The Motley Fool

Why I’m Not Betting on an Air Canada (TSX:AC) Stock Recovery in 2021

Image source: Getty Images.

Air Canada (TSX:AC) has been one of my favourite stocks for a long. The company has made remarkable financial progress in the last few years. However, many things changed for the largest Canadian airline slightly less than a year ago. COVID-19 shook the world and forced many countries to impose strict restrictions on non-essential businesses and air travel. These restrictions turned out to be disastrous for many industries, including the airlines.

Air Canada’s continued worries

These factors changed my opinion about the future of Air Canada and the airline industry in general. Air Canada is preparing to resume Boing 737 MAX commercial operations on select domestic routes from the next week. However, these operations would offer very little hope as far as the airline’s overall financial recovery is concerned.

Air Canada has been burning big piles of cash with each passing day in the last few quarters. In the first quarter last year, it lost around $392 million. These losses more than doubled in the next quarter and crossed the $1 billion mark. The turmoil continued in the third quarter, as it burnt another $1.3 billion.

The future is likely to be dark

I trust that Air Canada’s operations will improve in the coming quarters as the COVID-19 woes subside. However, its financials might not go back to normal for many years. The pandemic has significantly changed the way people work, live, and travel. While leisure travel may continue to be in demand in the coming years, the airline industry still may suffer due to a massive drop in business travel demand.

Many experts have already warned that business travel would see a major permanent decline. Notably, business travel is one of the most profitable segments for the airline industry. Without it, airlines — including Air Canada — would face financial difficulties and their profit margins would remain low.

Don’t miss other opportunities

While you might not do much to fix Air Canada’s ongoing troubles, you still have an important choice to make. Instead of waiting for its stock recovery for months, you could invest the same money in other growth stocks that could help it multiply much faster than you think — with fewer risks.

For example, the Aurora-based mobility company Magna International (TSX:MG)(NYSE:MGA) could be one such great growth stock to buy right now. The company has increased its focus on rising EV (electric vehicle) and autonomous vehicle demand in the last year. In line with this strategy, Magna recently announced a new joint venture with the South Korean tech giant LG Electronics.

The United States, Austria, Canada, Germany, and Mexico are the five largest markets for Magna based on its revenue. The company is also making efforts to expand its presence in China. These steps could lead to its exponential financial growth in the coming years. While its earnings fell in 2020 due to the pandemic-related headwinds, Bay Street analysts expect its earnings to more than double in 2021.

Foolish takeaway

While Air Canada used to be a good investment option before 2020, it might not be wise to miss other much better opportunities in expectations of a recovery in its stock price. If you act now, you may get much better returns in other growth stocks than what you expected from Air Canada stock.

Speaking of AMAZING GROWTH STOCKS. Here’s a FREE LIST for you:

Looking for the Next Potential Netflix? We’ve Got You Covered with These 3 Free Stock Picks

Motley Fool Canada's market-beating team has just released a new FREE report that gives our three recommendations for the Next Gen Revolution.
Click on the link below for our stock recommendations that we believe could battle Netflix for entertainment dominance.

Click Here to Get Your Free Report Today!

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 Magna Int’l. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.