Buy Bombardier on pullbacks, this investor says

Bombardier (TSX:BBD.B) has been on a tear this year, hitting highs not seen in over half a decade, But with all those gains, investors might be well suited to wait for a bigger pullback in the stock before climbing on board, says Rick Stuchberry of Wellington-Altus Private Wealth, who sees the low-$4.00 range as a good entry point.

Since the beginning of 2018, shares of Bombardier have seen a 60 per cent increase in value, as investors gain confidence in the company’s latest version of a turnaround. It wasn’t long ago that the Montreal-based aerospace and transportation company was taking government hand-outs to keep itself afloat, while at the same time being mired in a number of public relations disasters, including bribery charges and exorbitant pay increases for its executives.

The company is still mired in debt but its balance sheet has been looking better, while quarterly earnings have consistently beaten consensus expectations. And more recently, Bombardier’s partnership with Airbus on the C-Series jet program (now known as the Airbus A220), which was originally greeted with skepticism, is starting to look like a real win for BBD.

Only a couple of weeks into the handover, Airbus has already announced two major deals for 60 planes each — one with US carrier JetBlue and another with a yet-to-be-named US-based carrier. Stuchberry says that Bombardier’s own poor sales of the C-Series were due to concerns over production, which were erased once Airbus took the reins.

“The situation we have now is that with Airbus coming in, all of a sudden we have credibility on the sale side,” said Stuchberry, in conversation with BNN Bloomberg this week. “I think with the Bombardier C-Series, you’ve seen some great orders come in and now you’ve got the clout. There’s no doubt now for anyone buying a C-Series, or the A-220 Series, as it’s called now, that they’re going to deliver this thing because Airbus is there. That takes away that question mark of, do I order all these planes and then I don’t get them delivered or they go bankrupt or all the rest.”

As for Bombardier’s share price, which has now dropped 13 per cent from a high of $5.58 on July 11, Stuchberry says to keep waiting for a larger pullback.

“I wouldn’t be super-aggressive in buying it because it’s hard to know what the valuation is, and I think the market has already said, ‘Hey, I think this is great. Let’s move the price up,’” he says. “So, I would be a buyer on weakness on this. If it pulls back to $4.00, $4.25, something like that.”