Post by
Starsearcher80 on Aug 06, 2022 5:16pm
AN EXTREMELY RARE OPPORTUNITY IS UPON US
I've been around the market for decades (and decades) now, and have pretty much seen it all. And when you've "seen it all", it makes opportunities and dangers in the market that much more clear. "I've seen this movie before" is a saying that often comes to mind.
But one scenario that is extremely rare, a scenario that you just don't see very often, is the scenario we are now seeing with Bombardier. For all intensive purposes, we have witnessed a company that was essentially on death watch for years, not only come back, but come back strongly as what can only be described as a powerful market leader. And I think it's safe to say that this turnaround, which has really only crystalized into full and immediate view as of this quarter has caught all of us off guard. Even the most stalwart supporters wouldn't have dared dream that this quarter and the future was going to look THAT good.
But there it is.
So the question becomes "how big is the opportunity now", and "what is a fair valuation for the stock". Often you can look to history for at least some clues.
1) Last October, the stock was trading at about $2.11 on average pre-split, or $53.00 post split. People were happy enough with what progress the company had made, but there were still clearly risks involved. But still, risk included, the share price was $53.00!! That is a MASSIVE increase in and of itself over the current price of $28.27
2) So (talking in post split $$'s), how did the stock drop from $53.00 down to the $28.00 range???
Well, first up, the overall stock market soured. Did anything sour at Bombardier? No, but that didin't matter because Bombardier at the time certainly was still being considered as a risk-on investment, and the market was quickly turning risk-adverse. In essence, Bombardier became collateral damage to broader market forces. How bad was that collateral damage? Bad. You don't drop from $53 to $28 for nothing. And again, keep in mind that there was NOTHING bad happening at Bombardier. In fact, quite the opposite was happening, as Bombardier was ramping up and improving on any number of fronts. But the broader market forces did their damage just the same. Painful for those holding, but also the creation of an opportunity that is now there.
3) Now, you'll notice that I didn't talk about the drop of $28ish to $18ish. As Club noted in his post, "It is trading exactly where it started on June 13 when the RS was effective. It started trading at 28.14 on that date. So what was that about?? Personally, I think the drop was orchestrated..a classic shake-out of the stock, that also precipitated a lot of investors adding to their own misery in capitulation. In essence, they barfed up their stock, scared and/or disgusted with what was happened to the share price, which of course plays right into the hands of those orchestrating the shake.
But the key point is that we are now back ONLY at the point from 9 weeks ago. If this capitulation had never happened, or orchestrated shake had never happened, even though we've seen a huge rise this week, we are back ONLY to all things being equal. My point here is that if you were lucky enough to take the current recent rise, then good for you...but it shouldn't be counted as the part of some run. This is a rise only back to a "normal" state.... the $28.00 level, all things considered.
But wait, things as of this last quarterly are far far FAR from normal, in all the best of ways. So what I've decided, and am going to suggest here, is that we use $28.00 as the base line. If I am correct, then the run has not even started. Again, yes, the stock has "run" the past week, but this was only to get back to normal after the shake/capitulation, and does NOT yet reflect the "new normal" as per the awesome quarterly. With this thought in mind, this run is only just at the very beginning, and there is a MASSIVE move up still to come. Now there's an enticing thought! Let me say it again. The run, as it pertains to the quarterly, has NOT YET STARTED.
So how do we look at things.
4) First, I think we have to look at the risk on/risk off equation. Is the overall market done crumbling before our eyes? Yes, and no, I think. Yes, I think the worst, or most emotional part, is over. However I also think that the future growth in the overall economy will be tepid at best. Yes, the party of the last decade is over. But on the good news side, I think the market is also realizing that we may, at worst, only have a light recession. We're seeing that priced in, but more interesting as it pertains to us, we're seeing the market regain an appetite for risk-on investments. Look no further than the early stages of recovery in the tech sector stocks, many of which were absolutely pummelled over the last 9 months. All of a sudden these risk-on investments are the new darlings once again.
