Air Canada and BlackBerry are struggling here.
Air Canada and BlackBerry show how fragile turnarounds can be, while Bombardier demonstrates the upside when execution is strong.
Algonquin Power & Utilities: Signs of recovery
Algonquin faced mounting debt and too many capital-intensive power projects. The company offloaded its loss-making renewable energy segment and Atlantica investment to reduce debt and focus on the low-risk utility business. This helped Algonquin report its first profit since its fallout in 2022. The stock surged 45% during this entire process.
However, without a concrete debt‑reduction plan, the turnaround remains incomplete, making it unrealistic to expect turnaround-like returns from Algonquin.
BCE: A roadmap for a turnaround
The biggest catalyst for a turnaround is a clear roadmap and strong execution. That’s what made Advanced Micro Devices and Bombardier’s turnaround a success. BCE has a clear roadmap to address high debt and tap new growth avenues. It has been offloading non-core assets to reduce the net debt to 3.8 times its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2025. It plans to reduce it to 3.7 times in 2027 and 3.0 times in 2030 by increasing its free cash flow by 15% annually.
To increase free cash flow, BCE has slashed dividends by 56%, decreased capital expenditure in Canadian 5G infrastructure, sold non-core business, and cut jobs. It expects to achieve $1.5 billion in cost savings by 2028.
BCE has been simultaneously investing in high-growth, high-margin businesses, like cybersecurity and artificial intelligence (AI) infrastructure. It is building a $1.7 billion 300-megawatt AI data centre in Saskatchewan for sovereign AI compute, which has created momentum in the stock. With a roadmap and execution, BCE could deliver a strong turnaround rally in the next three years.
Lightspeed Commerce: A murky path
Lightspeed continues to struggle with turnaround as it writes off goodwill built on several expensive share-only acquisitions in 2021. While there is revenue growth, it continues to report a net loss, with no specific turnaround roadmap in place. Until all the valuations from acquisitions are written off and the tech company starts on a new path, achieving a scale that leads to profits, the turnaround rally might be murky.
