Air Canada is a pretty cheap stock, this fund manager says

Even after hitting a new high this week, Air Canada (Air Canada Stock Quote, Chart TSX:AC) might still have room to grow, says Jim Huang of TIP Wealth Manager, who argues that if you’re going to put money into the cyclical airline business, Air Canada is not a bad bet.

After more than a year of ups and downs, Air Canada is looking to break out, as the stock hit a new high of $29.83 on Thursday and is moving higher as of midday on Friday. The company has been praised for its turnaround over the past half-decade, which has included successful expansion on the global front and the launch of its ultra low-cost airline, Rouge.

The stock finished 2018 exactly where it started, but the first few weeks of 2019 have been a different story as AC’s share price has jumped 26 per cent since December 24, with the stock getting a boost from news that Air Canada would be acquiring the Aeroplan loyalty program from Aimia Inc for $450 million, a deal which was completed earlier this month.

Huang says that while the airlines have a number of pluses going for them at the moment, the good times may not last much longer.

“Clearly, the biggest concern with Air Canada or any other airline is the cyclicality of it,” says Huang, president and portfolio manager for TIP Wealth Manager, to BNN Bloomberg recently. “The economy has been strong and travel has been booming and oil prices have been low, and some of these things are changing for the negative. It’s something to consider when you think about whether or not they’re cheap or will continue to have a lot of growth.”

“Having said that, Air Canada has done well in executing their strategy and in recently buying back their own loyalty program, so there’s some upside there for sure in being able to do that,” he says. “I think that if you look at the airline space, Air Canada is not a bad name to own in terms of valuation and upside when it comes to loyalty programs.”

Air Canada’s last earnings report came at the end of October with the company posting third quarter net income of $645 million, a 63 per cent year-over-year decline which was attributed to rising fuel costs, along with record revenue of $5.415 billion. The company is expected to release its fourth quarter report on February 15.

“Whether or not you should be in the airline space at this point in the cycle, that’s a question that’s difficult to answer,” says Huang. “I would be a little bit cautious on that side, but you’re not paying a lot of multiples [for Air Canada] either, so it’s a bit of a toss-up.”