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Forget Air Canada! Here’s a Cheaper Way to Play a Return to Normal

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Air Canada (TSX:AC) faces hurdles en route to recovering to pre-pandemic levels of normalcy. I’ve been an advocate of buying shares on the dip, with the economic reopening likely in the latter half of 2021. After AC stock’s latest 80% run, though, I think the easy money has already been made in the name.

The air travel plays are going to be a turbulent ride through the year, and they should only be held by investors with the strongest of stomachs. While I still think Air Canada stock has ample upside from current levels, I think there is greater value to be had with other TSX-traded reopening plays. When it comes to reopening plays, you should insist on a greater margin of safety.

As I’ve noted previously, the COVID-19 vaccines are a light at the end of the tunnel, but there’s no telling just how far away the light is. Although it seems like things can’t get as bad as they were in 2020, new COVID-19 variants would suggest otherwise. Ontario’s headed back for lockdown on Saturday. Other provinces could follow suit, as coronavirus cases surge and ICU beds fill, as they did a year ago.

Looking beyond Air Canada for deeper value

With tremendous uncertainties relating to the tug-of-war between variants and vaccines, investors would be wise to hedge their bets or demand greater margins of safety. While I’d be enticed to buy Air Canada stock on a further pullback, I also see ample value to be had with WestJet Airlines’ parent company ONEX (TSX:ONEX), which trades at a deep-value multiple, in my books.

Now, ONEX isn’t a pure play on air travel’s recovery. But I still think its shares hold more value than Air Canada, at least after its recent run. In addition to WestJet, you’re getting other compelling and underrated investments under the ONEX umbrella that will stand to benefit from the coming reopening.

ONEX is a magnificent firm with a track record of putting the TSX Index to shame. Once the pandemic ends, I think the firm and its impressive managers will be right back to posting above-average results. The coronavirus pandemic caused shares to take a major hit, and it’s been a tough slog back to the top. Today, shares are 10% away from their 2020 highs — a level that is likely to be broken through this year.

What about valuation?

At the time of writing, shares of ONEX trade at a ridiculously cheap 0.8 times book value. You’re not just getting Air Canada’s airline peer in WestJet, but you’re also gaining exposure to wonderful operating businesses. The firm has made numerous acquisitions over the years. Some were bit hits. Others, like WestJet, weren’t.

Regardless, I think deep-value investors have a lot to gain by going against the grain with the name. ONEX is one of the oldest private equity firms in Canada, and there’s no denying its long-term track record of robust performance. The firm has been through more than its fair share of ups and downs. This time is no different, and going into late 2021, things are finally looking up.

So, if you’re in the camp that thinks Air Canada is a tad on the expensive side, ONEX may be a worthier value candidate if you’re looking to bet on the great reopening.

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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 Joey Frenette has no position in any of the stocks mentioned.

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