Air Canada (TSX:AC): Now Is the Time to Buy!

Air Canada (TSX:AC)(TSX:AC.B) stock has fallen to deep-value territory, making the name a top pick for those looking the most upside in a market comeback.

| More on:
Hand writing Time for Action concept with red marker on transparent wipe board.

Image source: Getty Images

Air Canada (TSX:AC)(TSX:AC.B) stock has taken on a brunt of the damage amid the coronavirus (COVID-19) pandemic, with shares falling over 75% from peak to trough over a ridiculously short period. The stock got cut in half twice, and while it could happen again, I think we’ve reached a point where the risk of missing out on a massive bargain now exceeds the risk of additional near-term losses.

Air Canada: A historic decline now in the rear-view mirror

Back in December 2019, before Air Canada stock fell off into a tailspin, I’d urged investors to sell the stock, citing valuation concerns. Then in January, I named Air Canada my top stock to sell amid the coronavirus outbreak, a growing concern that was largely being shrugged off by investors at the time.

“While there’s no pandemic yet, one can only expect that many casual travellers are poised to postpone travel plans to minimize their risk of contracting a virus that we still know very little about.” I said back in January. “[Air Canada is] hardly an expensive stock, but given shares have traded in the single-digit P/E range in the past and new risks have introduced themselves in recent weeks, shares could see a sudden reversal of momentum over the near term. As such, I’d urge investors, even long-term thinkers, to avoid the stock for now, as a far better entry point could be on the horizon.”

With shares now trading at $15, with a low single-digit P/E, I think that the “better entry” point has finally arrived, but I don’t think it’s going to last long, as the sell-off appears to be overblown beyond proportion, even with the recent shuttering of international and transborder flights.

Air Canada stock is a falling knife that could suddenly ricochet

There’s no question that there’s great uncertainty with Air Canada stock. And while shares are a falling knife, it’s hard to take a raincheck on a name that could lead the upward charge once the COVID-19 pandemic subsides. Canada and the U.S. are doing their best to “flatten the curve,” and when we finally get on the other side of the curve, as China has, Air Canada stock could take off like a bat out of heck without a moment’s notice.

Amid Air Canada’s historic tailspin, many have questioned whether Air Canada was at risk of going bankrupt. In a prior piece, I’d touted that Air Canada was a business that was “too essential” to fail even in a worst-case scenario. Moreover, I’d also noted that Air Canada was much better off financially and operationally than it was before the 2007-08 Financial Crisis.

At the time of writing, Air Canada stock trades at 0.18 times sales, 0.75 times book, and 1.58 times enterprise value/EBITDA. The stock is so ridiculously cheap and seems to factor in some chance that Air Canada will go under — a scenario that I just don’t see happening, even if the pandemic were to drag on for another year.

Foolish takeaway

The way I see it, you don’t let an otherwise wonderful (and extremely profitable) business go under because of a black swan event that was through no fault of the company itself. As such, I see Air Canada as being first in line to get a lifeline from the government should it ever require one.

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

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Investing

3 TSX Stocks I’d Buy This Week

Are you struggling to find stocks to add to your portfolio this week? Here are my three top picks!

Read more »

Target. Stand out from the crowd
Dividend Stocks

3 Oversold Stocks to Buy for Passive Income

These three oversold stocks aren't just great right now for high passive income, but provide exposure to high-growth industries.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Investing

3 Stocks to Hold in Your TFSA for Easy Tax-Free Income

Telco stocks like BCE Inc (TSX:BCE) offer high dividend income -- especially when held in a TFSA!

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Investing

Why Shawcor (TSX:SCL) Stock Jumped 9% in September

Shawcor Ltd. (TSX:SCL) stock has rallied off big gains after announcing that big changes may be ahead over the next…

Read more »

Mature financial advisor showing report to young couple for their investment
Bank Stocks

Retire Young: How to Turn a TFSA or RRSP Into $1 Million

Here’s how you can turn your TSFA or RRSP into $1 million or more to plan your early retirement.

Read more »

A person holds a small glass jar of marijuana.
Cannabis Stocks

Cannabis Stocks Jump: What Investors Need to Know

Cannabis stocks have started to recover in recent weeks, showing there might be signs that now is the time to…

Read more »

money cash dividends
Dividend Stocks

TFSA Passive Income: Invest $30,000 to Earn $500,000 + $7,800 in Tax-Free Dividends

Make the power of compounding work for you and turn a $30,000 investment into $500,000 in the next 20 years.

Read more »

Online shopping
Tech Stocks

Why Shopify Stock and Other Tech Stocks Jumped on Tuesday

Shopify (TSX:SHOP) stock and others started climbing on Oct. 4, but will the rise continue or fall back?

Read more »