The Motley Fool

Air Canada Stock: Should You Brace Yourself for a Drop?

Image source: Getty Images.

Air Canada (TSX:AC) stock has and will probably continue to be one of the most turbulent names on the TSX Index. It’s the ultimate reopening stock, and with the federal government on its side that’s more than willing to lend a helping hand with financial support, the name seems like one of the better ways to outperform, as the world kicks COVID-19. Ottawa also has an equity stake in the name and a perceived floor of support at around the $23 level, so it’s not a mystery as to why many hungry Canadians have been tempted to pile in the stock ahead of the so-called Roaring ’20s.

There’s ample pent-up demand for air travel, and if the performance of many of the American airlines is a sign of things to come, Air Canada almost seems like a must-buy.

Given Air Canada is more of an international airline than a domestic one, it depends not only on Canada reaching herd immunity but the world. The vaccine rollout in Canada hasn’t gone nearly as fast as in some other countries like the U.S., Israel, or the United Kingdom. That said, an accelerated effort into the spring and summer could relieve some of the pressures weighing down Air Canada stock, as it looks to capitalize on peak travel season.

In any case, it remains tough to pick a winner in the critical race between COVID-19 vaccines and variants of concern. There’s no telling if the summer will be (near) normal due to more jabs being delivered in arms. There’s also no telling if another (fourth) autumn wave will happen. Could variants of concern cause another wave in spite of advanced vaccination efforts? It’s possible. In any case, Air Canada still faces high-impact, albeit low-probability hurdles en route to normalcy.

Air Canada stock: Is a plunge on the horizon?

Air Canada stock will remain turbulent, but I don’t necessarily see a big drop on the horizon, especially as more shots are given, and the country winds down from its horrific third wave. I think the summer season could be kind to Air Canada, despite the slow pace of vaccinations in the country.

That said, the triple-mutant variant identified in India could pose a serious risk to international travel over the coming months. Last year, the summer season was a break from lockdowns and all the sort, as Canada went into a temporary period of near normalcy. While I do think this summer will be better than last summer, I can’t be sure, and that’s the biggest risk facing Air Canada stock right now. Will variants or vaccines take the lead going into the summer season?

Another question investors should be asking themselves is whether Air Canada be in a spot to meet the tremendous amount of pent-up air travel demand, as Canadians feel more confident about travel after they receive their first and second doses of vaccine. I’d be willing to bet that sentiment will drastically shift, and people will feel more comfortable getting aboard a crowded tube in the sky after they receive partial or full protection from the insidious coronavirus.

As such, I do not expect Air Canada stock to crumble significantly. However, I think investors should expect turbulence from the name. Fasten your seatbelt.

5 Stocks Under $49 (FREE REPORT)

Click here to gain access!

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

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.