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.

| More on:

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

holding coins in hand for the future
Dividend Stocks

The 4% Rule Isn’t a Retirement Plan: I’d Build These 3 Income Layers Instead

The 4% rule is a helpful estimate, but a three-layer income plan shows exactly where your next retirement payment comes…

Read more »

construction workers talk on the job site
Stocks for Beginners

Bird Construction Stock: The Infrastructure Play Quietly up 738%

Bird Construction stock has delivered impressive gains. Here’s how its growing project pipeline could support the next phase of infrastructure…

Read more »

senior couple looks at investing statements
Dividend Stocks

Your RRIF Could Trigger an OAS Clawback Before You Feel Wealthy

OAS clawbacks can hit retirees who feel “comfortable,” especially when RRIF withdrawals inflate taxable income.

Read more »

Canada national flag waving in wind on clear day
Stocks for Beginners

Elbows Up: 3 Canadian Stocks That Can Still Thrive Despite Trump’s New Import Rules

These three established Canadian stocks will keep thriving despite Trump’s latest import restrictions and rising trade tensions.

Read more »

Blocks conceptualizing the Registered Retirement Savings Plan
Dividend Stocks

You Spent 30 Years Building an RRSP: Here’s How Not to Waste it in Retirement

An RRSP can become “expensive” in retirement if you wait until 71 and then face large, taxable RRIF withdrawals on…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Want a Million-Dollar TFSA? Start With This Boring Decision

A million-dollar TFSA is more likely built by automatic $7,000 yearly contributions than by one “miracle” stock.

Read more »

resting in a hammock with eyes closed
Dividend Stocks

This Canadian Dividend Stock is for People Who Hate Managing Their Investments

This Canadian dividend stock offers growing steady income, making it ideal for investors who prefer spending less time managing their…

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

The Wealthy Habit That Matters More Than Finding the Next Ten-Bagger

Getting rich doesn’t require finding one ten-bagger if you consistently invest meaningful amounts over decades.

Read more »