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Forget Air Canada and Cineplex Stocks: Bet on This Undervalued TSX Giant Instead!

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The COVID-19 pandemic has decimated multiple sectors as economic lockdowns were imposed all over the world. International flights were grounded and borders were shut bringing travel to a standstill. It meant companies in the airline, tourism, and entertainment sectors were the worst hit.

Shares of Canada-based companies including Air Canada (TSX:AC) and Cineplex (TSX:CGX) lost significant value in 2020. While Air Canada and Cineplex shares are up over 53% in the last six months they are still trading significantly lower than record highs.

Both the Canadian companies have faced severe headwinds amid the pandemic which has led to the gross underperformance.

Air Canada stock is down 48% from all-time high

Air Canada stock is trading at $27.92, which is 48% below its record high. The airline space is a capital-intensive one and companies have to constantly raise debt to support capital expenditures.

However, at a time when demand is excruciatingly low, profits are negative and revenue has been taken a massive hit, Air Canada is bleeding cash at an astonishing rate. The global aviation industry lost US$118.5 billion in 2020 and is expected to lose close to US$85 billion in 2021 as well.

The slower than expected rollout of vaccines, coupled with the second wave of infections and emergence of multiple virus strains are weighing heavily on the airline industry and people are avoiding non-essential travel.

In 2020, Air Canada lost $1 billion in each quarter, and though it ended the year with $8 billion in liquidity, the macro situation remains grim.

Cineplex stock is down 61% from record highs

Cineplex stock is still down 60% from its peak and is expected to remain volatile in 2021. In Q4, the company reported an attendance of 786K, which meant sales were down 88% year over year. The company spent $25 million each month in Q4 and had to sell its headquarters in order to generate cash and pay its loans.

Cineplex ended the year with a negative EBITDA margin of 44% and outstanding debt of $1.8 billion.

The energy sector is poised for a turnaround

The energy sector was also under the pump last year as lower demand sent oil prices spiraling downwards. However, as crude oil prices are on the rise it makes sense to place your bets on large-cap stocks such as Enbridge (TSX:ENB)(NYSE:ENB).

This domestic giant has been one of the safest dividend stocks over the years. Enbridge is a pipeline operator and has managed to increase dividends for 26 consecutive years. In this period, the company’s payout has increased at an annual rate of 10%.

Enbridge stock currently sports a forward yield of 7.35% and investors can expect dividend increases in the future as well. According to Enbridge, its cash flow per share is forecast to grow at an annual rate of between 5% and 7% through 2023. It demonstrates that Enbridge has the ability to enhance the return on existing assets as well as generate incremental cash flows by expanding its energy infrastructure platform.

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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 owns shares of and recommends Enbridge. The Motley Fool recommends CINEPLEX INC. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

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