Bombardier: Should you add to your position?

 

You have invested in Bombardier. If you are over 51 years of age, you have been investing regularly in Bombardier since 1966 . Unfortunately, no matter what your age (assuming you have earned taxable income in the past 2 years or longer), you have some of your tax dollars invested in this business – whether you wanted to be involved in this losing investment or not.

 

Bombardier has been a perennial recipient of corporate welfare, having received more than $3.8 billion (that’s $3,800,000,000 in real money, folks) in taxpayer handouts since 1966. That makes you and I investors in the company. I don’t know about you, but it’s been a pretty lousy deal for my portfolio – especially since it was a discretionary trade on my account. Discretionary trading is something that only licensed Portfolio Managers should be able to do. And this only under a very clear agreement signed by the client. Even then, the diligence, soundness of the decisions and suitability of the investments must be justifiable. Sending money to a losing firm with no equity or income potential and no possible return of capital would be considered imprudent, and would likely land me in trouble had I entered such a trade with my clients’ assets.

Payday

Personally,  I’d much rather have had the government send me that portion of my taxes allocated to this perpetually losing company through the shares –even if they have been a disaster over the past 2 decades. You and I have nothing to show – not even a capital loss that we can use – under the current arrangement. Even a capital loss has some benefit – and ultimately a stock that has fallen still has some capacity to return some of your capital. The big downside to your (and my) “investment”  in Bombardier has been that of receiving no dividends and no capital gains or claimable losses. That’s because we didn’t get equity shares in the company or a debt obligation in return for our capital.

 

Well, let’s take a look at another way of investing in Bombardier. That is, by making a decision whether to own stock in the company that is not forced upon you. The great thing here is, no matter what happens you’ll at least have control on your investments’ entry timing and elimination. By investing in this – or any stock – we might have the potential for some upside – rather than the complete lack of upside no matter what the outcome –  through the last $3.8BB we’ve already invested.

BBD

The weekly Bombardier chart shows us some interesting potential in this stock. The stock has put in a potential Head & Shoulders bottom, and looks to be struggling with a current resistance point for around $2.70/sh. Neartermed momentum (RSI and Stochastics) is rolling over, but the longer termed MACD is trending nicely. Cumulative Moneyflow (A/D line bottom pane) is quite flat—but Moneyflow momentum (Chalkins top pane) is turning up a bit – suggesting a possible revival of interest in the stock.

 

If you wish to invest additional capital  beyond your current non-claimable massive loss in Bombardier, you might wish to consider waiting for the current resistance point of $2.70 is taken out  – preferably on some volume. Perhaps, if the stock moves up from that point, you might be able to recover at least a little of your capital from this otherwise bum deal beseeched upon you. The current government has yet to explain how the most recent “investment” will see the capital returned, given the company’s inability to return prior taxpayer bailouts.

 

trudeau no idea

10 Comments

  • @70,000 employees globally = $54,285 EACH …….. must have missed quite a party….

    Reply
  • As an personal investment you are bang on.
    As a country investment, I have to disagree.

    Canada has for too long been relying on selling raw resources.
    It is difficult to sell finished resource-based products because many other countries, simply want to buy these raw resources and create a local finished product industry.
    But we have to try.

    Airline manufacturing like auto manufacturing is a very large capital investment that can take decades before it becomes profitable. However if we don’t take this long run approach then our country will become a poor importer of expensive goods.

    What we need to be is smart about how we finance these industries. Instead of just loans, I believe the country should take partial ownership.

    Look at Pierre Trudeau’s creation of a national energy program. At the time, he was criticized.
    Now we have a huge oil industry creating jobs, personal wealth, tax generation.

    We need to build build build, work work work.
    Real work that actually creates something.

    Bill Gates, $60B man, was correct when he said, ‘market share is everything’.

    Reply
    • I’d say the 51 year investment in Bombardier has had plenty of time to prove it ain’t workin’… like all bad investments, ya gotta pull the plug at some point. Its called “enough is enough” — or “sell discipline” in the trading world!

      Reply
  • It all comes back as taxes.
    The oil industry is apparently subsidized to the tune of $3B annually, and its profitable and possibly doesnt need it.
    The military is a huge money pit for taxpayers.
    $3B / 35Million people / 51 years = less than $1.66 a year. How much is a Starbucks these days? $2.50 for a cup?
    Bombardier cost/bailout barely registers as anything much really.

