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Why I Wouldn’t Buy Air Canada Stock Yet

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Air Canada (TSX:AC) stock has been under considerable pressure once again, with the horrific third wave of COVID-19 sweeping the nation. Things are looking pretty ugly today, with Alberta being the latest province to implement harsher restrictions; barbers and restaurant patios are the latest to shut down to help curb the horrific spread of the variant-driven outbreak.

That said, things are looking brighter with the vaccine rollout, which could hopefully make this third wave we’re suffering through the last major one of this pandemic. Undoubtedly, the vaccine rollout is going slow on this side of the border. As provinces shut things down for the spring, our neighbours south of the border are starting to reopen their doors, thanks in large part to its successful rapid vaccine rollout.

The turbulent ride for Air Canada shareholders continues

While it may seem reasonable to justify buying Air Canada stock on this latest dip with the thesis that the pandemic will end in mid-2022, I’d caution investors from getting in if they’re not comfortable with extreme levels of volatility. I think there are many weak hands in Air Canada stock right now. Many folks are hungry to make a quick buck, and I don’t think an internationally focused Canadian airline like Air Canada will be nearly as quick to recover as the likes of its domestic peers to the south.

As I mentioned in a prior piece, the recovery trajectory for Air Canada (and its stock) is likely to be far more modest. The recovery rally could stretch out over years, and those who are impatient with the name, I believe, will be likelier to lose big money in the stock.

If you’ve got a long-term investment horizon and a stomach for volatility, though, I see opportunity in the excessive turbulence in shares of Air Canada.

The stock has already fallen into a bear market (a 20% drop from peak to trough) on four separate occasions over the past year. The stock is fresh off a 22% pullback from its 52-week high to just shy of the $30 mark. The fresh round of financial support from the federal government failed to move the needle, as investors grappled with the horrific wave in Canada and India, which could give variants a chance to catch up in its race with vaccines.

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It’s about the global vaccination effort

I’ve said it before, and I’ll say it again: as an airline that derives a considerable chunk of its revenues from international air travel, Air Canada needs the global vaccine rollout to go smoothly, or its stock is unlikely to see its all-time high of $51 and change.

While I am optimistic about a potential acceleration to the global vaccine rollout in the latter half of 2021, I would caution investors to be ready for anything, including an unforeseen fourth wave in the summer. Such a high-impact, low-probability scenario, though, I think is unlikely, but investors must know the odds before getting into a turbulent name that could punish those who aren’t truly in it for the long haul.

Personally, I’d much rather wait for more evidence of an acceleration of the global vaccine rollout. Many nations, Canada included, are in the midst of a horrific outbreak. Of course, once global COVID-19 cases wind down going into the summer, you may have to pay a slightly higher price of admission into Air Canada stock. But given the high stakes, I’d say it’s a much better idea to forego a bit of return potential if it means bearing less risk.

If you're looking for opportunities in this uncertain market, I'd encourage you to consider the following:

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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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