Forget Air Canada (TSX:AC) Stock: Buy This Value Stock Instead

Air Canada’s stock price may falter as oil prices soar. Motley Fools, consider Western Forest Products stock; it’s backed by solid fundamentals.

| More on:
Road signs rerouting traffic

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

Air Canada (TSX:AC) stock has been a popular topic for us at Motley Fool. And for good reason. The upside potential that exists as travel reopens is huge. Today, Air Canada’s stock price is still trading at less than half of pre-pandemic levels. But at least it’s survived. Nevertheless, some Motley Fool readers may by looking for a different opportunity — an opportunity with just as much upside potential. Well, I have something for you: Western Forest Products (TSX:WEF) stock.

Air Canada stock may be dead money, as recovery takes longer than investors hope

At this time, Air Canada continues to lose massive amounts of money every quarter. Big uncertainty remains in terms of the future of travel. While flights are slowly resuming, people may remain skeptical for some time. This means that getting back to pre-COVID levels of travel will not happen overnight. Air Canada’s CEO addressed this back in 2020. It will take at least three years for the company to return to 2019 levels of revenue and capacity.

Air Canada stock price

Given this harsh reality, investors should consider a company that’s currently raking in the cash — a company that’s performing well financially and operationally and that also has exposure to a recovery. Western Forest Products is that company.

Western Forest Products stock beats Air Canada on all metrics

Western Forest Products is a major integrated softwood forest products company. It operates in the coastal region of British Columbia. Importantly, the housing market has remained quite buoyant. So, it’s no surprise that Western Forest Products stock is trading 50% higher than pre-pandemic levels. That’s much better than Air Canada’s stock price performance.

Motley Fool Western Forest products stock

The company’s secret is that a big chunk of its revenue comes from its higher-margin specialty lumber. This translates into higher profitability margins for Western. In fact, Western Forest Products is at the top of the pack in terms of profitability in its industry.

Western Forest Products is a cyclical business. These businesses are notorious for losing significant amounts of money in cyclical downturns. But Western has been free cash flow positive in all but one year since 2012. Its future is not as uncertain as Air Canada’s. In Western Forest Products, we have visibility and financial strength. In Air Canada, we have a lack of visibility and financial difficulty.

Air Canada stock faces another hurdle: Soaring oil prices

Lastly, I feel like no discussion about Air Canada is complete without mentioning the soaring price of oil. Currently trading above $70, the price of oil will cut into Air Canada’s profitability. It is, in fact, Air Canada’s most significant operating expense. And this comes at the worst time possible. Air Canada is already struggling financially.

Motley Fool: The bottom line

I understand that Air Canada stock may be a good play on the reopening of economies and travel. But it’s also a risky proposition. Airliners have taken a hit. We don’t know exactly how things will look in our new “normal.” So, Motley Fool investors should consider Western Forest Products stock instead. This stock is an undervalued cash flow machine that should also benefit from a post-pandemic recovery.

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.

Motley Fool contributor Karen Thomas owns shares of Western Forest Products. The Motley Fool recommends WESTERN FOREST PRODUCTS INC.

More on Investing

A stock price graph showing declines
Dividend Stocks

2 Stocks I Own and Will Buy More of if the Stock Market Crashes

Looking for some stocks to buy in the event the stock market crashes? Here are two options I own and…

Read more »

Man data analyze
Dividend Stocks

3 Inflation-Resistant TSX Stocks to Buy Right Now

These inflation fighters will see you through this trying time and could double your portfolio in the next decade!

Read more »

Going against the grain
Energy Stocks

RRSP Investors: 1 Top Contrarian Stock to Buy Now

Here's why this top Canadian energy stock with a high dividend yield looks undervalued and good to buy now for…

Read more »

Investing

3 Growth Stocks That Could Double Your Investments in the Next 3 Years

Given their growth prospects, I am bullish on the following three growth stocks.

Read more »

Canadian Dollars
Dividend Stocks

Passive-Income Investing: How You Can Churn Out $445/Month for the Rest of 2022

Canadians crushed by inflation should look to make big passive income in 2022 with stocks like Freehold Royalties Ltd. (TSX:FRU)…

Read more »

calculate and analyze stock
Dividend Stocks

2 TSX Stocks to Buy With Dividends Yielding More Than 3%

Are you looking for some great income stocks that can provide growth, too? Here are two stellar TSX stocks to…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Dividend Lovers: 3 U.S. Stocks You Haven’t Heard About

Don't just stick to Canadian companies for a great dividend, consider these U.S. stocks you probably haven't even heard of.

Read more »

Happy diverse people together in the park
Investing

Canadians: 3 Top Growth Stocks That Could Make You Rich This Decade

Canadian investors should be eager to snatch up promising growth stocks like goeasy Ltd. (TSX:GSY) in the final weeks of…

Read more »