Why Bombardier Is a Stock Canadian Investors Should Avoid

Here’s why I think now is the time for investors to be careful with Bombardier (TSX:BBD.B), especially after its recent run.

| More on:
A airplane sits on a runway.

Source: Getty Images

As far as Canadian growth stocks are concerned, Bombardier (TSX:BBD.B) has certainly seen one of the bigger moves in the market. The company, a global leader in aviation focused on designing, manufacturing and servicing the world’s most exceptional business jets, continues to be a key focal point of many investor portfolios. There’s good reason behind that, given the returns this stock has seen since dipping toward its pandemic lows.

However, I do think that at 16 times earnings, there’s reason to be cautious with this name right now. Let’s dive into why Bombardier may be one growth stock to avoid during this part of the market cycle.

Business jet demand has boomed, but for how long?

One of the key drivers of Bombardier’s recent rise has been surging demand for business jets. The company is a leading manufacturer of business and commercial aircraft, also offering after-market service capabilities. Thus, as a beneficiary of the wider-spread adoption of business aircraft in the post-pandemic travel boom we’ve seen, Bombardier’s share price has exploded along with its revenue and earnings.

That said, I view this stock as one that’s uniquely poorly positioned for a potential downturn in the market. Now, most pundits have been calling for a recession for quite some time. Whether that’s because of an inverted yield curve (that stayed inverted for a very long time) or weakening consumer spending activity, it’s clear the so-called “soft landing” narrative has won out. For now, a recession isn’t on most economists’ or analysts’ radar screens. That worries me, because when the economy is eventually hit with a crisis (business cycles happen), this is a stock that could get hammered.

I do think Bombardier’s current multiple certainly prices in a great deal of this risk, and it’s also worth noting this is a company that’s produced outsized profits during this cycle. However, with a still-indebted balance sheet and concerns around future growth expectations likely to pick up as economic headwinds pick up over time, this is a stock I’d steer clear of right now.

Bottom line

I think there are a plethora of top-quality growth stocks to be had in this market, each with their own unique secular tailwinds that should support their businesses over time. In that context, I don’t think it makes much sense to move out on the risk spectrum to gamble on a particular sector continuing to outperform, when too many economic red flags are rearing their head right now.

Accordingly, I think Bombardier is one top Canadian growth stock investors may do better avoiding right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

A worker gives a business presentation.
Investing

Here Are My Top TSX Stocks to Buy for 2025

These TSX stocks have strong fundamentals, are profitable, and have solid potential to deliver above-average return in 2025.

Read more »

dividend growth for passive income
Investing

2 Dividend-Growth Stocks to Buy and Hold Through 2025

CN Rail (TSX:CNR) and another dividend growth gem could surge in the new year and beyond!

Read more »

dividends grow over time
Stocks for Beginners

5 Canadian Stocks to Hold for the Next Decade

Five Canadians stocks are ideal holdings in the next decade for long-term investors.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

New TFSA Contribution Room in 2025: Where to Invest the $7,000 Limit

If you wish to play it safe and utilize your 2025 TFSA contribution room with a stock you can safely…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Stocks for Beginners

How to Get Ready for New 2025 TFSA Changes

While saving any cash for a rainy day is a good idea, investing that cash is an even better idea.…

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TFSA 2025: 1 Stock to Turn Your $7,000 Contribution Into a Dividend Growth Powerhouse

CN Rail (TSX:CNR) stock is getting way too cheap to ignore by investors seeking value and dividends in 2025.

Read more »

people relax on mountain ledge
Dividend Stocks

3 Dividend Stocks to Help You Achieve Financial Freedom

Dividend investing is a proven strategy for providing regular folks a crack at the elusive dream.

Read more »

money goes up and down in balance
Investing

Down More Than 19% From Recent Highs, Is goeasy Stock a Buy Today?

Given its attractive valuation, consistent dividend growth, and healthy growth prospects, I am bullish on goeasy despite the near-term volatility.

Read more »