Forget Air Canada: 2 Other Airline Stocks Could Make You Rich!

Overlooked airline stocks such as Chorus Aviation (TSX:CHR.B) could be excellent contrarian bets in 2020.

| More on:
An airplace on a runway

Image source: Getty Images.

Air Canada seems to have caught the attention of investors. The stock has lost 68% of its value since January and could lose more as global and regional air travel remains frozen. This week, the airline announced it would lay off 16,500 workers. Managers would take a pay cut ranging from 25% to 100% of their 2020 salaries. 

This isn’t the first time Canada’s largest airline has suffered drastic losses. During the 2008 financial crisis, the stock lost 75% of its value. Investors who bought in 2009 received a 5,959% return by early 2020. So, history could repeat itself this time. 

However, I believe there are two other airline stocks that serve as better bets on a rebound in global air traffic. 

Chorus

Chorus Aviation (TSX:CHR.B) is lesser known and comparatively riskier than Air Canada. The tiny company provides aircraft leasing and maintenance services to large regional carriers. Basically, it rents airplanes. 

The company reportedly had $128 million in cash on its books as of March, 18, but suffers from a hefty debt burden. Long-term debt was nearly 3.9 times the value of equity. Meanwhile, the dividend payout ratio was 57.4% before this crisis began, so a dividend cut could be on the cards. 

However, I have three reasons to be bullish on Chorus. The company has a long-term contract with Air Canada that should ensure revenue regardless of disruption.

If airlines stop paying leases, the company can repossess the aircraft that will retain their value. Finally, I expect domestic air travel to recover sooner than international air travel as Canada tames the virus in April/May. 

Although Chorus is undoubtedly a risky bet, it could have huge rewards if domestic air travel recovers by summer. If Canada tames the outbreak soon, regional air traffic could rebound sharply.  

Westjet

Canada’s second-largest airline, Westjet, is no longer a publicly traded company. However, its owner Onex Corporation (TSX:ONEX) could serve as a proxy. 

Private equity giant Onex is exposed to the airline industry through two subsidiaries: Westjet and Sky Chef. This means an eventual rebound in global air traffic will have a tremendous impact on Onex’s balance sheet. Meanwhile, the company has enough cash on hand to weather this storm and ongoing economic shutdown. 

In fact, I expect Onex to make major acquisitions of distressed assets and bolster its remarkable portfolio further in 2020. The firm has nearly $988 million in cash on its books and virtually no debt. That’s plenty of dry powder to acquire some big names. I wouldn’t be surprised if Onex’s portfolio looked a lot better within a few years.  

The stock is currently down 42.6% from its all-time high and could be a multibagger over the long-term. It’s a textbook contrarian bet at this point that seems to be flying under-the-radar. 

Bottom line

Air Canada is obviously a crowd favourite. Investors expect air traffic to bounce back when this shutdown is over and Canada’s largest airline is well placed for a recovery. However, overlooked stocks like Chorus and Onex have plenty of potential for stunning returns too. 

Investors should probably cast a wider net for better bargains. Good luck and stay safe!

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 VRaisinghani owns shares of Onex.

More on Investing