Air Canada (TSX:AC) Is a Smart Long-Term Buy

Air Canada (TSX:AC) stock is a volatile Canadian millennial stock that could be in for an upside correction as we head into a bright summer season.

| More on:
Airport and plane

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 changed my tune numerous times on Air Canada (TSX:AC) stock over the past year and a half. It’s been a turbulent ride for shareholders and has been an absolute trader’s playground of a stock, with four separate bear market pullbacks (that’s a 20% peak-to-trough drop). At $27 and change, Air Canada is under a bit of pressure but is showing signs of strength after bouncing to a level just a correction (10%) away from its 52-week high.

With Canada winding down from its third wave of COVID-19, it now seems like a great time to get in, with peak travel season waiting around the corner. Last year, Air Canada couldn’t make the most of the summertime travel season, but this year is different.

More COVID-19 vaccines are being administered by the day. Soon, a majority of Canadians will be eligible to receive their second doses. And phase-based reopenings and restriction lifts will move along across various provinces (big events like the Calgary Stampede should be back on this year!).

It’s been a tough winter for us all. But summer has never looked brighter. So many people are itching to get out, spend money, hang out with friends, meet with family, and travel. There’s a considerable amount of pent-up demand that I think will be met this summer.

Of course, COVID-19 variants could hurt Air Canada’s international recovery prospects. In addition, the recent news of $10 million in bonuses being doled out to management also does not bode well for the firm’s image.

Air Canada stock: There are still risks, but they’re probably of low probability

Although I still think Air Canada will receive bailout money should it so need, I expect future support will come with strings attached. Perhaps many strings attached could be to the detriment of long-term shareholders.

In any case, there’s growing data that suggests we’re in for the most normal summer yet. And if COVID-19 variants are kept at bay once the temperature begins dropping again, I think Air Canada stock will have permission to really take off. As of right now, the runway looks to have cleared. Of course, there are still prominent risks, but for those willing to hold through 2024 or 2025, I think the potential rewards are well worth any near-term volatility you’ll have to stomach.

Catalysts ahead

In the meantime, expect weak-handed traders to jump into the stock, as Air Canada looks to have its most favourable year-over-year comparisons ever. For the summer season, the YoY comps are going to look beyond incredible.

That said, the bar will be set high, and guidance could be the primary needle mover for the stock. Will Air Canada’s well-paid managers be confident enough to provide forward-looking data, as more people get jabs in their arms? Only time will tell. If Air Canada can capitalize on summertime travel, I think there will be few chances to catch the name at below $25 per share.

As such, I’m now leaning more towards the buy side than the sell side — but only if you’re committing to hold for the next three years. As an internationally focused airline, Air Canada faces a slow and steady recovery to those 2019 levels. So, a U.S.-style airline recovery, I think, is out of the question.

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.

More on Stocks for Beginners

potted green plant grows up in arrow shape
Stocks for Beginners

1 Canadian Growth Stock That Could Double Your Money in an Economic Recovery

The market downturn is an opportunity to lock growth during the economic recovery. This stock is a blend of value,…

Read more »

edit Safe pig, protect money
Stocks for Beginners

2 Safe TSX Stocks for Beginners to Buy in a Market Correction

These two TSX stocks are still solid long-term buys today, despite the recent market correction.

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Stocks for Beginners

3 Real Estate Stocks to Buy for Terrified Investors

Motley Fool investors shouldn't be afraid of investing in real estate if they have a long-term growth strategy, but these…

Read more »

Value for money
Stocks for Beginners

Market Correction: A New List of Value Stocks Just for You

The 2022 stock market has been bearish, with tech stocks being the biggest losers. But tables are turning. It's time…

Read more »

Knowledge concept with quote written on wooden blocks
Stocks for Beginners

3 Reasons Why Inflation Impacts Canadian Stocks

Here are the three most common ways inflation impacts Canadian stocks, why they're selling off, and when you'll want to…

Read more »

Growth from coins
Stocks for Beginners

2 Growth Stocks New Investors Can Buy on the Dip Today

After the recent market correction, many growth stocks look cheap, making it a perfect time for stock market beginners to…

Read more »

Make a choice, path to success, sign
Stocks for Beginners

3 Reasons Cineplex Stock Is a Better Buy Than Air Canada

Although both Air Canada and Cineplex stock are ultra-cheap, here's why the entertainment company is a much better investment.

Read more »

stock data
Stocks for Beginners

Where to Invest $5,000 Amid the Market Selloff

Can you afford to invest $5,000 in stocks right now? If yes, you must consider buying these dirt-cheap stocks amid…

Read more »