Most investors have a love-hate relationship with market crashes. A market crash has the potential to decimate investors’ existing portfolios, and it also offers amazing value and growth opportunities. Stocks that are usually too expensive to buy become accessible during a market crash.
Recovery stocks are another great by-product of market crashes, and for the 2020 crash, Air Canada (TSX:AC) was considered the ultimate recovery stock. Not only did it fall to amazing depths during the crash, as one of the most coveted pre-crash growth stocks, but many investors were also sure that its comeback/recovery would be just as impressive.
But it has been more than a year since the crash, and even the fear of pandemic is evaporating. The company is still years away from recovering from its financial slump, and that’s reflecting in the stock’s recovery as well. So, if you want to diversify your “recovery stock” options, there are two stocks that should be on your radar.
A tour operator company
The Montreal-based tour operator Transat (TSX:TRZ), while not exactly a competitor to Air Canada, experienced a slump similar to the country’s premier airline. Its fall was not as sharp as Air Canada’s, but the stock did fall over 76% between February and October 2020.
Air Canada was about to acquire the company, but the deal didn’t go through, partly because the European Commission was reluctant to let Air Canada go through such aggressive consolidation and partly because of the market conditions.
Transat got a sweet bailout package, which allowed the company to borrow up to $700 million, which is still significantly less than its debt but almost 2.6 times its current market capitalization. The stock experienced a surge in the last 30 days and grew about 54%. If the momentum continues and takes the company to higher than its pre-crash valuation, it might help you reach your recovery-stock goals faster than Air Canada.
A former aristocrat
Cineplex (TSX:CGX) was one of the several companies (and a handful of aristocrats) that suspended dividends in 2020. And it did that even before COVID fully materialized and decimated the market. As a cinema company, it was already experiencing the demise of the silver screen, thanks to the popularity of streaming services.
But the cinema is not truly dead yet, and there are two reasons you might consider buying this stock for its growth potential. One reason is that, like AMC, it might become the next meme stock, and if you can enter at the right time and take advantage of the short squeeze, it might have the potential to grow your capital quite aggressively. The other reason is that with the return of travel and tourism, the big screens might see a revival as well (at least temporarily).
Air Canada has taught us that you can’t rely on recovery stocks for your short-term growth goals. A relatively more reliable (albeit riskier) alternative would be aggressive or cyclical growth stocks. Both Cineplex and Transat might go through an aggressive growth phase before 2021 ends, but that is tied quite tightly with pre-pandemic nostalgia and people craving normalcy, which is likely to be a temporary phenomenon.
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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends CINEPLEX INC.