Air Canada (AC.TO)

This is a stock he owns and recommended as a previous top pick this year. Feels that investors are focused too much are negative and aren't looking at the positive. Mixed reviews, but earnings were up and there was some good news. Because they have benefited so much from the things that they can't control (cost of oil, drop in loonie) investors have been punishing the stock. He recommends being a little bit cautious right now. If we are going into a recession right now, this stock will take a hit.

They have done a good job of bringing their costs down, adding capacity and keeping their load factors up. Their biggest risk is the Canadian dollar in its impact on travel. They would be the better airline to own.

Their July load factor caused the stock to go up. There was a huge base at about $1.50. We now have an ascending triangle. We have a series of higher highs and higher lows. He questions if there is any growth left in the stock. If it makes a new high then perhaps you can buy it but if it breaks the lower trend line then get out of it.

There are so many variables that affect what their business does such as energy, general economy and the competitive fare environment. An interesting name in the $12 region because he thinks energy costs will remain low for a while and that the competitive environment domestically is very favourable for them. One caveat is that international fares are seeing a lot of pressure. He is still looking at this. On balance he is more optimistically inclined.

Fuel prices are lower, interest rates are low and the US$ side of things are all positive. Low oil prices have a double effect giving cheaper input costs as well as allowing consumers to spend more. Seems like the airlines have tailwinds and that can be a good thing.

WestJet (WJA-T) or Air Canada (AC-T)? She doesn’t own either, and typically does not invest in airlines because they are so cyclical. Lower crude prices should reduce their fuel costs, which they are not passing on to consumers. She feels WestJet is generally a better overall operator, but they recently came out with a profit warning.

It is in an upward trend on a longer term basis. Seasonally, it goes higher October to December of each year based on winter vacations. Technicals are okay.

It had a run. More people have lost money in US airline stocks than any other sector. This has gone from a turnaround into potentially a sustainable growth story. They have pensions under control, out of a deficit, and they have their investment in Rouge Airline. The other big win is international traffic. He believes their earnings are sustainable. The story is more compelling that for WJA-T.

(Market Call Minute.) She does not buy airlines. Has had a really good run and she would be inclined to take profits.

He really likes it. It is a huge win for his small cap fund. Every flight is full. Their load factor is really good. They are stealing business away from West Jet. Every dollar in this business is highly accretive. There is perception that they have high debt and pension issues, but these issues have been fixed. PE is 4 and revenue is up. It looks really cheap. It is very underowned in most small cap funds.

He tends not to like capital intensive businesses with a huge labour content, so he generally does not invest in airlines. Has been a great stock over the last year or 2 and have been benefiting particularly from lower fuel prices. Also, airlines seem to find more and more ways to charge for baggage, etc. The whole airline industry tends to be either feast or famine, and when they come off, they come off very quickly.

Expects there are a lot of investors and institutions that still think this is the old Air Canada that is just going to go bankrupt again. If they ever change their mind, a lot of buyers will come into this name and take it a lot higher. Also, Rouge is very interesting and will help the company and their margins. Not necessarily a long term hold, but feels you can squeeze a nice trade out of it over the next 12 months.

The company has done extremely well. Now that the oil price has rebounded, it is not quite as positive as it was. However, there seems to be reasonable discipline within the company. Ranks in the top 15% of his database. Earnings are expected to grow quite significantly in 2016 from $1.33 to $3.60 giving a PE multiple of 3.5X. Thinks there is a pretty good opportunity for this stock over the next 12 months.

It looks cheap on a price earnings basis. You would think they benefit from low oil prices, but it simply does not rate in his rating system. You can never talk him into holding an airline stock. He does hold WJA-T, however and it has been a good investment.

Airlines have done a tremendous job of squeezing money out of passengers. The question is, how far does it go before passengers revolt. He isn’t crazy about airlines because there is too much they can’t control, such as fuel prices, labour costs and load factors. If he wanted to own an airline, it would be this one rather than Westjet (WJA-T).