5) So that more risk-on atmosphere (or less risk-off as the case may be) is good news for Bombardier. Well if the height of the risk-on atmosphere was last October, when the stock was $53.00, how much of that new willingness to take risk-on investments should we afford to Bombardier? Let's be modest here, and say " slightly over 1/2 way risk-on premium". So from $28 to $53, let's say the new risk-on premium environment can take it to about $40.00 Keep in mind that this is an assessment of risk of Bombardier's attractiveness within the context of the broader market.
But wait. Now the plot thickens. That is/was a risk assessement of Bombardier from last October, when there WAS more risk involved. Is the company in fact "less risk" now than it was last October?? Absolutely, and then some. So we can't just look at the risk equation within the broader market. We have to look at the equation within the broader market, and then within the company as well. Clearly, Bombardier deserves now to be considered "less risk" than it was, and with that, deserves a further premium in just the overall risk assessment.
To simplify, think of this. Bombardier is a less risky investment in the environment of a market that is now ready and MORE willing to take on risk once again. Again, this is a very enticing scenario, and one that could substantiate even further upside. So let's now again be modest, and bump the $40.00 assessment to $55.00 for Bombardier being "less risky" now. And note here that in our modesty, we're still barely above the $53.00 that the stock was actually trading last October when it was a lot more risky/unclear investment!!
6) But now we have to look at the company and it's prospects, and this is the MOST exciting area of all. This company has gone from Dead Man Walking to Superstar litterally overnight, and I think the entire market has been caught flat-footed. This is somewhat understandable, as much of the market wrote off the company for what seemed an eternity of misteps and/or outright blunders.
So if the new $55 level is just a "righting-of-the-ship" that reflects the new risk assessment within the current market risk appetite (based on historical data from last October), then what is the value of a company that is now a up-and-coming Superstar??
Honestly, I don't know. But what I can say is it will be MASSIVELY higher than the $60.00 level. In my opinion, it will prove to be shockingly higher than even the rosiest of current projections. Typically, analysts change their predictions on the way up, not wanting to sound overly zelous even if it is warranted. So I fully expect even the rosiest current projections to move up substantially in the future.
7) Now, let's go back to the market being caught flat-footed here. I'm very confident that we're going to see a massive amount of Institutional interest flood into the stock, and this will drive the share price dramatically upwards. And remember, I'm calling the "starting point" the $28.00 level here. To my thinking the run hasn't even started. There is also SO much newsworthiness to this story, and so much name recognition by the masses, that there will also be a lot of buying come back in that will also add to the updraft. This is a phenomenon that only happens with "name-brand" stocks, and Bombardier fits extremely well into this category. Has either of these massive upside motivators started yet? NOT AT ALL. Again, we are the early adopters here. Be patient, and watch this phenomenon come in over the coming weeks and months. It has all the makings of being quite spectacular.
Now, to conclude these thoughts (and sorry for being long-winded), I think the following is going to play out.
1) The updraft from here (the starting point of $28.00) is going to be extremely powerful. The stock will quickly move to the $53.00-$60.00 range just to correct to the new risk assessment. This move, in and of itself, is going to be a stunning gain and will happen quite quickly in the short term.
2) As nice as this gain will be, I think a substantially more powerful gain is going to come over the coming year, as the company really starts hitting its stride as the true industry leader. Not just surviving, but absolutely thriving. A Superstar? Yes, I believe this will prove to be true. Additionally, this will prove to be one of the most remarkable turnaround stories I've ever seen.
3) Most important, keep in mind your own prime reason for being here. You are NOT here to cheer the company. You are here to make money. Well pat yourself on the back for either being lucky enough or smart enough to be here now. Because I have no doubt the money to be made here is going to make a lot of people here very very wealthy.
In my multi-decades in the market, I think I can name 3 times that I've been this excited about a stock and the prospect of stunning gains. I actually think this stock has the potential to be the best of them all. I see no need to trade this one. As I said before, grab all the shares you want, sit back, and you'll be absolutely thrilled imho.
Enjoy the move up everyone. In my opinion, this will be nothing short of an absolutely jaw-dropping gain.