How to Recoup Losses from Air Canada Stock? 3 Stocks to Consider

Air Canada (TSX:AC) stock is in red as the Omicron variant slows airline recovery. You can recoup AC losses by investing in three stocks.

| More on:
edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.

Image source: Getty Images

Air Canada (TSX:AC) stock is trading close to its post-vaccine support level of $20. The last time it touched this level was in January end when it closed more routes due to the second wave of the pandemic. This time it’s the travel restrictions coming from the Omicron variant. So far, the government has imposed travel restrictions like testing and quarantine on 10 countries and could add more countries depending on the state of the contagion. 

It’s time to recoup losses from Air Canada stock 

Even though the world is more prepared than last time, how much more beating can airline stocks take. The airline industry is living its worst nightmare of the return of the restrictions. While no one knows how big this wave would be, one thing everyone knows is airline shares ain’t recovering anytime soon.

Air Canada is a high-risk share that can go in any direction the wind blows. You need to be an active investor and bold enough to exit when the time is right. After staying bullish on this share for 17 months, I am changing my stance to bear. My original analysis was a recovery from pent-up demand by June 2022, but it seems to be fading. The renewed travel restrictions are delaying the recovery. The more time it takes, the more bruised AC’s balance sheet will be.

Hence, it’s time to book losses and exit Air Canada stock. If you purchased the share for $26, you are 17% in the red. The trick to recoup losses is to invest in opposite shares. As AC is a travel stock, its opposite would be stay-at-home stocks. Here are three such shares.

Descartes Systems 

As a supply chain management company, you might wonder how Descartes is a stay-at-home stock. The answer is e-commerce. In 2020, the company saw a surge in e-commerce orders that more than offset declines from industrial and airline industries. After the March 2020 dip of 29%, Descartes’s share surged 80% in five months. The share has grown at an average annual rate of 20% in five years (2016-2020). But in 2021, it surged 33%, even though it is down 13% from its November high.

The stock will benefit from e-commerce volumes during the pandemic and industrial and airline volumes during recovery. If you are holding Air Canada stock only to break even, you are missing the opportunity to earn 30-35% returns from Descartes. Even after taking a 17% loss on AC, you could be in green by 13-18%. 

Cargojet stock

The cargo airline Cargojet is the exact opposite of Air Canada. When passengers don’t travel, the traffic shifts to goods, especially from e-commerce. In 2020, all goods transmitted through passenger planes moved to cargo planes, increasing Cargojet’s EBITDA by 100% in the quarter ended September 2020. The stock made its steepest climb of 180% between March 20 and November 6, 2020. If there is another lockdown, Cargojet could see a surge in e-commerce volumes that could drive its stock upwards. 

The opposite nature of Air Canada and Cargojet saw the two stocks move in opposite directions in 2021. Between February 1 and March 15, AC stock surged 46% recovering from the second wave, whereas Cargojet stock fell 17%. Between October 28 and November 9, AC stock surged 18.6%, while Cargojet stock fell 4.2%. Having both stocks in your portfolio could balance the volatility of airline stocks. 

Enghouse Systems

Enghouse Systems is a software company that uses the growth-through-acquisition strategy. However, there are rumours that the acquirer is exploring options of getting acquired. However, the sources also say nothing is concrete yet. This rumour has pulled the stock down 12%. 

If Enghouse finds a buyer, it will look for a hefty premium and a deal could pull the stock closer to the acquisition price. Even if it doesn’t find a buyer, a new pandemic wave could bring higher revenue from its video conferencing software like it did in 2020, when the stock more than doubled between March 20 and July 10, 2020. 

In either case, the stock could show some sudden upward movement in the coming months and help you recoup losses from Air Canada. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns and recommends CARGOJET INC. and Enghouse Systems Ltd.

More on Coronavirus

Dad and son having fun outdoor. Healthy living concept
Dividend Stocks

1 Growth Stock Down 15.8% to Buy Right Now

A growth stock is well-positioned to resume its upward momentum in 2024 following its strong financial results and business momentum.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Stocks for Beginners

3 Things About Couche-Tard Stock Every Smart Investor Knows

Couche-tard stock (TSX:ATD) may be up 30% this year, but look at the leadership and history of the stock to…

Read more »

Plane on runway, aircraft
Coronavirus

Can Air Canada Double in 5 Years? Here’s What it Would Take

Air Canada (TSX:AC) stock has gone nowhere since 2020. Can this change?

Read more »

Senior housing
Stocks for Beginners

Home Improvement Stocks Are Set to Fall (When They Do, Buy These Like Crazy!)

Home improvement stocks are due to drop further in the coming months. But with solid underpinnings for the sector, it…

Read more »

An airplane on a runway
Coronavirus

Forget Boeing: Buy This Magnificent Airline Stock Instead

Boeing (NYSE:BA) stock is looking risky right now, but Air Canada (TSX:AC) stock? Much less so.

Read more »

Man considering whether to sell or buy
Stocks for Beginners

Goeasy Stock: Buy, Sell, or Hold?

When it comes to smart buys, goeasy stock (TSX:GSY) is up there as one of the smartest money can buy.…

Read more »

Woman has an idea
Stocks for Beginners

Here’s Why Magna International Is a No-Brainer Value Stock

Magna stock (TSX:MG) has been climbing back once more, but still offers huge value for long-term minded investors.

Read more »

Aircraft wing plane
Coronavirus

1 TSX Stock Down 60% That Could Bounce Back Stronger

Air Canada (TSX:AC) stock got severely beaten down in the March 2020 COVID crash. Here's why it's probably not going…

Read more »