Avoid Air Canada (TSX:AC) Stock if Investing in Aviation!

Avoid Air Canada (TSX:AC)(TSX:AC.B) and consider other Canadian aviation companies like CargoJet Inc (TSX:CJT).

| More on:
An airplace on a runway

Image source: Getty Images.

Sir Richard Branson famously said, “The easiest way to become a millionaire is to start out as a billionaire and then go into the airline business.” I’m not opposed to investing in airlines, but now does not seem like a good buying opportunity for Air Canada (TSX:AC)(TSX:AC.B), WestJet, considering recent events.

It has been an exciting month for shareholders of the three biggest publicly traded Canadian commercial airlines. Over a one-month trailing period, the share price of Air Canada has risen 26%, WestJet has increased by 58%, and Transat A.T. has shot up 117%. The movement was the result of two big news stories.

For WestJet, an agreement was reached with Onex to acquire and take the airline private for $31 per share. For Air Canada and Transat A.T., exclusive talks were announced that indicate interest for Air Canada to purchase Air Transat and associated travel businesses for approximately half-a-billion dollars and $13 per share. While not yet finalized, both agreements would bring major change to the Canadian aviation industry and could result in only a single publicly traded Canadian commercial airline.

Air Canada has maintained healthy growth predictions for 2020 and 2021 but has recently suspended the 2019 financial forecast due to uncertainty with the Boeing 737 Max 8 aircraft. This should be a strong warning sign to investors that Air Canada expects to take a significant short-term hit from a grounded fleet of 24 Max 8 aircraft.

Considering the stock has risen more than 50% year to date, investors should approach Air Canada with caution and wait for a better entry point. Investors will be able to make a more well-informed decision after the Boeing 737 Max 8 returns to service and Air Canada can disclose the full impact of temporarily losing 24 aircraft.

Where should investors look in the short term? Instead of purchasing a commercial airline, investors should consider CargoJet (TSX:CJT) as an alternative way to invest in the Canadian aviation industry. CargoJet, as the name suggests, is a cargo airline operating in Canada and select international destinations.

CargoJet is well established as the backbone for e-commerce deliveries for all major couriers in Canada as well as the go-to choice for Amazon Prime deliveries across Canada. With the ability to reach 90% of the Canadian population through overnight deliveries, CargoJet has a leadership position in the Canadian e-commerce industry and is looking to grow by taking advantage of new cross-border e-commerce opportunities.

Investor takeaway

Canadian investors should wait for the conclusion of the Boeing 737 Max 8 saga before purchasing Air Canada stock. Long-term growth prospects remain strong for Air Canada, but investors should anticipate a buying opportunity after Air Canada can better understand the business impact from losing 24 aircraft. CargoJet remains a strong alternative for investors as demand for high-value and time-sensitive shipping continues to increase.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon and CARGOJET INC. Fool contributor Scott Mulligan has no position in the companies mentioned. CargoJet is a recommendation of Hidden Gems Canada.

More on Investing

Doctor talking to a patient in the corridor of a hospital.

TFSA: Healthcare Dividend Stocks Are Perfect for Passive Income

Top healthcare dividend stocks like Extendicare Inc. (TSX:EXE) and others can provide huge passive income in your TFSA.

Read more »

TFSA and coins
Tech Stocks

TFSA: Invest in These 2 Stocks for a Legit Chance at $1 Million

Are you interested in building a $1 million portfolio? Invest $20,000 in these two stocks!

Read more »

edit Person using calculator next to charts and graphs

The Top TSX Stock on My Watch List Right Now

Here's why Alimentation Couche-Tard (TSX:ATD) remains a top TSX stock that long-term investors seeking growth and yield will want to…

Read more »

Hourglass projecting a dollar sign as shadow

3 Stocks to Add to Your TFSA ASAP

Given their stable cash flows and solid underlying businesses, these three stocks are excellent additions to your TFSA in this…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

Woman has an idea

5 Stocks You Can Confidently Invest $500 in Right Now

Consider putting your surplus cash in these stocks for stellar capital gains.

Read more »

Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »