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5 Canadian stocks that have been complete disasters — and what investors can learn from them

canadian-stocks-1128
canadian-stocks-1128

Despite gains in November and strong performances from headline stocks, many investors have still had a tough year, but some companies have had a tough decade.

Now, we can’t change the past, but maybe we can make you feel better about at least not owning some of the really weak performers over the past decade or two. Let’s look at five Canadian stocks that have been complete disasters, but have market caps of more than $100 million, relatively well-known names and are still around. Many big decliners have gone bankrupt already.

We don’t want to really pick on these companies since they have clearly had enough pain already. Rather, we want to examine what happened and look for clues that can perhaps help future stock picks. After all, avoiding losses is a key part of any investor’s long-term success.

Ballard Power Systems Inc.

Market cap: $1.4 billion; year-to-date return: -28.9 per cent; one-year return: -39.4 per cent; 20-year return -70.4 per cent.

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This manufacturer of hydrogen fuel cells for a range of applications hasn’t fared so badly in the more recent past. The stock’s 10-year return is 229.2 per cent. But Ballard has the embarrassing record of never having achieved a profit in more than three decades, except for a tiny $0.03 per share in 1997. But its shares did once hit $192 in 2000, a year when anything with growth prospects soared in value. The stock is now down 97.5 per cent since then. Ouch.

What went wrong? Well, 2000 was clearly not a normal year. Fuel cells were going to change the world. Despite only $27 million in revenue that year, Ballard had a market cap of $5.6 billion, so it was trading at 207 times sales. Valuation put Ballard behind the eight ball right away, and 25 years of losses is not going to help any stock. Cash flow from operations has been negative as far back as our data goes. Based on analyst projections, losses at the company are expected to continue to at least 2027.

Westport Fuel Systems Inc.

Market cap $161 million; year-to-date return: -10 per cent; one-year return: -27 per cent; 10-year return: -95.9 per cent; 23-year return: -98.8 per cent.

This maker of natural gas engines and fuel systems for vehicles has some similarities to Ballard. It, too, ran up hard in the dot-com craze, and its shares peaked in 2000 at $802. They are now $9.37. Like Ballard, it has struggled with profitability, though it did show an adjusted profit of 43 cents per share in 2019 and 64 cents in 2021. But cumulative losses over the past decade are more than $650 million. Cash flow, like Ballard, has also been mostly negative.

What happened? Westport got overvalued in the bubble of 2000 and has never been close to that level since. Every few years, the stock goes for a nice ride, but weak fundamentals have typically brought it back down to earth. Companies need to make money at some point. The recent past has been better, and analysts do forecast a profit for the company, but not until 2027, according to Bloomberg data.

Bausch Health Cos. Inc.

Market cap: $3.4 billion; year-to-date stock return: 10.4 per cent; one-year return: 2.9 per cent; five-year return: -69.6 per cent; 10-year return: -91.9 per cent; return from its peak in 2015: -97.3 per cent.

Bausch was once Canada’s largest company by market capitalization at $120 billion, but has sunk since. It has fared better this year, and its stock is beating the S&P/TSX composite index’s return. But it is a long way from its peak.

What happened? Bausch, then called Biovail Corp., then Valeant Pharmaceuticals International Inc., went on a massive, debt-fuelled acquisition spree. At first, investors loved it. Per-share earnings in 2014 more than quadrupled from the prior year. But then earnings collapsed in 2015, and the losses started. Debt rose to $31 billion, and interest expenses in 2016 alone were nearly $2 billion.

Investors don’t care so much about debt when earnings are rapidly growing, but when earnings turn to losses, they suddenly see debt as a big anchor. Bausch shares hit a low of $5.90 last year, and some were concerned about solvency. Debt is down to $22 billion now. Still high, but the company is at least profitable again.

Lesson learned: Leverage works both ways. Too much debt almost guarantees companies will struggle.

Canopy Growth Corp.

Market cap: $613 million (it was once $20 billion); year-to-date return: -76 per cent; one-year return: -83.8 per cent; five-year (from peak) return: -99.0 per cent.

This saga is much newer than the others, and we all know about the cannabis boom/bust, but Canopy has been perhaps the poster child of this popped bubble. The fall from grace has been massive. In 2018, Constellation Brands Inc. invested $5 billion into Canopy, and now the whole company is worth less than 20 per cent of that. The company showed a profit in 2022, but all other years have been losses. The big issue has been cash flow, which has been consistently and significantly negative. The company has issued a “going concern” warning about its financials.

What went wrong? Revenue was nowhere near what was predicted, and no one in this sector has made much money. Canopy has plenty of company, but as the biggest (at one point), it is the one that makes this list. Many others have already gone bankrupt.

Bombardier Inc.

Market cap: $5 billion; year-to-date return: -4.5 per cent; one-year return: 6.1 per cent; five-year return: -6.2 per cent; 10-year return: -58.3 per cent; 15-year return: -77.8 per cent.

The well-known one-time maker of trains, subways and planes (though mostly just jets now) is one of the better performers on this list.

What went wrong? Bombardier has had labour issues, contract cost overruns, missed earnings and lots of debt ($6 billion today). But some say the problem was that the company kept spinning off, or selling, all its good divisions.

Case in point: In 2013, its subsidiary BRP Inc., which makes Ski-Doos and Sea-Doos, went public. In the past decade, BRP’s shares have nearly quadrupled while Bombardier’s fell 58.3 per cent. BRP is now worth more than its former parent company.

Lesson learned: When rightsizing, maybe you should keep your good assets.

Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)

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