Amid the low-interest-rate environment and expectations of improvement in economic activities with the rollout of vaccines, the Canadian equity markets continue to rise. However, some companies that continue to be impacted by pandemic have failed to recover completely and are available at cheaper valuations. So, investors with high-risk-taking abilities could invest in the following three stocks to earn oversized returns.
The pandemic has severely dented passenger airline stocks, including Air Canada (TSX:AC). Travel restrictions have led to subdued passenger demand, causing massive losses to the company. In the first nine months of 2020, Air Canada had incurred around $3.5 billion of net losses and has burnt $2.5 billion of cash. Meanwhile, with the rising COVID-19 cases, the government would not hurry to lift travel restrictions.
Despite these near-term challenges, I believe the downside in Air Canada’s stock is limited. The widespread distribution of vaccine, which could be achieved in the second half of this year, could prompt governments to lift restrictions and improve passenger sentiments, boosting Air Canada’s financials. The company’s cargo business has been growing since its launch in March 2020. Meanwhile, the company has increased the number of cargo-only flights to meet the increased demand, supporting its financials.
Further, Air Canada has taken several cost-cutting initiatives, such as slashing its workforce, reducing its system capacity to 20% of the pre-pandemic levels, and retiring 79 older aircraft to reduce its losses and cash burn. With the company currently trading over 50% lower from its pre-pandemic levels, I believe Air Canada could reward shareholders who are willing to hold on to it for two to three years.
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Like passenger airline companies, the pandemic-induced lookdown severely hit the entertainment industry, including the Canadian movie theatre kingpin Cineplex (TSX:CGX) stock. The rising debt levels, high cash burn, and severe net losses have taken a toll on the company’s stock price, which is currently trading around 70% lower than its 52-week high.
However, the company has strengthened its financial position by selling and leasing back its headquarters in Toronto for $57 million and has raised another $60 million through an agreement with Scotiabank, the lead sponsor of its loyalty program. The company has also taken several cost-cutting initiatives, such as cutting its employee headcount to reduce its losses.
Meanwhile, the widespread availability of vaccine could allow Cineplex to operate at full capacity, thus boosting its bottom line. Further, Canadian households are sitting on huge cash, which they had saved for emergencies. With jobs returning and improvement in economic activities, I expect Canadians to utilize the amount on discretionary spending, which could benefit the company. Many distributors had also shifted the release dates of major movies from last year to this year, which could also drive foot traffic for Cineplex.
My third pick would be an integrated energy company Suncor Energy (TSX:SU)(NYSE:SU). The company’s stock is up over 50% since Pfizer first announced its vaccine’s effectiveness in preventing the coronavirus on November 9. Despite the rise, the company is still trading at 46.8% lower than its 52-week high, providing an excellent buying opportunity for investors. The company’s valuation also looks attractive, with its forward price-to-sales and price-to-book multiple standing at 1.2 and 1, respectively.
Amid the vaccine euphoria, weak U.S. dollar, and expectations of economic recovery, crude oil prices have recovered strongly to trade at pre-pandemic levels. Further, the company also expects its production to go up by 10% in 2021, while its operating expenses could fall by 8%. Additionally, the company also hopes to increase its downstream utilization by 6% to 93%. So, given the favourable environment, attractive valuation, and improving operating metrics, I am bullish on Suncor Energy.
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.
The Motley Fool recommends BANK OF NOVA SCOTIA. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.