There’s no question that ever since the pandemic began, one of the most popular stocks on the TSX has been Air Canada (TSX:AC), Canada’s flag carrier airline.
Before the pandemic hit, Air Canada traded at more than $50 a share. Meanwhile, today it’s trading at less than half that, so it’s no surprise why the stock has been so popular, as it appears to be cheap, and investors continue to wait for the airline to recover.
With the travel sector rebounding rapidly, many investors believe it should only be a matter of time before Air Canada follows suit.
However, although Air Canada stock appears to be much cheaper than it used to be based on its share price, when you account for all the debt it took on through the pandemic and look at its enterprise value, it’s clear the stock is not as cheap as many believe.
At the end of 2019, just prior to the pandemic, Air Canada had a market cap of roughly $12.8 billion and net debt of roughly $3.5 billion for a total enterprise value of $16.3 billion.
But when the pandemic hit, Air Canada was severely impacted and needed to issue billions in debt as well as dilute shareholders just to raise enough cash to weather the storm.
Fast forward to today, while its share price and, therefore, its market cap is much lower, at just $8.1 billion, its net debt has ballooned to over $7.5 billion, more than double what it was at the end of 2019.
So, although its market cap is down by roughly 37%, and its share price is down more than 50%, its enterprise value is only down by 4%, at roughly $15.7 billion.
Therefore, while Air Canada stock and the entire airline industry are rapidly recovering from the pandemic, the stock is not as cheap as it may appear at first glance.
That’s why rather than buying Air Canada stock today, one stock to buy instead that offers much more value, growth potential, and income in both the near term and longer term is Granite REIT (TSX:GRT.UN).
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Why I’d buy this real estate stock over Air Canada
In addition to the fact that Air Canada stock is not as cheap as it looks, and on top of the fact that it could face headwinds in the near term if the economic environment continues to worsen, Granite REIT is one of the best stocks to buy now due to its attractive business model and the value it offers investors today.
Industrial real estate investment trusts (REITs) are some of the best real estate stocks to invest in right now, as they are highly defensive, make for great dividend stocks and have plenty of growth potential.
In fact, demand for industrial real estate, such as warehouses, continues to grow. And in recent years, that demand has been outpacing new supply, pushing rents higher and helping Granite to see a significant uptick in profitability.
Therefore, the REIT continues to have plenty of growth potential as rents turn over, its development pipeline continues to progress, allowing new assets to come online, and with opportunities to make value-accretive acquisitions.
Furthermore, given its wide range of tenants and its properties diversified across North America as well as parts of Europe, the REIT is highly reliable and defensive, making it ideal for this economic environment.
So, with Granite now offering a dividend yield of roughly 4.1%, and with the REIT having a dividend-growth streak of 12 years, it’s an ideal stock to buy now.
Plus, if you buy the stock today, you can gain exposure while it trades at a forward price-to-funds from operations ratio of 15.2 times, below its three- and five-year averages of 19 times and 18.1 times, respectively.
Therefore, although Air Canada looks like a top value stock to buy now, Granite is a much better investment to buy today.
