Is Air Canada Stock the Pandemic Reopening Play Investors Are Hoping for?

The big question on the minds of many Air Canada (TSX:AC) investors right now is this: Has all the upside already been captured by the market today?

| More on:
Question marks in a pile

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

I’ve previously discussed why Air Canada (TSX:AC) shouldn’t be left out of the discussion when it comes to pandemic reopening plays. Indeed, the airline sector is about as economically sensitive as one could invest in. Thus, it’s no surprise Air Canada stock continues to show strength from the depths of despair seen in 2020.

However, there are concerns. Some investors are worried about the pace of Canada’s vaccination program. Others point out that some structural damage to business travel is likely to remain in a post-pandemic world.

However, as investors, we’re all inherently optimistic about the market. Otherwise, we wouldn’t invest.

So, let’s take a look at the bright side on Air Canada. Here are two key catalysts that are driving this stock’s performance right now.

Big bailout finally announced

The recent news that Air Canada has dropped its acquisition bid for Air Transat has been overshadowed by even more recent news that a bailout has (finally) materialized for Air Canada and its shareholders.

Now, Air Canada’s stock price hasn’t performed that well over the past week, so there are indications that bearish sentiment could be creeping back into this sector. However, this news is broadly positive and is a reason for shareholders to remain optimistic.

The Canadian government agreed to give Air Canada $5.9 billion in low-interest loans. As part of the deal, the government also retained the potential of buying an equity stake up to 20% and imposed restrictions as to what the company can do with this money.

All this seems fair. I mean, it’s taxpayers’ money on the table.

However, investors may not like the fact that some dilution is possible as a result of the deal. Additionally, restrictions are not generally viewed as a good thing.

But it’s low-interest money at a time when raising more money via outside debt and equity markets would likely be worse.

Air Canada’s core business prospects still strong

I think, in many ways, the recent bailout and move away from the Air Transat deal could be viewed positively by investors.

Air Canada’s roadmap has been simplified. Additionally, investors now have more in the way of certainty. These are very good things.

Air Canada’s core business still has strong prospects coming out of this pandemic. When travel restrictions are finally lifted, there will be a boom in air travel. That much is certain. The timing? Not so much.

Right now, I think investors who aren’t aboard Air Canada may want to wait for a better entry point. In my view, this is a long-term holding. There’s no need to rush to the gate — you’re not going to miss your flight.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Investing

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

1 U.S. Stock to Buy That Could Make You a Millionaire

Even though tech stocks are usually the go-to growth picks in the US stock markets, there are quite a few…

Read more »

Increasing yield
Dividend Stocks

My 3 Favourite TSX Dividend Stocks Right Now

These dividend stocks have been a favourite for a while, but even more so now that they trade at such…

Read more »

funds, money, nest egg
Dividend Stocks

New Investors: The 2 Best Options To Earn Regular Passive Income!

You can earn high passive income with dividend stocks like the Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

Read more »

Dividend Stocks

This Canadian 6%-Yielder’s On Sale, But Not for Long!

SmartCentres REIT (TSX:SRU.UN) is a wonderful high-yielding REIT that has a higher yield and lower valuation than most its peers.

Read more »

A cannabis plant grows.
Cannabis Stocks

Why I’m Considering Canopy Growth Stock For My RRSP

As the cannabis industry grows, adding Canopy Growth stock to my RRSP will give me access to massive upside.

Read more »

Investing

Monthly Passive Income: Is RioCan a Buy for the 4.75% Yield?

RioCan raised the monthly distribution this year after cutting the payout during the pandemic. Should investors seeking monthly passive income…

Read more »

warning or alert
Investing

ALERT: 3 Cheap Stocks That Have Sent Off a Buy Signal

Canadians on the hunt for cheap stocks should snatch up CAE Inc. (TSX:CAE)(NYSE:CAE) and others that are technically undervalued right…

Read more »

grow money, wealth build
Top TSX Stocks

3 Canadian Growth Stocks for Your TFSA

Given their healthy growth prospects, these three stocks would be a good addition to your TFSA.

Read more »