Don’t bet the farm on Air Canada stock, this portfolio manager says

Over the past few years, Air Canada (Air Canada Stock Quote, Chart TSX:AC) has done a bang-up job in turning its business around and the results are now showing in its share price, which is hitting new highs. While there could still be more upside to the stock, says Bruce Murray of The Murray Wealth Group, taking a half position is probably the wisest choice.

Air Canada is up one per cent in midday trading on Tuesday as the stock continues to climb and now sits up 23 per cent year-to-date. Ahead of the company’s quarterly report on Friday, investors are hoping for more good news from management about its ability to control costs where it can, despite the ups and downs in the price of oil.

In late October of last year, AC’s share price rose on the release of the company’s third quarter financials, which while featuring a 63 per cent year-over-year drop in net income due to higher fuel costs nonetheless showed a 3.4 per cent growth in passenger revenue per mile.

With its Q3 report, Air Canada President and CEO Calin Rovinescu underlined his company’s focus on reducing costs, saying, “I am extremely pleased with both our unit revenue performance and our adjusted [cost per available seat mile] results for our all-important third quarter. Strong revenue and cost management substantially offset the challenges we faced in the quarter, principally the significant increase in fuel prices.”

It’s that tiptop form that’s rightly garnering praise for AC, says Murray.

“When I entered the business of railroad stocks, everybody hated to invest in them because they were badly run, they had union problems. Then in the 1990s they got cleaned up and became great investments. The airlines are going through the tag end of that process,” says Murray, CEO of The Murray Wealth Group, in conversation with BNN Bloomberg on Monday.

“The big governments are out of the airlines, the unions are onside now with what’s going on in the businesses,” he says. “We own Air Canada and we like it. When you do the financial work, there’s so much leverage that the stock could go substantially higher.”

“But it is an airline stock so it’s subject to all kinds of rumours, volatility, the price of gas, so I wouldn’t purchase a full position,” Murray says. “I would buy some and if it pulls back on anything, buy it then. If it keeps going up, you’ve got a little bit.”

“I’ve seen targets well into the $40s, but the big part of the run is over,” he says.