An investing peer and friend, Brandon, in an E-Mail recently asked the following questions,
“Just wondering your thoughts on Bombardier? I already made the purchase so I am just curious what you think of this stock. Also, would you continue adding to Manulife at these prices?“
I don’t have a specific opinion on Bombardier (BBD.B) for a few reasons. The first being that the company has never interested me neither on a valuation or fundamentals basis. A few times I’ve done an hour or two of research on the company out of interest but a number of criteria for inclusion in my portfolios hasn’t been met; mainly paying a dividend and holding an element of Enduring Value.
I’ve always liked one segment of Bombardier’s business: rail transportation.
Their products & services in rail vehicles, controls & bogies is very attractive due to the fundamentals of the business and ability for Bombardier secure and innovate as a leader in the industry. If I were able to invest into this segment of the company independently I’d likely have no problem as long as the valuable was reasonable, but the aerospace segment of Bombardier is really what puts me in an uneasy position when assessing the company.
The problem is that Bombardier, in a global aerospace industry, is very vulnerable to external industry threats of both politics, economics and technology that is difficult to anticipate or react to effectively. Just as I wouldn’t invest directly into an airline I have a big hesitation to invest in any of the aerospace manufacturers because of the sensitivities the industry has to a number of factors.
The company may be fundamentally solid independently from the industry as a whole, but one wrong move, one wrong product or missed competitive advantage spells disaster for the company. When I look at a number of other Canadian companies who pay a dividend, have much less exposure to external threats and have a greater element of Enduring Value investing in Bombardier doesn’t appear as attractive.
As for the second question, on Manulife (MFC), I’m still irritated and a little pissed off with the dividend cut, equity dilution and continued misdirection the management at the company has provided over the past 24 months. What I would really like to see, other than quoting the ridiculous excuse of raising a “war chest of capital” is a clear direction of where the company is going.
What I want to know is how they intend to minimize risk, expand through acquisitions and remain committed to their core business segments; insurance & investments.
Until they do that effectively I’m very reluctant to invest more capital into the company and would rather invest more heavily into other Canadian insurers such as Great-West Life (GWO), through its parent company Power Financial (PWF), and Sunlife Financial (SLF).
Likely over the next few weeks I’ll shed Manulife from the DivG portfolio for tax-loss harvesting as I did last year and look to re-enter after 30 days or so. I might maintain a small position in the company and watch how the markets treat the company on a short-term basis but for right now I don’t have anywhere near the confidence I did in the company say 2-3 years ago.
Thanks for addressing MFC.
Would you mind updating your top 10 holdings for your DivG and RSP portfolios.
I agree with your comments on BBD.B. It's a company that earns project from government and it can be very hard to predict where it will go.
A friend of mine bought some because Scotia Capital had a target price of 6.50$ and it paid a small dividends. I think there are better opportunities out there with better outcome at this point.
MFC bombed on me too Brad. I sold it at $10 and with the proceeds bought BMO with a higher yield at $26. Tax loss harvesting at its best – salvaged a bad situation, bought a bank at a great price with great tax efficient income and no intention of selling, then will use the Manulife capital losses against future gains from stocks I intend to sell at a profit.