    Reply
    • If I want an americano from SBUX, I can choose to buy one and not have it forced on me – and I actually get the americano, ie I get something for my money, rather than a fistfull of nothing. That to me is the difference.

      Further, military is a government expenditure that we all expect and agree to. Police services and roads too. Bailing out a company is most certainly not something spelled out as part of the “job description” for a government. Finally, 35 million people do not equally share the burden of a government’s spending habits. Some are unemployed, some don’t earn anything at all due to age, some are low income earners, some are higher earners–taxes are not paid as evenly distributed output. Thus, I may be paying the equiv. of an entire case of SBUX coffee per year, while my teenage son is paying nothing towards the Bombardier bailout. Finally, as Rona Ambrose said in parliament recently–why just BBD? Why not the drycleaner, the tire shop, the shoe store, the independant coffee roaster who collectively employ more people and need the money just as much….

      As a capitalist and believer in the free market: I am libertarian in business philosophy – as such, a failing business is never so important that it cant be replaced by another, and those jobs will be dissipated into a new economically viable enterprise over time. A company should not be bailed out with our money if they can’t survive (We had a milkman who came to my door when I was growing up. Such a pain to go to the grocers now! Grin!).

      Gotta go–just got a telegraph, need to get on my horse and head out to the Union Pacific office to retrieve it–now THAT is a business model that is essential and cannot be replaced…!

      Reply
  • Can you please do a blog on REIT in Toronto market? Outlook and seasonality. If one does not want to invest in ETF (e.g. XRE), what would be a good mix of composition of a REIT portfolio? Commercial building, apartment, senior housing, etc ?

    Much appreciate it.

    Reply
    • That’s probably a good topic for one of my full articles with Investors Digest or Moneysaver or Moneyletter. I will try to cover it on the blog in a condensed manner.

      Reply
  • $3,800,000,000. So much good could come from that much money. I’m compelled to rant!
    I own a company that designs and builds machinery, not sexy stuff like airplanes, but machines that make building products. Our primary markets is USA, then Canada, then a bit of stuff to the rest of the world.
    We have never received any handouts or required them. I use the equity in my home if i ever need more working capital. Our company continues to grow despite what our governments throw at us and we hire more people when we can.
    If J.T. wants to throw out gifts of $Billions our money I have some much more productive suggestions:
    1) Pay off D.M. and K.W. green energy and bad decisions debt so my hydro bills quit doubling every 7 years as it just has. That is very close to 10% inflation through “The Great Recession” when our selling prices had to be lowered from 2009 – 2012 to keep my staff employed.
    2) Give every municipality enough money per Km of road in their jurisdiction to fix them (or transit in the case of cities). Since the Ontario government downloaded so much of the road responsibility onto the regions and municipalities, the work is not getting done because they have no money. They keep pushing up the mil rates in the industrial and commercial to augment their problem, all the while making it unrealistic to keep the jobs in these jurisdictions. Our office/plant is only 3 times the square footage of a subdivision home and we pay $40,000.00 in property tax this year. We have no sewer or water.
    3) Create a business insurance program for small business exporters. I’m not looking for a freebie here, just the ability to be insured. You see there seems to be no end of enthusiasm to set up incentives for product development and or market development to push companies into export but once you make the leap into the US as a machinery builder they want to cancel your insurance and shut you down. You see the insurance companies don’t want to touch you if you sell to the US because it is a litigious society and if somebody pinches a finger using your machine then they may sue. On top of that if you want to set up a dealer or broker or sales rep, they want/need to be named on your insurance policy as well. The insurers wont hear of it even if that is the common way of doing business in USA. we did find one company that will cover us after paying a huge extra rider based on your US sales. This allows us to sell but still … no dealers!! Ouch

    So here ends my rant. We don’t build planes and trains but we do build the latest technology in our game. We are pretty good at it and the world is knocking on our door. Unfortunately hydro, taxes and insurances are making me wonder why I’m making thee jobs.

    Reply
    • John- thanks for this–you are not alone in your thinking. Small business has had corp. tax rates raised. Guess why? Answer: so we can foot the bill for Lil’ Justin to buy his union votes.
      Its amazing that the public buys his “we’re trying to build middle class jobs” line in justifying corporate welfare, aimed in giving those handouts only, for some reason (ha!) to big union entrenched behemoths like BBD and GM.
      If you want to build the middle class job market, the trick is not to throw good money after bad at a perpetually losing company which, on a relative scale, is but a small chunk of the Canadian job market, but to help small business–who provide vastly, vastly more jobs than the government-favored companies.

      Reply

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