Air Canada (TSX:AC) Stock: Should You Buy or Sell in 2020?

Is the Air Canada stock worth buying or a must sell in 2020? The assessments are varied, although recovery remains uncertain for the entire airline industry.

| More on:
little girl in pilot costume playing and dreaming of flying over the sky

Image source: Getty Images

Canada’s dominant airline never misses to be headline news, although the reports are mostly negative. The year 2020 is a total disaster for Air Canada (TSX:AC) that talks of recovery are getting stale as the months pass. Since the onset of the pandemic, the company is virtually hanging by a thread.

The situation is unfortunate since the airline stock was a high-flyer in 2019. COVID-19 wrecked the airline industry and continues to prevent travel demand from returning. Air Canada is at the mercy of a government that has not acceded to the repeated requests to ease travel restrictions and quarantine requirements.

However, many still believe that Air Canada will recover lost ground in due time. Is the stock worth buying for massive future gains or better to ditch it now before the next quarterly earnings report?

Depressed capacity

Air Canada continues to blow hot and cold in the stock market. After bottoming to $12.15 in the third week of March, the stock climbed 92.51% to $23.39 on June 8, 2020. It then sank 35.4% to $15.11 to close out July. As of this writing, the stock is trading at $18.30, and the year-to-date loss is 62.26%.

The billion-dollar losses for two consecutive quarters are understandable given that the company operates at just 10% to 15% capacity. Despite obtaining fresh funding to shore up liquidity and cover the losses, management expects to burn $15 to $17 million cash in the third quarter.

Meanwhile, the government is still fearful of a COVID-19 resurgence. Travel restrictions will remain in place until September 30, 2020, to prevent further spread of the disease. Air Canada is begging authorities to reconsider and adopt an evidence-based approach. Some European countries wrote letters requesting Canada to soften its stance.

Practical assessments

Passenger travel demand will eventually return over time, but certainly not soon. Air Canada will keep burning through cash until the government relaxes travel restrictions and quarantine requirements. The airline industry, in general, would like to see clinical trials on vaccine development to accelerate.

Assuming a workable vaccine becomes available globally, you can anticipate travel numbers to rise gradually. However, you can’t expect quick returns from Air Canada. The entire airline industry must recover first.

Air Canada CEO Calin Rovinescu admits it will take at least three years for capacity and revenue to return to pre-COVID levels.

One market analyst said the current share price is an attractive entry point. However, the advice is not to bet on Air Canada at all. He said that it’s an act of courage if you do. You also have an incredible optimism about the airline industry.

My view

For long-term investors with patience who don’t mind Air Canada’s cash burn the rest of the year, go ahead and buy or keep the stock. In my view, however, it’s better stay away from airline stocks until there’s full recovery.

No one knows for the sure how long or when it will happen. I’d instead bring my money elsewhere, particularly in industries with visible growth potentials. Airline stocks might not fly high ever again.

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 Christopher Liew has no position in any of the stocks mentioned.

More on Investing

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »