Air Canada investors shouldn’t be worried about a pullback, this portfolio manager says

So far, Air Canada (Air Canada Stock Quote, Chart TSX:AC) has had a great 2019, with the stock now up almost 28 per cent for the year.

With such a steep rise in price, there’s bound to be a pullback on the horizon, says technical analyst Keith Richards, but shareholders shouldn’t worry, as the stock has loads of support to keep it from falling too far.

Air Canada has come a long way since the early 2000s when the company struggled with its Canadian Airlines merger, ultimately filing for bankruptcy protection in 2003. Its share price reflected the uncertainty surrounding the company, as by 2009 the stock was worth less than a dollar. But a restructuring plan along with a well-carried out expansion has since righted the ship, and by late 2017 AC’s share price had climbed to the mid-$20’s.

Since then, however, the stock had been range-bound for almost a year and a half, up until it started to jump in late December, 2018. And while further upside is hard to gauge, there’s more clarity on how much downside is available, says Richards, analyst and portfolio manager for ValueTrend Wealth, who spoke to BNN Bloomberg last Friday.

“It has broken out. You can see that it was range-bound through half of 2017 and all of 2018 and then all of a sudden, boom. That’s really bullish, it’s fantastic,” says Richards. “Sometimes if there’s a very steep angle of ascent you tend to get an opposite reaction because it becomes overbought. So maybe Air Canada might pull back a bit.”

AC began its climb from a low of $23.50 on December 24 and by February 19 it had reached a high of $33.92 per share.

“The fact that it has broken out says that it’s likely that if it does pull back, it’ll pull back to its breakout point which we call the neckline,” he says. “It’s hard for me to see what that price might be but it will probably be something like $29 or $30. I think that if it pulls back to that, it can stay there; you’re perfectly safe in the stock.”

Of the analysts covering Air Canada, currently there are 14 Buy ratings, two Holds and no Sells, with an average 12-month target price of $39.36.