The Motley Fool Canada

3 Rotten Shares to Sell,
and 1 to Buy Today

By: Taylor Muckerman

The S&P/TSX Composite has continued to rally way into the New Year, as gains have been carried by the energy and financial sectors.

But investors need to be wary right now.

A looming real estate crash and tightening trade restrictions with the U.S. could dramatically dampen any positive economic outlook. Turns out the days of easy profits may have disappeared and investors could risk getting caught owning the wrong stocks at exactly the wrong time.

So what are the three stocks we think you should actively be avoiding
right now?

Bombardier (TSX:BBD.B)

When it comes to investing for the long-term, generally, steering clear of companies that have become reliant on government bail-outs to survive is a solid rule-of-thumb to follow. While Bombardier’s history runs deep in this country, this is exactly the position that the company is in. The province of Quebec has spent $1 billion on bailing them out already, and the Government of Canada could be next. Regardless, we believe the company has proven itself to be a deplorable allocator of capital, and with the founding family still in charge, our team thinks there’s little reason to believe this will change. Financial risk remains significant, and even though elected officials appear keen for the exposure, we’re anything but. In our mind, Bombardier’s a
no-fly zone.

Encana (TSX:ECA)

Strategy is a critical underlying fundamental when it comes to running a business, and we can think of no company that we believe has been more lost when it comes to strategy than Encana. First, the company cut loose its oil assets (which subsequently became Cenovus Energy) to focus exclusively on natural gas. Natural gas prices subsequently cratered to below $2.00/MMbtu. So, the company decided to get back into oil, which subsequently cratered, falling below $30/barrel. This strategic flip-flopping has led to more than $10 billion in asset write-downs since 2012 and even though the company’s had some luck with asset sales (never a great sign), our team thinks the company’s balance sheet remains questionable. We’re confident that there are better ways for your portfolio to gain energy exposure.

BCE (TSX:BCE)

Our analysts think BCE doesn’t offer the same potential for disaster as the other two. However, that’s about the most positive thing we can think of to say about this Canadian behemoth. The Canadian telecom space is effectively saturated, meaning, where BCE, or its peers for that matter, are going to find growth in the years ahead is somewhat of a head scratcher to us. However, our analysis suggests the company trades at a valuation that suggests growth will exceed what’s occurred over the past decade. We disagree and will not be surprised if BCE’s annualized return over the next decade is below the current dividend yield offered.

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As of February 22, 2019. Taylor Muckerman does not own any of the stocks mentioned. The Motley Fool has a disclosure policy. Past performance is not a predictor of future results. Individual investment results may vary. All investing involves risk of loss.