Air Canada (AC.TO)

Doesn’t own airlines, because he always felt it was a difficult sector. Too many variables that can hurt the stock. This has done well over the last little while, better than in the past. If he were going to look at an airline, it would probably be Westjet (WJA-T), because Calgary and oil are slowly getting better. These are hard stocks to own, and he would suggest you use them as a trade, rather than a hold for the long-term.

The airline industry is not a great place to put money to work for a longer-term. However, the market structure for the airline industry in Canada has changed for the good of solid operators, and this airline is definitely one of them. Operationally they’ve delivered tremendous results over the last several years. Thinks there will be more upside as it continues to deliver solid results along with an organic growth rate. Current multiples are really depressed. If it continues as it has, he can see this at $17-$18.

They have their pilots and the tail end crew under contract for years to come, and it doesn’t look like there is going to be any fuel shocks. He keeps waiting for them to stumble, but they don’t. Management has done a fantastic job in turning the company around, and getting so much more efficient; the operations, fleet management, etc. On a valuation basis, it is only trading at about 5X earnings and 3X Enterprise Value to EBITDA. If it could show a little more consistency in earnings growth going forward, it could probably have a higher multiple attributed to it. Thinks there is still a lot of potential upside, but it is an airline stock and it is always going to be volatile.

The seasonality for this depends upon when they are using their planes most frequently. That would be Christmas time and summertime. The chart shows this is currently in an upward trend. It has been lagging a little relative to the market during the last 2-3 weeks, but that is not unusual. If you own the stock, you may want to wait until the next period of seasonal strength, around March, for a seasonal trade right through until June.

It is time to recommend this one. It has great price momentum and the valuation is cheap – 4 times PE. It beat on a decent quarter. The challenge has been their debt load, but it seems they can now leverage their balance sheet. Discipline has come back into the trade.

Has always been leery about the airline sector. It has been a graveyard for investors over the last 100 years. Because he runs Long and Short strategies, he has had a couple of compelling ideas on the Short side, namely Westjet (WJA-T) and Transat (TRZ-T). Because of that, he has taken a Long position in Air Canada. This is because he wants to take out industry specific risks. If jet fuel prices go up, it affects Westjet and Air Canada. One of the benefits of Air Canada is that there is going to be a new ultra low cost airline come into Canada, which will disproportionately impact Westjet and probably Transat as well. Doesn’t feel Air Canada is a good long term holding, especially if oil prices start rising. This would be a trade at best.

Airlines are so volatile. He played it around $7.50 and made around 20% on it. It looks cheap and always does but the fundamentals are very strong. The balance sheet is getting better and a lot of capacity has been brought on.

He is not a fan of airlines, especially with an oligopoly that Canada has with this one and West Jet. His issue is that they make their money on international routes, but don’t do it domestically because there are not enough passengers. They want to move to Rouge which is really going to cut costs, but is going to upset the customers.

After years of bad experience with the airlines, he is always very careful about that area. This has had a good run. If oil and the price of fuel goes up, that is a significant factor. He doesn’t see a lot of upside from here.

Has had about a 40% run up in the last 6 weeks. He has always felt that by the end of the decade this could be a $20 stock. 2016 is going to be the year of maximum capital expenditures on new planes. From here on, their capital expenditures are going to fall off, and they are going to be able to tackle what is keeping their P/E ratio down at 3 to 4 times their massive debt load. As they pay down their debt load, their P/E ratio should rise from 3, to 4 levels, more in line with their peers. Given how much the stock has run up since September, it is probably due for a breather.

He would not touch this thing. It has negative equity. It is a speculation. This is a very volatile and speculative situation.

Just had a very good report today, and the stock took a big pop. Seasonality is normally very positive at this time of year, through to at least the end of November. On occasion, this can extend to the beginning of January. This is because they give a lot of reservations leading into Christmas. Technically, the stock is in gear. It is looking very, very good. You want to take profits in the 1^st week of January, because then things slow down.

Just got its foreign ownership extended to 49%. That is going to be a very interesting factor in the airline business. He has a very hard time investing in airlines. Dislikes capital intensive, highly unionized, cyclical businesses, where margins come and go with fuel costs. He would be a little wary.

This has had a big run, so he would caution you not to run out and buy it today. They have really transformed themselves. They’ve reduced their financial leverage and improved their pension funding position. Have expanded their capacity considerably, particularly on international routes. A much more efficient network of planes today. As that CapX spending tails off over the next couple of years, they are going to generate an immense amount of free cash flow.

Usually airline stocks do very well as you get close to the end of the year. A lot of people go south, and the airlines pick up traffic on that route. Also, it is Christmas time and the airlines are packed at that time. Chart shows it has formed a nice upward trend and recently broke to a new high. It is outperforming the market and relative strength is positive. You probably want to take good profits sometime in January.