Air Canada Stock – Better Buy: Air Canada vs. American Airlines
The core business of airlines has taken a beating due to the pandemic. That much investors already know. Much of this decline is already priced into airlines such as Air Canada (TSX:AC), American Airlines ((NASDAQ:(AAL))).
However, as we come out of the pandemic, investors might wonder which company to focus on. The question of whether Canadian or American Airlines will outperform coming out of this mess is an intriguing one. Let’s dive into this discussion a bit more.
The U.S. is miles ahead of Canada in terms of vaccine rollout
Perhaps the biggest catalyst buoying airlines stocks right now is the idea the economy will reopen soon. Accordingly, significant attention is being paid to vaccine rollouts for these companies at present.
The U.S. is much further ahead in this regard. Yes, Canada is catching up and increasing its rate of vaccinations. However, the large head-start the U.S. has in this regard could result in a reopening much sooner than in Canada.
Indeed, the U.S. is speeding towards an economic reopening. If the country is able to break the shackles of the pandemic-related restrictions, airlines could once again take off. One might argue these stocks already have, judging by their performance in recent months.
As normalcy becomes restored, domestic U.S. travel is expected to boom. International travel may be a bit more tricky for both American Airlines and Air Canada. There’s still no consensus on how international travel will look this year or next. Thus, for now, domestic travel appears to be the key focus of investors. And in this regard, American Airlines looks to be the better pick.
On the flip side, the situation here in Canada does not look as good. The country is being hit hard by a third COVID-19 wave. Accordingly, the government is imposing stricter restrictions, and it remains to be seen when restrictions will begin to be lifted.
Simply put, I see more transparency toward the end of the pandemic in the U.S. right now. On this metric alone, I think investors may be better suited looking south of the border for airline exposure right now.
Air Canada has traditionally had better fundamentals in comparison to the American peers. This has been the case for a variety of reasons. However, I expect this gap to continue, particularly over the near to medium term.
I think U.S. airlines deserve a higher multiple right now due to the growth prospects in the U.S. relative to Canada. Until we get more clarity with respect to the pandemic reopening timeline domestically, I’d stick to international options right now.
Air Canada’s a great company, but every stock needs to be measured in relation to their peers. On that basis, I’d look at other options right now.
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Before you consider Air Canada, you may want to hear this.
Fintech Zoom Canadian Chief Investment Advisor, Iain Butler, and his Stock Advisor Canada team just revealed what they believe are the 10 best stocks for investors to buy right now… and Air Canada wasn’t one of them.
The online investing service they’ve run since 2013, Fintech Zoom Stock Advisor Canada, has beaten the stock market by over 3X. And right now, they think there are 10 stocks that are better buys.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Fintech Zoom premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Chris MacDonald has no position in any of the stocks mentioned.