Air Canada (AC.TO)

More capital has been destroyed by the airline business than by any other business in history. There are times to own them--as trades, not as long-term investments. Demand and fuel costs are the primary impacts on airline stock prices. Demand is good now, but fuel costs are rising, which will become a big negative. In addition, as demand rises, airlines add routes, cut fares, and wipe out their profits. This is a cyclical business. It is best to own an airline that is disciplined, when demand is good and when oil prices are coming down.

He likes it. The airline industry has become more efficient and load factors are higher. They are more disciplined about adding too much capacity. They are taking share from WJA-T. They repurchased the rewards program. They have very smart managers.

He shorted the stock recently. Not cheap on a debt-adjusted basis. High debt. Sure, a lot of capacity last year, but their profit ratios are lower than U.S. airlines. Headwinds are rising oil prices and the weak Canadian dollar. They've had a
tremendous run in this cycle, though.

Incredible turnaround. Demand is so strong, they’ve shown they can pass on costs. As long as Canadian and NA economies continue to do well, getting close to inflection point for the stock. Great job growing international traffic. Crazy low valuation. Yield is 0%. (Analysts’ price target is $32.77.)

In a good position. Canada is a diverse country, with immigration from everywhere, and a lot more direct flights globally than before. The new fuel-efficient planes are extremely profitable. Getting more domestic competition. Buy it in low 20s for sure. At $24, a good chance of seeing it in high 20s or low 30s in 12-18 months.