Air Canada (AC.TO)

Sell? If you’ve got a profit from an airline, it is never wrong to lock some of it in. There are so many things that an airline can’t control, such as the number of people flying, the price they pay, jet fuel prices, etc. At least, take your original cost out.

Has done phenomenally well over the last 1.5 years. We are starting to see real efficiencies in the business. This airline has an investor day coming up next week, and most analysts are expecting they are going to have some type of announcement about some innovative business they are going to do. The stock is reasonably valued, and technically it is very strong. He is continuing to hold this.

Hurricanes cause a disruption of services, but it is going to be temporary. You have to look at the bigger picture. Airlines appear to be facing more and more competition. Has always been wary of airline stocks as you are dealing with extremely expensive aircraft and largely unionized employees and a very competitive environment for price setting. Airlines have had a good run over the last while, and if he owned any, he would be taking profits.

The stronger Cdn$ means operational costs are less expensive. He has a real bias against airlines, simply because he has seen so many fade away. Considers them a little too risky for the portfolios he manages. Not sure what all this crazy weather is going to do. He is also a believer that energy costs are probably at a bottom here and will be edging their way up over the next year or so.

Buy, Sell or Hold? There is kind of a question mark to the stock. First of all, based on current earnings forecasts, there is a huge upside potential still ahead. The industry is as cyclical as the dickens when you get very high valuations on a Price to Book basis. This one is trading at about 3X its BV. The long-term peak on the stock has been 2X. Historically this tends to be dragged down again to its typical level. The issue with Air Canada is that their balance sheet is okay, but it isn’t fantastic. When they have got an extraordinarily high P/B ratio, they should be raising all the equity they can possibly get. They should build up their fortress and get ready. If you own, have a Stop/Loss of about $20.

It has been a great stock to own the last couple of years. He had pledged not to own any airline years ago, but fell off the wagon this year and bought Delta. The airline industry has changed. There are only 4 big carriers left in North America. They charge you for everything. The airlines have finally figured out how to make money. They have low fuel prices. As the middle class rebuilds its balance sheet there is more travel going on. Travel is a lifestyle choice, spending money on it rather than on cars.

You should never own airlines for the long term. They are extremely cyclical industries. They have done a wonderful job of taking costs out of their operations. AC-T had a huge run and he does not know how long it will continue.

He’s been in business a long time and has seen a number of airlines disappear, so is very nervous about investing in them. When fuel costs are low and the economy is doing okay, airlines do well, but if things turn a little negative they are one of the first ones to suffer.

Airlines are stocks that you want to rent, not own. They are notoriously volatile. You have seen the good side of the volatility, but the question is, what can it do to continue. What is out there that we don’t know? Everything seems to be hitting right in this company’s case, but you are working with margins that are very thin, and if anything bad happens, down it goes.

Not an industry she typically invests in. The stock has done quite well. If you want to enter the stock, wait for a lower price point.

It is a cyclical stock. It is benefiting from a dramatic increase in passenger traffic. We have low fuel prices and the US dollar both benefitting them. He thinks they will issue a surprise dividend at their investor day in September. (Analysts’ target: $20.50).

It is too hot for him, trading near historical highs. He does not like buying stocks near historical highs. It has heavy debt load. Buffet has bought into US airlines after swearing he would never do it. The guest prefers Air Tranasat, which he owns. It is more interesting.

They are taking their frequent flyer program in-house. He thinks they are due for a breather and so it is a hold.

(A Top Pick April 26/16. Up 63%.) *LONG* (Pairs trade with a Short on Air Transat (TRZ-T). This trade is driven more by the Short side than the Long side. He would continue with this position.

This has moved up a lot since last fall. There were 2 things to consider. Last year was their largest year for CapX with $3 billion. That is now going to come down meaning their cash flow is going to increase and they are going to start paying down debt, allowing the valuation level to move on to a higher level to their peers. It is still trading at 5X this year’s earnings and 4X next year’s, much lower than the US peer group. It had a big jump since last fall, so maybe it’s due for a breather.