Air Canada (TSX:AC) stock has been back on the descent after hitting some brief summer highs. And with shares going for just $18 and change per share (once again), I think those who seek deep value may have an opportunity to put some money to work in a name that I think will, in due time, sustain gains for a change.
Indeed, if you’ve been a dip-buyer in shares of AC, you’re probably slightly in the red or up by a market-trailing amount. Either way, I think it’s unfair that the name has been punished so severely, even if a Canadian recession still cannot be ruled out for the new year.
Of course, the air travel plays will always be cyclical, choppy, and challenging to hang onto, especially for investors who’ve grown used to scoring a double-digit percentage gain on their investment just weeks after they’ve hit the buy button. Indeed, buying a momentum stock may have more to offer in the way of nearly instant gratification.
However, for those who seek deeper value and are willing to brave the turbulence, I think Air Canada is one of the names you can’t give up on. At the end of the day, it’s Canada’s major airline, and once air travel demand goes back up, there’s no telling how sharply the name could rally after what has been a lost couple of years.
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It’s been a long road to recovery for AC stock, but there’s deep value to be had
As Air Canada looks to heal from the scars of the COVID-era crash, I think investors should continue to be patient with the name, even if it’s destined to be range-bound for another year, if not more. At the time of writing, shares go for 4.67 times trailing price to earnings (P/E) or just over 6.7 times forward P/E.
Such single-digit multiples seem to scream “too good to be true.” Still, I think there’s serious multiple expansion to be had once the tides finally do turn. Of course, the lifting of tariffs and a recovery in Canada’s economic growth could do wonders for the international airline, which might be in for a “pushing forward” of air travel demand.
Indeed, it’s hard to tell when tariffs will be gone and Canada-U.S. relations will really start to improve. Either way, the latest meeting between Canadian PM Mark Carney and U.S. President Donald Trump sounded constructive. However, I’m sure many skeptics were a bit disappointed there wasn’t any big action taken.
Air Canada faces a perfect storm of headwinds
It’s not just tariffs or the questionable consumer environment that’s caused Air Canada to descend after a relatively warm start to the summer. With Air Canada recently slashing its outlook due to the flight attendant strike, it seems like there are way too many headwinds weighing down the airline.
Indeed, strikes, tariffs, and less demand to travel south of the border have all worked against the firm. However, I view these headwinds as transitory in nature. And for investors willing to fasten their seatbelts for the next three years, AC shares look like a terrific bargain.
