Air Canada (AC.TO)

A frustrating stock because it is a good business in a duopoly in a constrained market where the underlying fundamentals are way, way better than the market is perceiving. There are concerns about Western exposure on travel and, as well, people are travelling a lot less. Just posted another record quarter. Trading at half the average of its US peers and the underlying fundamentals are a lot better. Trading at 3X earnings and 3.5-4X EBITDA. Wildly undervalued.

This is a sector he has seen improvement in over the last couple of weeks. It is leveraged to the Canadian economy and so has been an underperformer. He prefers to focus in the US and suggests DAL-N or UAL-N

From a duration time perspective, this is a late cycle, but in interest rates and other things, you could say it is actually early cycle. Most analysts really like this company. It has tremendous upside. Has a great flexible arrangement now with the union and the workforce, and are able to implement changes. Overall this is a compelling story, but one that warrants some caution because the economy and markets are weak. They have a lock on the international, especially long haul transport out of Canada. Wait until we see some direction from government regarding fiscal policy.

A very choppy looking chart. It has an uptrend which has been broken. We are now getting declining highs and declining lows, and that is not good. He would look to see if it finds support at around $5. If it gets there and finds support, and holds it for at least a few weeks, it might be worth trying to catch a bounce, but at this point it is in a downtrend and don’t fight it.

In Canada we like to hate our airlines. It has almost been the inverse of energy prices. A lot of its costs are in CAD$. A long as the price of oil stays low they will continue to benefit.

(Top Pick Feb 17/15, Down 38.08%) He sold about 3-3.5 months ago. The fundamentals have been very good. They are doing all the right things. They are getting swept up into the weaker fundamentals in the industry. If you don’t believe the economy is tanking, then this one is a pretty interesting one to look at.

Such an interesting company, that he almost showed it as a Top Pick today. It is trading down at 2X projected earnings. This is a stock that could have a fast rebound. The earnings, which are close to about $4 per share, are going to enormously enhance the balance sheet, which has been weak. Could be an interesting investment. In a volatile phase right now and could set back a bit more.

It is interesting. When oil first declined, the price moved up, thinking there was some temporary benefit. The price of AC-T has now come lower. It has to do with pricing and capacity. There is always a concern with airlines that they won’t manage the business well. The industry has benefited from consolidations. It is looking more interesting here, but he is waiting for it to make a base.

(Market Call Minute.) The chart looks absolutely horrible. There are also global economy issues.

It just does not seem to be able to get any traction and get a decent valuation. He has never owned it for clients. It just does not inspire confidence to him, although he admits there may be a trade in it.

West Jet (WJA-T) or Air Canada (SC-T)?Has never liked the airline industry because there are just too many variables that can’t be understood easily. If he had to choose one or the other, he thinks it would be this one because it is not as domestically related.

He is not sure about the seasonality, but commented on technicals. Downward trend, underperforming Canadian market and trading below the 20 day moving average. It is trying to form support, but technicals are not lined up for this particular trade at the moment. Summer is the best time for airline stocks.

Likes this airline. It is like kind of a highly leveraged mining stock when you see a recovery in metals prices. Because they have so much baggage with unions and pensions, they are the high leveraged play on lower fuel prices in pick up and growth. The only negative is that Canadians are more indebted and there is the exchange rate problem. Southwest Airlines (LUV-N) is another way to play this. (See Top Picks.)

Seasonally this does well from October, November and December. Seasonality in the US is very different from that in Canada. The chart is showing a descending triangle, which is quite bearish. From a fundamental perspective, the Canadian airlines have increased their capacity down to the sunny destinations, by 9%. He wouldn’t be moving into this at this time.

It is trading at 3 times next year’s earnings. There is a ‘sell Canada’ trend going on. There is concern that their capacity is growing too fast. American carriers are cutting back on international routes because of the strong dollar that turns away international travelers and Air Canada is expanding its international routes.