Forget Air Canada (TSX:AC): Here’s a Better Way to Bet on an Air Travel Rebound

CAE Inc. (TSX:CAE)(NYSE:CAE) looks safer than Air Canada (TSX:AC) for those looking to bet on a recovery in the air travel industry.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Operating expenses involved with running an airline such as Air Canada (TSX:AC) are exorbitant. During a recession like the one we’re going to find ourselves in, airlines can be uneconomical to run. With a pandemic thrown into the equation, they look like insolvencies just waiting to happen.

That’s a huge reason why many big-league airlines went belly up over the decades despite the rise in passengers. In the age of coronavirus, airlines will be fighting for their lives before their liquidity reserves run dry. In a way, they’re in the race to find a vaccine — and many of them will fail to cross the finish line.

Too many uncertainties for risk-averse investors to justify an investment in Air Canada

With government-mandated travel restrictions that could intermittently be in effect for the duration of this pandemic, it’s tough to tell whether the rate of cash bleed will get any better.

Air Canada may have done a stellar job of reducing capacity, lowering its cash burn, and raising enough liquidity to improve its chances of surviving the coronavirus onslaught, but ultimately, the firm’s fate relies primarily on exogenous factors.

Fortunately, there’s a better way to bet on an air travel rebound that won’t require you to risk your shirt by placing bets across the roulette table on names that you think won’t go bankrupt before the coronavirus is eradicated.

Consider shares of CAE (TSX:CAE)(NYSE:CAE), a Canadian developer of simulation technologies, which include flight simulators, among other training solutions for airline and defence clients.

An airline bet without having to bet on the airlines

Shares of CAE have been clobbered alongside airline stocks amid the coronavirus crisis. Unlike the airline stocks themselves, though, CAE isn’t in a spot to go under should the pandemic drag on longer than expected.

CAE sports a solid liquidity position (around $2.1 billion in liquidity and a 1.17 current ratio) that’s less likely to dry up anytime soon. Moreover, CAE has a defence and health businesses that can help mitigate a considerable amount of the risk brought forth by the weakness in commercial aviation.

Although CAE has its fair share of debt ($2.6 billion worth of total debt as of Q3 2020), the balance sheet remains in a somewhat healthy condition. So, the company doesn’t look to be at risk of insolvency, even in a worst-case scenario with this pandemic, like many airline stocks out there.

At the time of writing, CAE stock trades at 3.1 times book, 2.1 times sales, and 11.7 times EV/EBITDA. The stock may not be as cheap as the airlines themselves, but given that CAE is a “safer” way to play the resurgence of the air travel industry, I’d look to nibble into a position today if you’re looking for a better risk/reward than the likes of an Air Canada.

Foolish takeaway

Whether the air travel recovery takes months, years, or decades to return to pre-pandemic heights, CAE will be around long enough to benefit from the bounce back. The same can’t be said for some of the less-liquid airlines out there.

Should you invest $1,000 in Cae Inc. right now?

Before you buy stock in Cae Inc., consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Cae Inc. wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool 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 Joey Frenette has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Stocks for Beginners

Group of people network together with connected devices
Dividend Stocks

Young Investor? 4 Excellent Starter Stocks for Your TFSA

If you're just starting to invest, then consider these perfect starter stocks for your TFSA.

Read more »

A plant grows from coins.
Stocks for Beginners

Take Full Advantage of Your TFSA: Growth Strategies for 2025

A TFSA is one of the best ways investors can take advantage of long-term growth. So, let's look at how…

Read more »

engineer at wind farm
Dividend Stocks

A Few Years From Now, You’ll Probably Wish You’d Bought This Undervalued Stock

This undervalued stock offers an opportunity that comes along every so often and makes you sit up and take notice.

Read more »

ETF stands for Exchange Traded Fund
Stocks for Beginners

The 3 ETFs I’d Buy With $1,000 and Hold Forever 

Spending time in the market can help you grow with the business. And ETFs offer you a cost-efficient way to…

Read more »

Asset Management
Dividend Stocks

5 Brilliant Growth Stocks to Buy Now and Hold for the Long Term

Long-term investing can be the most rewarding investing, and these five growth stocks are at the top of that list.

Read more »

Canada national flag waving in wind on clear day
Stocks for Beginners

Buy Canadian: Stocks to Defend Your Wealth in a Trade War

As trade war rhetoric stays on the minds of investors, the need for some defensive stocks is bigger than ever.

Read more »

Canadian dollars in a magnifying glass
Stocks for Beginners

If I Could Only Buy and Hold a Single Stock, This Would Be it

If I had to choose only one stock to hold for the next decade, it would be a company with…

Read more »

Hourglass and stock price chart
Dividend Stocks

Outlook for Nutrien Stock in 2025

Nutrien stock has gone through a rough patch, but that could mean there is value to be found.

Read more »