On Monday, Pfizer and BioNTech announced that their vaccine was 90% effective in preventing the spreading of COVID-19 among individuals without earlier evidence of infection. Meanwhile, former FDA commissioner and Pfizer’s board member, Dr. Scott Gottlieb, told CNBC that the vaccine could be available as early as late December for limited use and widely accessible by the third quarter of next year.
The vaccine could help governments worldwide ease restrictions. Amid the expectation of life returning to normal, here are the two beaten-down TSX stocks that can deliver superior returns.
Air Canada
Low passenger volumes, soaring net losses, and a higher cash burn have weighed heavily on Air Canada (TSX: AC). In the second and third quarters of this year, the company carried 96% and 88% lower number of passengers than the previous year amid the travel restrictions, severely impacting its financials. It has also burnt $2.54 billion of cash during the same period.
However, the company’s financials showed some sequential improvement in the third quarter amid the reopening of the economy and restart of domestic operations. Compared to the second quarter, Air Canada’s top line increased by 43.6%, while operating losses fell close to 50%. Further, the company’s cash burn was at $818 million, or around $9 million per day, during the third quarter compared to the management guidance of $1.35 billion and $1.6 billion. The company’s liquidity position looked healthy, with $8.19 billion of unrestricted liquidity at the end of the third quarter.
Meanwhile, the vaccine against COVID-19 could revive the airline sector, which has taken a severe hit this year. The vaccine could prompt governments worldwide to ease travel restrictions, driving the international passenger volumes. Amid the expectations, Air Canada’s stock rose by over 28% on Monday. Despite the rise, the company still trades 58.5% lower for this year. So, given the deep discount on its stock price, I believe investors should buy the stock before it takes off.
CGI
Over the last five years, CGI (TSX: GIB.A)(NYSE: GIB) has delivered over 145% returns at a CAGR of above 25%, comfortably outperforming the broader equity markets. However, the company has lost 17.5% of its stock value this year. Amid the pandemic, the activities across manufacturing, retail, and distribution segments had slowed down, which lowered the demand for CGI’s services.
In the June ending quarter, CGI’s revenue declined by 2.2%, while its adjusted EBIT fell by 5.5%. Apart from top-line decline, the contraction in margins lowered the company’s adjusted EBIT. The increased expenses due to the adjustments in some client contracts and impairments on business solutions reduced its margins.
Meanwhile, the reopening of economies has increased the manufacturing, retail, and distribution segments’ activities. The company’s book-to-bill ratio improved from 88.9% in the second quarter to 93.1%, indicating the rising demand for its services. The vaccine could boost core industries, which could benefit CGI. Further, the company generates around 65% of its revenue from the government, healthcare, and communications and utility sectors, which are immune to economic downturns and provide stability to its earnings.
Amid the decline in its stock price, CGI’s valuation has fallen to attractive levels. Its forward price-to-earnings multiple currently stands at 17.7. So, given its improving growth aspects and attractive valuation, I am bullish on CGI.
