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Air Canada has lots of upside left, this fund manager says

Air Canada

Air CanadaIf you want to see what a high return stock looks like, don’t bother turning to the tech giants south of the border. Look up, look waaaay up, and I’ll call Air Canada (Air Canada Stock Quote, Chart, News TSX:AC).

Since bottoming out at less than a dollar about eight years ago, Air Canada has been on an amazing run, proving doubters wrong as the company climbed from bankruptcy protection and an unwieldy debt load towards becoming a money making machine.

How amazing? Last week, AC’s share price hit a high of $52.71, which gave the stock an eight-year return of 5334 per cent.

And Burrows should know the math, as his investment firm, Barometer Capital Management, had the guts to put money on Air Canada during those dismal days.

“We’ve owned the stock since just a little over a dollar,” said Burrows, president and chief investment strategist at Barometer, speaking to BNN Bloomberg last Thursday. “Air Canada is one of our very biggest holdings, it’d be in our top five as a firm and it has been for a really long time.”

The airline’s turnaround has been well trumpeted, especially through comparison with Canada’s number two, WestJet. Whereas the latter has faced headwinds in recent years in the form of labour issues and pains with growing its fleet and expanding internationally, Air Canada seems to be firing on all cylinders, even seemingly shaking off worries over the impact of the grounding of Boeing’s 737 Max 8 aircraft, which currently represents about ten per cent of Air Canada’s fleet.

That impact was felt in the company’s latest quarterly results, delivered in late October, which saw a drop in revenue compared to a year earlier. But the company’s operational excellence was clearly visible in its earnings per share climbing eight per cent year-over-year. The market reacted to the October quarterly numbers by ratcheting the stock higher, with AC climbing 16 per cent over October and November.

It’s the company’s impressive rebuilding during the 2010s that we’re seeing in the share price, said Burrows.

“Air Canada made a lot of really great moves along the way,” said Burrows. “They’ve upgraded their fleet to a very efficient fleet, they’ve added lots of routes and that’s been very helpful. Their purchase of Aeroplan is going to be very accretive [and] it trades at a discount to other airlines and I’m not sure that it should,” Burrows said.

“So, we like the stock and we think that there’s room for them to continue to grow nicely and we think that there’s upside to the expectations of Aeroplan and they’ve made a number of great acquisitions,” he said.

“I’d continue to buy the stock. It is economically sensitive and their planes are full and they’re making lots of money. We’ve owned the stock since just a little over a dollar,” Burrows said.

Last week, Air Canada announced the launch of its first Airbus A220 narrow-body jetliner, with management saying that the 137-seat aircraft will enable the company to offer service to previously less financially viable route options across North America. Air Canada says that it will be acquiring 45 A220s over the next three years.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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