Air Canada (TSX:AC) Stock: Should You Bail or Buy the Dip?

Air Canada (TSX:AC) stock has been throttled so far in 2020, and investors may be wondering whether to steer clear or buy for cheap.

| More on:
Man considering whether to sell or buy

Image source: Getty Images.

When the market swung violently southward in March, investors were scrambling for where to turn. Warren Buffett is often seen as a guide for investors during troubled times. However, in 2020 the violent moves of the market have confounded even the investing legend. Buffett made a bigger bet on top airliners when the COVID-19 outbreak began in North America. Earlier this month, Buffett revealed that he had sold off large stakes in these four airlines at a loss. This drove down these companies and Air Canada (TSX:AC), Canada’s top airline.

A little over a year ago today, I’d discussed why it was unwise to bet against Air Canada. The company was rolling off records, as the airline industry was surging on the back of record passenger traffic and low fuel costs. Shares of Air Canada have dropped 65% in 2020 as of close on May 21. Now, investors are faced with a very different environment for airlines.

Today, I want to discuss whether investors should avoid Air Canada or potentially buy the dip. Let’s jump in.

Air Canada: Why you should bail

In March, it had become clear that the COVID-19 pandemic would have devastating consequences for the broader economy. The airline sector took hits immediately, as international travel plummeted. Analysts and economists drew comparisons to the difficult years that followed the September 11, 2001, terrorist attacks. In that instance, the airline industry took roughly half a decade to fully recover.

Earlier this month, the company said that it expected it would take three years to recover from the “darkest period ever” in commercial aviation. This was after the company revealed a stunning $1.05 billion loss in its first quarter report. Air Canada also expects to downsize its headcount and fleet by 85-90% in the second quarter and 75% in the third quarter.

The company predicts that it will be “considerably smaller for some time.” Investors should expect turbulence at Air Canada for years to come.

Why you should buy low?

For all its struggles, Air Canada is the most well-equipped Canadian airline to weather this crisis. The company learned harsh lessons in the previous financial crisis. In the early 2010s, Air Canada stock plunged below the $1 mark. Since then, Air Canada’s management has worked to greatly bolster its balance sheet. At March 31, 2020, Air Canada reported unrestricted liquidity of $6.12 billion. This was up from $5.87 billion in the prior year.

Airliners are going through an extremely difficult period, but there will be huge opportunities for growth, as lockdown measures ease. This may be a historic opportunity to grab Air Canada at a discount. The stock is trading close to its 52-week low at the time of this writing. Moreover, shares still boast a favourable price-to-book value of one.


As usual, the play here is dependent upon the outlook for the investor. Those with a shorter time horizon should look for alternatives as Air Canada will almost certainly suffer from more volatility in the near term. But investors operating on a longer timeline should consider adding this stock at a discount.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Coronavirus

little girl in pilot costume playing and dreaming of flying over the sky

Air Canada Stock: How High Could it go?

AC stock is up 29% in the last six months alone, so should we expect more great things? Or is…

Read more »

eat food

Goodfood Stock Doubles Within Days: Time to Buy?

Goodfood (TSX:FOOD) stock has surged 125% in the last few weeks, so what happened, and should investors hop back on…

Read more »

stock data
Tech Stocks

If I Could Only Buy 1 Stock Before 2023, This Would Be It

This stock is the one company that really doesn't deserve its ultra-low share price, so I'll definitely pick it up…

Read more »

Aircraft Mechanic checking jet engine of the airplane

Air Canada Stock Fell 5% in November: Is it a Buy Today?

Air Canada (TSX:AC) stock saw remarkable improvements during its last quarter but still dropped 5% with more recession hints. So,…

Read more »

Airport and plane

Is Air Canada Stock a Buy Today?

Airlines are on the rebound. Does Air Canada stock deserve to be on your buy list?

Read more »

A patient takes medicine out of a daily pill box.

Retirees: 2 Healthcare Stocks That Could Help Set You up for Life

Healthcare stocks offer an incredible opportunity for growth for those investors who look to the right stocks, such as these…

Read more »

sad concerned deep in thought

Here’s Why I Just Bought WELL Health Stock

WELL Health stock (TSX:WELL) may be a healthcare stock and a tech stock, but don't let that keep you from…

Read more »

healthcare pharma

WELL Stock: The Safe Stock Investors Can’t Afford to Ignore

WELL stock (TSX:WELL) fell 68% from peak to trough, and yet there's no good reason as to why. So now…

Read more »