Are Airline Stocks a Good Buy in December 2023?

Does the recent broader market recovery make Canadian airline stocks attractive to buy in December 2023? Let’s find out.

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A gradually improving macroeconomic environment with early signs of easing inflationary pressures helped most Canadian stocks rally in November 2023. With this, the main TSX benchmark surged over 7% last month, delivering its best monthly performance in well more than two and half years.

But does the recent market recovery make Canadian airline stocks look attractive to buy in December 2023 to hold for the long term? Let’s discuss that by looking at two top airline stocks in Canada.

Cargojet stock

Cargojet (TSX:CJT) is a Mississauga-headquartered company that operates premium air cargo services across North America. It currently has a market cap of $1.7 billion as its stock trades at $98.38 per share after tanking by 54% in the last three years.

Unlike most other airline companies, the shares of Cargojet witnessed a handsome rally in 2020 as the demand for its premium air cargo services jumped during the COVID-19 phase. As a result, the company registered a strong 37% YoY (year-over-year) jump in its total revenue that year to $668.5 million. However, higher revenues couldn’t translate into higher profits for Cargojet as it reported an adjusted annual net loss of $5.70 per share due mainly to higher costs.

Although Cargojet’s financial growth trends have improved since then, its share prices haven’t seen appreciation as the company continues to struggle due to higher interest rates and a weakness in consumer spending. Nonetheless, as the macroeconomic environment strengthens in the next few years, you can expect its profitability to improve, which could help its share prices recover.

That said, you may still want to be cautious and think twice before investing in CJT stock, especially if you are a conservative investor, as macroeconomic uncertainties may still continue to keep it highly volatile in the short term.

Air Canada stock

For conservative investors who don’t want to take unnecessary risks, the largest Canadian passenger airline company, Air Canada (TSX:AC), could be a better investment option in December 2023, in my opinion. This is primarily because Air Canada’s financial growth trends have witnessed massive improvements in the last year with the help of consistently growing air travel demand. Still, its share prices haven’t yet seen any appreciation from investors, making it look highly undervalued.

At the time of writing, Air Canada has a market cap of $6.3 billion as its stock trades at $17.63 per share with 9.1% year-to-date losses. In fact, the stock is down well more than 60% from its pre-pandemic year 2019’s closing level of $48.51 per share.

In the third quarter of 2023, Air Canada’s total revenue rose 19.2% to $6.3 billion. With the help of strong operational performance and lower aircraft fuel expenses, the company posted adjusted quarterly earnings of $3.41 per share, reflecting massive improvement over its adjusted quarterly earnings of $1.23 per share in the same quarter of the previous year.

As Air Canada continues to focus on expanding its international network, you can expect its financial growth trends to improve further, which should eventually get investors’ attention and lead to a strong rally in its share prices.

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.

The Motley Fool has positions in and recommends Cargojet. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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