Volatility in Bombardier's stock can be turned to investor advantage.
Bombardier’s stock goes up, down and around, much like this Vekoma Boomerang roller coaster (Photo: WillMCc/Wikipedia)
I’m working on an update to my 2002 book on Bombardier, which is to be translated into French and re-published in early 2012. I mention this because while digging around for material, I couldn’t help but notice there appears to be a pattern to the way Bombardier’s stock trades, one that might be worth taking into account when buying or selling the shares.
First note that the stock (TSX: BBD.B) is quite volatile. Bombardier’s business of manufacturing planes and trains is rather complex, so the news flow swings from positive to negative for periods of time. The swings are further amplified by an active community of short sellers following the stock. As the news flow turns negative, they pile on to the point where the short position in Bombardier’s stock is frequently in the top 10 on the TSX. So, when the news flow turns positive, the rally can be quite dramatic as the short sellers are squeezed and rush to buy shares to cover their positions. The time to buy, then, is when Bombardier shares are in another one of their dips.
Interestingly, the company’s shares recently plunged to $4 from $7. The dip could go deeper but at some point, there could be a reversal in the news flow. One catalyst for a turnaround, for example, could be announcements of some big contract wins for the C Series aircraft now under development.
Appendix: Analysis of volatility in Bombardier’s share price
The volatility in Bombardier’s shares could partly be due to the culture of seeking growth through product innovation, so there will be periods when new offerings are hitting their stride and periods when there is uncertainty over the outcome. Also planes and trains roll off the assembly line in batches of varying sizes, giving rise to volatility in sales and earnings. Last, Bombardier’s product lines are sensitive to macroeconomic and political environments, so recessions and terrorist attacks, for example, will at times take a toll.
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Riding the Bombardier roller coaster
Volatility in Bombardier's stock can be turned to investor advantage.
By Larry MacDonald
Bombardier’s stock goes up, down and around, much like this Vekoma Boomerang roller coaster (Photo: WillMCc/Wikipedia)
I’m working on an update to my 2002 book on Bombardier, which is to be translated into French and re-published in early 2012. I mention this because while digging around for material, I couldn’t help but notice there appears to be a pattern to the way Bombardier’s stock trades, one that might be worth taking into account when buying or selling the shares.
First note that the stock (TSX: BBD.B) is quite volatile. Bombardier’s business of manufacturing planes and trains is rather complex, so the news flow swings from positive to negative for periods of time. The swings are further amplified by an active community of short sellers following the stock. As the news flow turns negative, they pile on to the point where the short position in Bombardier’s stock is frequently in the top 10 on the TSX. So, when the news flow turns positive, the rally can be quite dramatic as the short sellers are squeezed and rush to buy shares to cover their positions. The time to buy, then, is when Bombardier shares are in another one of their dips.
Interestingly, the company’s shares recently plunged to $4 from $7. The dip could go deeper but at some point, there could be a reversal in the news flow. One catalyst for a turnaround, for example, could be announcements of some big contract wins for the C Series aircraft now under development.
Appendix: Analysis of volatility in Bombardier’s share price
The volatility in Bombardier’s shares could partly be due to the culture of seeking growth through product innovation, so there will be periods when new offerings are hitting their stride and periods when there is uncertainty over the outcome. Also planes and trains roll off the assembly line in batches of varying sizes, giving rise to volatility in sales and earnings. Last, Bombardier’s product lines are sensitive to macroeconomic and political environments, so recessions and terrorist attacks, for example, will at times take a toll.