Bombardier Inc.'s murky business dealings in Russia and a Swedish investigation into the company's business practices are two more reasons to give this stock another look.
You read that right: The Montreal-based plane and train maker is struggling with some bad publicity right now, but chances are the impact on its share price will be short-lived, making the current dip a good time to strike.
Bombardier's share price fell to $2.01 on Tuesday, down 6 cents. This latest move brings the total decline to more than 26 per cent over the past two months and interrupts what had been an encouraging recovery over the previous year
No doubt, the backdrop isn't good. A Globe and Mail investigation has unearthed Bombardier's ties to a mysterious Russian company founded by a former member of Russian President Vladimir Putin's inner circle.
Earlier this month, prosecutors in Sweden detained three Bombardier executives on suspicion that the company's Swedish division had engaged in "aggravated bribery" to win a $340-million (U.S.) rail-signaling equipment contract in Azerbaijan.
However, sound companies have a remarkable ability to emerge from bad news in decent shape. Or, put another way, investors tend to overreact.
BP PLC, the London-based oil company, was enemy No. 1 following the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. The crisis pummelled BP's share price by 55 per cent over two months, as the company faced asset sales to meet tens of billions of dollars in damages.
Over the next four years, though, the shares rallied nearly 100 per cent.
Canada's SNC-Lavalin Group Inc. fell more 20 per cent in 2012 after the Montreal-based engineering firm became ensnared in a corruption scandal involving missing money, Swiss bank accounts and shady construction contracts in Libya.
The stock then rebounded 46 per cent by August, 2014, or more than double the gain in the S&P/TSX composite index over the same 19-month period.
More recently, Wells Fargo & Co. was hit by a scandal in 2016 when U.S. regulators said that bank employees had created as many as two million unauthorized accounts over the previous five years.
The bank said that it will spend as much as $50-million each quarter on extra legal help to deal with the fallout. But Wells Fargo's reputation is the bigger problem: New accounts and credit card applications have fallen sharply.
Surely, the stock must be in a tailspin. Yeah, right. Although the shares slumped 13 per cent last September, when the issue became public, they subsequently rebounded 37 per cent by early March, touching a record high.
No doubt, Bombardier is no Wells Fargo (or BP or SNC): It hasn't produced an annual profit since 2013; it has asked for – and received – government aid; and it has been disappointing investors with delays, cost overruns and weak sales of new aircraft.
By the company's own admission, it was close to bankruptcy in late 2015. In other words, this is not an easy stock to love – and believe me, I've tried.
But Bombardier has been delivering some upbeat performance figures that have suggested the worst is behind it.
In February, its fourth-quarter results showed that free cash flow was $496-million (Canadian), which was well above analysts' expectations as a result of stronger corporate jet shipments. The company reported a loss of 48 cents a share for 2016, which was a notable improvement over the loss of $2.58 a share in 2015.
Perhaps best of all, Bombardier's new C Series planes are now in the air, following a two-year development delay that had weighed on investors' patience.
It's still a risky stock, exposed to a soft market for luxury jets and a complaint from Brazil – home to rival Embraer SA– that recent aid from Ottawa was an unfair subsidy, to name just two potential headwinds.
But accept the ugly headlines as a gift: The more they weigh on the share price in the near term, the better the longer-term opportunity.
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David Berman