Will This Stock Be the Big Winner in the WestJet (TSX:WJA) Deal?

After a key vote last week, WestJet Airlines Ltd (TSX:WJA) is one step closer to becoming private, and that could be great news for this stock.

| More on:
Gold medal

Image source: Getty Images.

Last week, we learned that WestJet Airlines shareholders had overwhelming support for a deal from Onex that would take the company private. With 92.5% of shareholders voting in favour of the proposed takeover, it clears a big hurdle for WestJet and Onex. We first learned of the deal back in May, however, there are still has some approvals and conditions that need to be satisfied before it can be closed.

One stock that could be the biggest beneficiary as a result of the move is none other than WestJet’s biggest rivalAir Canada (TSX:AC)(TSX:AC.B). Since May, Air Canada’s stock has risen around 40%, and part of that has had to do with the news that the company was looking to acquire Air Transat. The stock was already doing well over the past 12 months, as it has nearly doubled in value.

More traffic along with a contained and low price of oil have helped the airline produce some strong results in recent years. And there’s little reason to see that changing anytime soon with the economy still doing very well. Tomorrow, the company is expected to release its second-quarter results, which could show even further growth.

Air Canada stock is coming off a new 52-week high, and what’s remarkable is that despite its strong stock performance over the past year, it’s still trading at only 18 times earnings and less than four times its book value. The stock is still a good buy and it could continue to rise, especially if the company releases strong results on Tuesday.

Why airline stocks are important for diversification

One of the big reasons that a stock like Air Canada could benefit from WestJet going private is the need for investors to diversify their portfolios. While investors could certainly go the ETF route, there are many that still prefer to hold individual stocks. And that’s where having fewer airline stocks to choose from may help drive up the value for Air Canada.

Given that oil prices have looked to have stabilized and don’t appear to be increasing, an airline stock could be a very attractive buy, since fuel costs play a significant role in how strong its bottom line looks. And investing in a stock like Air Canada is a good way to hedge an investment in an oil and gas stock, which could be impacted positively by a rising commodity price.

With WestJet looking like it may not be an option for much longer for investors, Air Canada effectively becomes the default choice for investors and fund managers seeking some diversification in the industry. And that buying activity could help the stock reach new heights and higher valuations. While there are other options for investors besides just WestJet and Air Canada, these are two of the largest and safest stocks to buy.

Bottom line

Air Canada has been undervalued for a while now, but that might not be the case for much longer. With Transat looking like it will be acquired and WestJet going private, Air Canada could prove to be a hot buy today.

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 David Jagielski has no position in any of the stocks mentioned.

More on Investing

edit Jars of marijuana
Cannabis Stocks

Is Tilray Stock a Buy in the New Bullish Market?

Canadian cannabis producer Tilray has underperformed the broader markets in the last five years due to its weak fundamentals.

Read more »

Woman has an idea
Investing

3 No-Brainer Stocks to Buy With $200 Right Now

These three stocks are no-brainer buys, given their solid underlying businesses and healthy growth prospects.

Read more »

Investing

2 Stocks I’m Loading Up on in 2024

Alimentation Couche-Tard (TSX:ATD) and another stock that are getting too cheap after their latest corrections.

Read more »

grow money, wealth build
Dividend Stocks

1 Top Dividend Stock That Can Handle Any Kind of Market (Even Corrections)

While most dividend aristocrats can maintain their payouts during weak markets, very few can maintain a healthy valuation or bounce…

Read more »

Red siren flashing
Dividend Stocks

Income Alert: These Stocks Just Raised Their Dividends

Three established dividend-payers from different sectors are compelling investment opportunities for income-focused investors.

Read more »

online shopping
Tech Stocks

1 Hidden Catalyst That Could Ignite Shopify Stock

Here's why Shopify (TSX:SHOP) ought to remain a top growth stock investors continue to focus on for the long haul.

Read more »

Oil pumps against sunset
Energy Stocks

Is it Too Late to Buy Enbridge Stock?

Besides its juicy and sustainable dividends, Enbridge’s improving long-term growth prospects make it a reliable stock to hold for the…

Read more »

Man considering whether to sell or buy
Tech Stocks

WELL Stock: Buy, Sell, or Hold?

WELL stock has a lot of upside as the company is likely to continue to grow, posting positive earnings in…

Read more »