September 23, 2012 Comments

Bombardier Inc. returns to the list above rated Speculative Buy at $3.71. I wanted to look at it again because the price is well down from its early 2011 level when it reached $7.00. Sometimes a significantly lower price can be a good place to look for a bargain. Upon reading its reports, I was almost ready to forget about it due to its low profit margins. It had an earnings-before-interest-and income-tax “profit” margin of 5.9% in 2011 and 5.1% in the first half of 2012. This seems frightfully low for a manufacturing operation. Although I don’t know the margins of other manufacturers, I would have thought they would be higher than for retailers and some retailers certainly have better margins than this. Even the 8% EBIT margin that Bombardier aspires to seem low to me. However I saw that its P/E ratio was attractive despite the low EBIT margins. It definitely seems like a Speculative Pick but there is certainly some possibility of a good return if the outlook brightens.

I note that Warren Buffett’s NetJets placed a very large order for business jets earlier this year. Although Buffett does not personally manage NetJets, he does approve large capital spending and would have nbeen involved in this decision.

Years ago I though Bombardier might fit the bill for a Buffett buy-out but I am not sure it has either the profit history nor the management team that he would need. I think he would most definitely be attracted to the products it makes. I think it is an interesting company to follow.

I am planning to grab a small position in this company and then see what happens.