As more investors set out on the quest to look for reliable rebound stocks, Air Canada (TSX: AC) continues to be one of the top buys.
Indeed, Air Canada is a stock that’s still down more than 60% from pre-pandemic levels. Thus, there are those who highly believe there’s much more upside to this stock. With so many stocks now trading above pre-pandemic levels, there’s exuberance in the markets today. Finding stocks with room to run is a difficult task.
Accordingly, I think a substantial revaluation is possible for Air Canada if this bullish stance toward reopening plays continues. Indeed, Air Canada is a stock with a number of excellent catalysts in its favour right now for those seeking capital appreciation today.
There’s room for optimism today
Air Canada’s core business has indeed been beaten to a pulp as a result of the pandemic.
However, the company’s current financial picture looks far less horrible than many expected a few quarters ago.
Why?
Well, while operating revenue last quarter fell off a cliff, Air Canada’s cargo business witnessed a boom. In fact, the airline grew this segment by 52% year on year. This business may have legs moving forward, and the company appears to have made some very good strategic moves to limit its cash burn during the pandemic.
Additionally, Air Canada’s capacity cuts and layoffs stemmed some of the bleeding. Investors will note this is a company that’s still bleeding cash. However, there remains tonnes of optimism right now that the pandemic reopening could change everything. Investors are banking on that today.
Vacation travel could boom like we’ve never seen before
Another thing investors are banking on? A once-in-a-generation boom in vacation travel.
I mean, this makes total sense. We’ve all been pent up too long in our home offices and in our home cities. We’re itching to get out there and see the world. Domestic and international travel restrictions have made all that nearly impossible.
Indeed, many are holding on to hope that a rapid roll-out of vaccines will result in a relaxing of travel-related restrictions, catapulting vacation travel (and airlines) much higher.
Air Canada is banking on this trend materializing. The company’s recent acquisition of Air Transat for $190 million speaks volumes. Apparently, the company thought it was a great time to acquire a beaten up stock in the airline sector. Investors have taken note.
Bottom line
Amid very optimistic sentiment and hopes that the pandemic could meet a swift(er) end, Air Canada’s looking like the momentum play investors want today.
Indeed, with a potential bailout on the horizon, Air Canada’s financial picture could look a lot prettier in short order. When travel restrictions eventually do get loosened, and they will, this stock could really take off.
However, much of this sentiment is already priced in today. Investors who didn’t pick up shares and have been waiting on the sidelines may want to consider nibbling on dips moving forward. Indeed, I expect some volatility on the horizon, so taking a full position right now really isn’t necessary.
