2020 was a devastating year for global economies, as the pandemic changed the landscape. A year after lockdowns were mandated to curb the spread of the novel coronavirus, the situation seems to be improving.
Investors are looking at certain stocks through a different lens with a positive outlook for the economy. Air Canada (TSX:AC) is one such stock garnering better hopes among investors seeking near-term upside.
Air Canada could very well be an excellent investment for near-term gains. I also feel that it could be a decent long-term investment for investors at its current valuation. The airline sector continues to trade well below pre-pandemic valuations, making it ideal for value investors seeking a return to normalcy.
I will discuss the stock to help you make a more well-informed decision regarding the stock’s potential as a part of your portfolio.
The largest Canadian airline company
Canada only has two major airlines, and Air Canada is the largest and most structurally crucial one. The flag-carrying airline belongs to a sector that has received immense government support in the past, because it is an important airline.
Unlike our neighbors in the south, the government cannot afford to let Air Canada go belly up. The U.S. still has several major airlines, and it can let a few of them go bust without affecting the entire sector. Air Canada represents the majority of the airline sector here, and I doubt that the government will let it crumble under the pandemic’s financial pressure.
There is a pervasive belief that a bailout package might see the light of day for the airline. If the government does offer Air Canada a bailout loan, it could provide investors with near-term and long-term returns by helping the company get out of a troublesome situation.
Vaccine rollout news
Canada lagged behind many of its peers in terms of its vaccine rollout. However, the government is ramping up its efforts, and more vaccines are on their way for Canada to improve the inoculation situation here. This could happen courtesy of the U.S., which is quickly rolling out vaccines. Surplus vaccines from the U.S. could make their way to Canada, making it a better situation for airlines in both countries.
Air Canada is well positioned to benefit from increased discretionary travel once the pandemic ends. The faster everyone becomes vaccinated, the quicker people can ease their itch to travel anywhere they want to go after being under lockdown for so long.
Air Canada is trading for $26.72 per share, and it is up by almost 21% on a year-to-date basis. At its current valuation, it is still trading at a nearly 48% discount from its January 2020 valuation.
If you are hopeful about the vaccine rollout and increased discretionary traveling after the pandemic ends, Air Canada could make for an excellent investment to provide you with massive returns.
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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.
Fool contributor Adam Othman has no position in any of the stocks mentioned.