Air Canada (AC.TO)

The number of airlines is decreasing in North America. So eventually, somebody has to be #1, and that is part of the bullish story. This is pretty fully valued. Have a lot of leverage to the Cdn$ and are purchasing crude oil in US$s. Its biggest input costs are labour. The big drop in the Cdn$ is a huge boost for the profitability of oil/gas companies in Canada, so if you own this, as a hedge, you might want to buy an oil company as well.

Doesn’t like airlines. Too many issues. One of the things that has helped this airline is that fuel prices came down and they have had some really good pricing power. Feel there are more headwinds coming with a weaker Cdn$. Also, expects oil prices will go higher which will be another headwind. Their ability to push up prices is probably getting to its limit.

(A Top Pick Oct 16/13. Up 77.56%.) Trades at 5X next year’s earnings and continue to grow their earnings at a pretty substantial rate. Economy is improving and they are adding new international routes for the business travel and their jets are more efficient. Increasing revenues and at the same time decreasing costs.

(Market Call Minute.) Feels that plane has taken off and if you missed it, you’ve missed it.

Transportation industry tends to gain from October through to December, around the US Thanksgiving period. This had a tremendous run during the seasonal timeframe. This is the period when it tends to pull back a bit. The end of February through to May is the next period of seasonal strength you want to get in. If you get weakness between now and then, you could pick it up.

Currently Short this company. He can see a rotation of recent winners into losers in the market. Every time this one has a run, it seems like the unions start to call for more and more share of the profits. Company has done fantastic in terms of its rebound. He is seeing 2 things. 1.) A lot of capacity additions, in Canada in particular and expects this will continue. This tends to bring down some of the utilization numbers of the airlines. 2.) Thinks the unions will be back. Expects this to be an underperformer in the sector.

Has never been involved in the airline sector and historically has never liked it. However this one has done very well along with all of the other airlines. The improving economy is going to help. Besides that they have done a great job in charging for everything. If the Cdn$ continues to depreciate, a lot of their costs are US$ based. Thinks oil is going to go higher because of the way economy, which may affect their cost structure. If you own, he would suggest you consider taking some off the table and wait for a pullback.

(Market Call Minute.) Would rather own Chorus Aviation (CHR.B-T), which has a better payout.

Looking back at when the US airlines got restructured and Delta went from $2 to $30. All those people that sold it at $8 were kicking themselves a few years later. In the next couple of years, she thinks this company could be $30. They are negotiating the pension deficit right now. If they can get that down by another billion dollars, it will be hugely positive for the stock. Working with airport authorities to bring revenues, that are not flight related such as restaurants, etc., to improve the profitability in order to bring down landing fees.

(Market call minute.) Has been his best stock this year. In nosebleed territory. Thinks it will go higher.

Only holds the debt. No dividend and no track record that he is comfortable with. He has the 2019 bond. Airlines are still a cyclical business. 270% increase in the stock in the last year. 6 Billion in Debt and 1.5 Billion in stock equity. It is too hard for him to predict airline profits.

Feels that all the good news has been priced into the stock already. He is not a huge fan of the airline industry. It is a high fixed cost industry.

Chart shows a near vertical rise from the middle of this year. Probably a couple of support levels at around $6.50 and $5 with $4 being a very key one.

Airlines is something that he has never owned. They are more of a trading vehicle. Expect that short-term earnings for this company will be very reasonable. If you have an opportunity to make a couple of extra bucks, he would do that and be out

(Market Call Minute.) They continue to expand their routes. Their seat miles are pretty good. Pension liabilities have gotten a lot better over the last year.