If you invest $500 per month, the 2024 Tax-Free Savings Account (TFSA) contribution limit of $7,000 gives you an extra $1,000 contribution room. You can make the most of this $1,000 contribution by investing in a stock primed for performance even in a bear market. At a time when tech stocks are facing uncertainty, real estate stocks are facing falling property prices, airline stocks are seeing rising operational costs, and auto stocks are suffering from subdued demand, this stock is not only outperforming the market but also its outlook.
The top stock is primed for performance
Bombardier (TSX:BBD.B) stock jumped more than 110% from its October 2023 dip, when interest rate hikes pulled the overall TSX down. The business jet maker has been growing revenues by delivering more aircraft and signing them for aftermarket services, repaying debt, and enhancing profits since 2020. The four-year journey helped it:
- Reduce debt by US$4.5 billion
- Increase its annual revenue to US$8 billion (from US$5.6 billion in 2020)
- Generate US$1.1 billion in free cash flow, and
- Enhance its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin to 15.3% (from 3.5% in 2020).
Bombardier will continue this plan through 2025 with the target to achieve 150 annual aircraft deliveries and $9 billion in revenue, representing 14% growth in two years. Driving this growth would be orders for the new Challenger 500 medium-cabin aircraft.
Bombardier stock is trading at 0.8 times its sales per share, hinting that the market has priced in the revenue growth till 2025.
Bombardier’s performance drivers after 2025
At present, Bombardier’s business jet demand comes from high-net-worth individuals, charter services, and corporations. The company is targeting more sources of revenue to boost its performance.
Defence segment: Last year, Bombardier modified its Challenger and Global business jet platforms for use in the defence sector. It expects to receive orders worth US$ 1 billion from this segment and generate higher returns on investment by earning more from its existing platforms.
Aftermarket services: Bombardier is already onboarding its aircraft customers for its aftermarket service. The more flying hours, the higher would be the maintenance use. It will help Bombardier earn regular recurring income from its existing planes in the sky.
Pre-Owned market: The business jet maker looks to further optimize its existing planes by tapping the pre-owned market. For this, the company will buy pre-owned business jets from owners and refurbish them to make them saleable.
Product lineup: Bombardier aims to keep upgrading its product lineup, with Global 8000 planned to be put into service in 2025. It is also conducting research on EcoJet that aims to reduce aircraft emissions by up to 50% using a combination of aerodynamic, propulsion, and other enhancements. However, it is a long shot as the research began 15 years ago.
The next chapter of performance: Profits
While focusing on revenue growth, Bombardier also looks to enhance its profits by reducing debt and optimizing existing capacity. Beyond 2025, the company might also look for merger and acquisition opportunities accretive to its earnings and cash. It means the jet maker will target companies in similar businesses that can add to its revenue and cash.
Till 2025, Bombardier will be a strong growth stock. Beyond 2025, it might become a resilient growth stock that gives relatively stable growth through share buybacks, dividends, and growth.
Investing in Bombardier stock
Bombardier has a well-planned roadmap for its year ahead and is carrying out strong implementation. A well-structured business imbibes confidence in investors. The stock is a buy even at its all-time high of $86 because of its upcoming performance. You could consider buying Bombardier stock with the $1,000 TFSA contribution we mentioned at the start of the article.
