Air Canada (TSX:AC) Stock: Buy or Sell?

Air Canada stock is finally showing some vitality. But it’s still a risky buy and the perfect time to sell has yet to come.

| More on:
Aircraft wing plane

Image source: Getty Images

Few industries have suffered as much as airlines during this pandemic. Airlines started seeing the effects of the pandemic early on, and they haven’t benefitted from the post-crash recovery momentum of the market. Air Canada (TSX:AC) stock fell by about 75%, and up until mid-November, it had trouble breaking through the $20-per-share threshold.

After months of low valuations and testing the fortitude of its investors, the stock finally showed some life in November and grew over 70% in fewer than 30 days. For investors who’d bought the company when it was trading around $15 per share, the first week of December was the perfect time to sell and would have helped them realize decent short-term gains.

The case for buying

Air Canada is not a good buy right now. The euphoria surrounding the vaccine is wearing off now, and the momentum it built up for the stock is now moving in the wrong direction. The stock is about 18% down from its peak value earlier this month, and it might keep going down, especially if the travel restrictions with the U.K. extend to other countries as well.

The airline industry might be a bad long-term bet anyway, because the pandemic has forced many people to re-evaluate their leisure and business travel practices. Most businesses now prefer remote meetings anyway, since they save both cost and time. As Bill Gates predicted, business travel might be reduced to half of what it used to be in a pre-COVID world.

So, whether you want to buy a stock for short-term recovery or long-term growth prospects, there might be significantly better (and safer) options than Air Canada. The future of the airline industry is shaky as it is, and the pandemic has weakened the company to such an extent that it would take years before the company is fundamentally strong again.

The case for selling

If you’d bought Air Canada shares when the company was at or near its prime, then the perfect time to sell might not come for a few years still. It’s improbable that the stock will soar to its pre-pandemic valuation anytime soon. All you can do now is try to mitigate your losses. Even then, a good time to sell would have been earlier this month, when the stock reached its recent peak. Now, it’s on a steady decline.

This recent peak has shown us that the stock still has some life left. If you can hold on to your stake for a few more months, you might be able to sell at a better price than you will get right now. When the pandemic is finally under control, the stock might even climb up to $30 per share. That would be a good time to sell.

Foolish takeaway

Air Canada is trying to gain a footing in the cargo market as well, but that division is not nearly sizeable enough to make up for the dismal numbers of the transportation business. The company is also trying to solidify its dominance in the Canadian air space by going through with the Trans At purchase, albeit at a reduced price. But even that might not be enough to make Air Canada a potentially profitable stock, at least in the near future.

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 Adam Othman 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.

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 »


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.

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 »