1 Cheap Canadian Stock Down 66% to Buy and Hold

Air Canada is down hard from its highs, but the business is still throwing off cash and guiding to higher EBITDA in 2026.

Air Canada (TSX: AC) stock has had quite the ride. It once traded at all-time highs when investors were dreaming big about travel demand, but airlines are never that simple for long, with shares now down 66% from that time. Costs rise, labour issues pop up, and the market gets moody fast.

That is why a stock can fall hard even when the business is still very much alive. In Air Canada’s case, the pullback has made it look a lot more interesting for patient investors who want a cheap Canadian stock with room to recover.

Source: Getty Images

AC

Air Canada stock is still the country’s dominant airline, with passenger service across Canada, the U.S., and international markets, plus Air Canada Cargo, Aeroplan, and vacation operations. That matters because this is not just a bet on one type of traveller. It has several moving parts, and that gives it more ways to earn when travel demand is healthy.

Over the last year, the story has been about leaning harder into international and premium travel. In January, Air Canada said it would expand winter routes to Europe and Latin America, including new Quito service and more flying to places like Copenhagen and Manchester. In February, overseas corporate travel demand had surged nearly 30%, helped by stronger demand to Europe and the Pacific as Canadian travel patterns shifted. That is a useful reminder that this is no longer just a domestic airline story.

There have been a few bumps, too. Labour costs remain a pressure point, as an arbitrator upheld a wage agreement with flight attendants after last year’s disruption. Air Canada is also modernizing its fleet, with Rouge shifting toward an all-Boeing 737 MAX fleet by the end of 2026 and the parent airline ordering new Airbus A350-1000 jets for long-haul growth and fuel efficiency. So yes, this is a business still spending and adjusting, not one sitting still.

Into earnings

The earnings picture looks much better than the stock might suggest. Air Canada reported record 2025 operating revenue of $22.4 billion, operating income of $918 million, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $3.1 billion. It also generated $3.7 billion in operating cash flow and $747 million in free cash flow during the year, while buying back more than $850 million of its own shares. Those are not perfect numbers, but they are strong enough to show the business is still producing real cash.

The fourth quarter was especially encouraging. Q4 net income came in at $296 million, compared with a loss of $644 million a year earlier, while quarterly revenue rose to $5.77 billion from $5.4 billion. That rebound matters because it suggests the company is handling a tougher environment better than many investors might have expected. It also helps explain why management sounded pretty upbeat about 2026.

Valuation is where the case starts to get more interesting. Air Canada stock still looks fairly modest compared with the size of its revenue base and improving profitability. The risk, of course, is that airlines never get a free pass. Fuel, labour, aircraft delivery delays, and economic slowdowns can all hit results. Still, Air Canada expects 2026 adjusted EBITDA of $3.35 billion to $3.75 billion, above or in line with analyst expectations, and plans to grow capacity by 3.5% to 5.5%. For a stock this beaten down, that gives investors a pretty decent setup.

Foolish takeaway

Air Canada stock is not a sleepy stock, and it will never be the easiest name to own. But it is cheap, it is improving, and it still has a leading position in Canadian travel. For investors willing to handle a little turbulence, this looks like one cheap Canadian stock worth buying and holding.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Air Canada. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

a person watches a downward arrow crash through the floor
Dividend Stocks

Got $2,000? 2 Canadian Dividend Stocks I’d Buy Before the Next Market Dip

If you are worried about the next market dip, buy these two dividend stocks with $2,000 to find safety from…

Read more »

happy woman throws cash
Dividend Stocks

5 TSX Dividend Stocks for Steady Cash Flow: What I’d Buy With $5,000

If you are looking for stable and growing income that you can depend on, these TSX dividend stocks are a…

Read more »

The sun sets behind a power source
Dividend Stocks

Taking CPP at 60 Shrinks Your Cheque 36%: This Dividend Stock Helps Bridge the Gap

Fortis can supplement retirement income, but dividend cash and a permanently reduced CPP pension aren't interchangeable.

Read more »

ETF stands for Exchange Traded Fund
Stocks for Beginners

Got $1,000 to Invest? Here Are 3 Ways Canadians Can Start

Learn how Canadians can start investing $1,000 using three low-cost index ETFs for U.S., Canadian, and international stock market exposure.

Read more »

dividend stocks are a good way to earn passive income
Dividend Stocks

The Biggest Myths About Earning Passive Income From Stocks

You cannot get passive income from stocks. I explain why in this article.

Read more »

Concept of multiple streams of income
Dividend Stocks

Hike Bets Just Surged From 30% to 80%: This Insurer Doesn’t Mind at All

Manulife offers a different angle on rising rates, with Asian growth providing a stronger reason to own it.

Read more »

Two seniors walk in the forest
Stocks for Beginners

Don’t Panic About Retirement: Do This Instead

An affordable monthly savings habit can improve a retirement plan substantially, while Dollarama shows why a good business still needs…

Read more »

Investor reading the newspaper
Stocks for Beginners

Steel is Back in the Headlines: This Iron Ore Royalty Pays You to Watch

Labrador Iron Ore Royalty offers a variable dividend, with mine recovery carrying more weight than steel-policy headlines.

Read more »