Why Air Canada (TSX:AC) Could Realistically Double in 2019

Air Canada (TSX:AC)(TSX:AC.B) is a top stock that could make you very rich.

| More on:
An airplane on a runway

Image source: Getty Images.

Air Canada (TSX:AC)(TSX:AC.B) has been skyrocketing of late, with shares now up over 64% from its July lows. While I’m normally not a fan of chasing high-momentum names, I can’t help but notice that the company still has ample catalysts in store over the near term, and despite the recent run, the stock still looks ridiculously cheap, as ridiculous as that sounds!

Back in 2016, I drove home the point that the airlines were experiencing a paradigm shift and were no longer bankruptcies waiting to happen, as they once were seen to be by prudent investors. Consider the vast operational improvements and efficiencies that have been unlocked since the pre-2007 levels. It’s like Air Canada is now a completely different business — a more investable business that won’t crush its investors come the next inevitable economic downturn.

Lower fuel costs, the inhousing of a loyalty program, and low-cost-carrier Rouge are just a few of the “game-changing” developments that have caused many investors to shed their fear of airline stocks. As you’re probably well aware, Warren Buffett, a long-time critic of the airlines, turned bullish on American airlines a few years ago, initiating long positions across the board.

In 2016, I brought up the idea that Buffett may have loved to own shares of Air Canada had he been Canadian:

“Buffett sees deep value in the airlines. There’s no question that [Air Canada] stock is cheap after taking a huge beating over the last few years. The price-to-earnings ratio is at a ridiculously cheap 4.26, and the price-to-sales multiple is at 0.2. The stock is trading at a huge discount to its intrinsic value, and if you’re a buyer at these levels, you’ll enjoy a nice margin of safety because there really isn’t much downside from here.”

Since my original Air Canada recommendation was published, the stock surged 150% to $33.60, where it trades today. Despite the incredible performance over the past two-and-a-half years, I still think there’s much more room to run.

Although I cautioned investors on the highly cyclical nature of the airlines, given the improvements that Air Canada has made to its operations over the past year, I now believe that the degree of market sensitivity has been lowered substantially. Now, that doesn’t mean the stock won’t plunge come the next recession. Rather, shares won’t crash and burn by over 90% as they did in 2007-08.

With this in consideration, Air Canada still appears ridiculously undervalued with shares trading at just 8.5 times next year’s expected earnings and only 0.5 times sales. The stock could double, and it’d still be rather cheap, which I find to be absurd and warranting of a sharp upside correction.

Hats off to Air Canada’s CEO for the fundamental improvements. Newly acquired aircraft are slated to continue to lower fuel expenses, and with Rouge ready to spread its wings wider, I see Air Canada as a deep-value play that’s not only investable — it’s a must-own stock for all Canadian value investors.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »