Air Canada (AC.TO)

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.

If you compare US airlines to Canadian airlines, they have really converged in opposite ways. US airlines have been doing better based on lower energy prices, which is one of their big costs. Canadians haven’t been doing that well and it really comes down to capacity. Both WestJet (WJA-T) and Air Canada have been adding new capacity to the market, at the same time as we are seeing slowing in the economy. As a result, investors are again concerned that airlines are growing capacity too fast for a slowing economy. He is sitting on the sidelines waiting to see how it transpires.

They have done a better job of cost cutting than WJA-T. They have added capacity but their load factors are going up also. You are getting it for a pretty cheap price. The balance sheet is risky so it will be volatile.

Technically, there is encouragement as it is basing out and forming a trading range. It is underperforming the market and close to the 20 day. Momentum indicators are mixed so you can’t make a call on a technical basis. Normally US airlines do well going into Christmas.

No dividend. They did better than West Jet. Certain capacity has been taken off line. They have done very well. There are a lot of dividend investors that could only invest if they paid a dividend. They might attract more investors if they paid a dividend like West Jet.

(Market Call Minute) Cheap. It never seems to do what you think it will do.

Trading at 2.7X earnings that is going to grow earnings by roughly 10% in a country that is a duopoly. Last quarter they had a return on invested capital of about 18%-20%, so they are shrinking the poorer element of the fleet and expanding the fleet to higher profitability areas. Slightly more levered than the average airline, but that is being paid down massively and quickly over the next year or so. Many of their peers are trading at 6X earnings, while this is trading at below 3X earnings.

It is the only industry that collectively has the most bankruptcies and over time really never makes any money. He would never invest in it, but that does not mean you cannot trade it. He would not overweight airlines in his portfolio at this point. He would sell when you get to the top end of the range.

(Top Pick Feb 17/15, Down 4.85%) The fundamentals are far better than they were 8-9 months ago. Their balance sheet is in much better shape, capacity has grown and so has utilization. Weak oil prices are helping them. Everything is looking very good for them.

This is not the company with union issues or with pension issues. They are kicking the behind out of West Jet (WJA-T) on multiple different levels. They are reinvigorating their fleet. Have gotten costs under control. Trading at anywhere from 1 to 2 times discount to other airlines, and yet they’ve got a way better business. Trading at 3X earnings. If it gets to 4X, it would be around a $14 stock.

With all the baggage fees and the secondary fees that the airlines have, this probably goes higher over the next few years. With the debt they have, this company is still very volatile. Sold his holdings. At this point in time, he would prefer Westjet (WJA-T).

The planes are packed. They are making hay while the sun is shining. He hopes they are using cash generated to reduce debt. He says no thank you to this space, however.

Has never been a big fan of any of airlines. This one can be an excellent trade from time to time, but not much more than that. From the summer until just recently there has been a 40% decline, which he just can’t stomach.

It has outperformed West Jet. They came off a very low price from the recession. It is a very cyclical industry. You might see problems if fuel prices go back up as they have not passed on the savings from lower fuel prices to consumers.

This is not a growth stock, so it does not fit into her portfolio. Have done a great job in cutting costs. The stock is ridiculously cheap. If you buy Value, this is probably a good stock to own here. She doesn’t buy Value, she buys Growth.