The only airline stock I’d own right now isn’t an airline.
CAE Inc. (TSX:CAE) is a Canadian company specializing in flight simulators designed to train new pilots and retrain existing pilots. CAE is company which has very clearly benefited from the unfortunate events surrounding Boeing Co.‘s 737 Max plans in 2019. CAE’s profit has topped estimates recently, leading to a stock outperformance recently.
This outperformance CAE is even more impressive when one compares the company’s share price with that of nearly any airline since the beginning of 2020. Of course, the airline sector has been hit particularly hard of late due to the coronavirus outbreak.
I anticipate more near-term pain may be on the horizon for investors as we find out more about how extensively the industry has been affected by coronavirus-related travel curtailments.
Companies like CAE are great ways for airline/travel bulls to bet on this sector right now, partly because CAE is relatively immune to exogenous shocks like coronavirus. The company’s massive order backlog of more than $9 billion provides investors with long-term cash flow certainty.
It also supports the company’s current valuation on its own. Furthermore, long-term demographic trends remain favourable to CAE investors. Higher numbers of pilots are retiring each and every year, which helps CAE grow its order backlog further.
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Defense and healthcare divisions
CAE has a defense division as well, which has benefited from increased defense spending courtesy of the Trump Administration and a push for increased NATO spending. This will allow for growth in North America and Europe long-term for those who believe this trend will continue.
A small but growing subdivision of CAE’s portfolio is a healthcare business some analysts point to as a long-term opportunity that may not be fully priced into CAE stock currently.
From a fundamentals perspective, CAE has an attractive valuation. CAE has maintained a very strong return on equity over time, and has grown its dividend by the double digits recently. Analysts expect that it will continue to do so moving forward. These are all positive indicators for long-term investors.
The company has a number of near-term, medium-term and long-term growth catalysts that are likely to play out. In my opinion, this makes CAE a long-term investor’s dream.
There are very few companies I’d consider a buy at this point in time. But, CAE is certainly one I’d suggest investors put on their watch list and keep an eye on.
Stay Foolish, my friends.
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 Chris MacDonald does not have ownership in any stocks mentioned in this article.