Bombardier Inc (B) (BBD.B.TO)

This has always had a lot of debt. They don’t have a massive room for error on the C series. It seems they take longer and longer on every project, which means more and more cash flow, which means they are in negative free cash flow for longer and have to take on more debt to fund the project.

Preferred 7.35% 2026. It is not safe. Not an investment grade company. They are pretty high levered. 12 year duration. You might want to sell it here.

Preferred, Series 'C'. Perpetual preferreds. It is junk status. A good time to unload the position.

Sold his holdings. Decided to get out because of the C Series. Delays plus the debt load had him scared. Have overpromised and underdelivered on the C series. He questions whether they will get it up as they say they will. They are a leader in aviation trains. Expects they will have tremendous support from the Canadian government going forward.

The C series has great potential. The rails side is excellent and they win contracts but there are minimal margins in that business. They just look like they are ready to get the C series off the ground, and then something goes wrong. If they start flying that plane and it performs well and orders start coming in, the stock is probably going to go to $10. In the meantime it is a “wait and see” situation.

(Top Pick Oct 1/13, Down 18.56%) He underestimated the drag that the ‘C’ series would put on the stock. He is looking at the free cash flow and wondering if they will have to raise more money. This could be a good time to sharpen up your pencil on this one and he is looking at it right now.

The exciting thing here is that they recently had organizational changes. Split their aerospace into 3 different units. Thinks the signal here is that they may be going to try to spin one of them out and try to generate shareholder value. This has really weak free cash flow, and he doesn’t see the business jet market turning around any time soon.

Even though it is selling at a low price, he has no plans on owning this. The disappointment in the C series makes you question whether there have been too many delays, is it too late and are other competitors producing now so that the C series is not going to achieve the level of success that they had hoped for. On the mass transit side, margins are going to be under pressure. Feels this could stay at low levels for some period of time.

Bonds 2026. Tricky company. It is making a massive bet on the ‘C’ series jet. Risk rewards are suggesting looking elsewhere.

Transportation and aerospace. Looking at this because it hasn’t done well. Transportation is doing fine, and have a wonderful backlog that continues to grow. The issue now are the airplanes. What are they going to do with the C series, and what is going to happen after the Pratt & Whitney incident. Analysts’ expectations are for earnings to continue to grow. Cheap on a multiple basis. They are paying a compensatory dividend while we wait. During that waiting, they have a balance sheet that is not the strongest. He would like to see greater clarity on this.

(Owns preferreds, not the commons.) Thinks the company has great potential, but it always seems to be on the doorstep, just about to achieve their objectives. Have a great rail sector. Their airline side can be extremely profitable or, extremely dangerous. So far, this has been the millstone around their neck. The C series has a great design, and the engines are supposed to be great. With the world airline expansion going on right now, they can do quite well, but they’ve got to get the plane up in the air with no problems.

(A Top Pick in June 5/13. Down 18.64%.) Aerospace market was doing very, very well and he thought this would follow. C series did not work out. Sold his position in January.

Using Analysts’ forecasts, his FMV computes at about $7. Has powerful technical support at 2X Book, which is about $3.60. Unfortunately, earnings forecasts are still easing downwards. Historically it has bottomed more at 1.5X Book than it has at 2X. 1.5X would take you down to $2.60.

7.35% Dec 2026 bond? This is a speculative credit. The company is rated BB, the higher end of the junk bond market, but it is still junk. Company has a lot of leverage. Have done a great job of refinancing in the current marketplace, but this is going to be volatile because it is long. However, you are getting fairly compensated for the risk you are taking

The market hates uncertainty and they had a problem with the ‘C’ series engine, but it is bottoming out so he likes it here. The risk rewards is pretty attractive.