Should You Buy Air Canada or Cargojet Stock Today?

Air Canada (TSX:AC) is a key stock to buy for recovery upside. But should investors buy another aerospace stock right now?

| More on:

Investors coming to the aviation space for the first time have some intriguing options. Air Canada (TSX:AC) has barely been out of the headlines. But is it the best aerospace stock to buy today?

Why buy Air Canada stock?

Need it be said that Air Canada has comeback potential? Earnings recovery could put Air Canada into high-growth stock territory. Add to this the fact that Air Canada is also a wide-moat business. Like it or not, Air Canada is one of those names — like Manulife Financial, Enbridge, and Nutrien — that exemplifies market leadership.

In other words, Air Canada is right where it needs to be in the eventuality of a confident and robust reopening strategy. That’s good for business, but it’s also good for shareholders looking for the lowest-risk comeback stocks. That wide-moat capability technically makes Air Canada deceptively defensive, too. A bailout also isn’t beyond the realms of possibility, either.

While it may not be explicitly stated as such, Air Canada also satisfies some of the time-sensitive cargo criteria that a Cargojet (TSX:CJT) investor might look for. Indeed, Air Canada began muscling in on this space earlier in the year. And why not? Air Canada has some of the capabilities of a cargo company. As such, it could potentially satisfy a buy thesis built around vaccine delivery and infrastructure.

Weighing aerospace stocks

But having touched on Cargojet, let’s briefly run through its stats as an alternative. Cargojet doesn’t command the same industrial space as Air Canada. This is because Cargojet is, well, focused on cargo. However, this does make it relevant to the vaccine infrastructure thesis. A nominal dividend yield 0.44% is on offer, opening up a slight passive-income angle. An estimated payout ratio of 17% by 2023 also hints at dividend growth.

The valuations couldn’t be more different between these two stocks. Cargojet’s P/B ratio 16.6 times book reflects in part the 116% gains the aviator made in the last 12 months. Now look at Air Canada, still in the red by 52% year on year, despite picking up contrarian tailwinds in the last three months. But though Air Canada has soared 50% in that time, its integral value, demarcated by a P/B of four, is still just a quarter of Cargojet’s.

Annual earnings growth in the next one to three years in in the 50% range. From a shareholder point of view, though, Cargojet’s total returns by mid-decade could hit 720%. Air Canada, conversely, is looking at 103% annual earnings growth in the same period. This looks about right, considering the potential spring-back in the commercial flight industrial. But returns for shareholders could be much lower, around 100%.

In summary, these two companies do different things, satisfy different investment strategies, and have different valuations and rewards. As such, while they both look similar at a glance, they could both be held at the same time with less risk of overexposure than might seem likely. Both names are also likely to be buoyed by a vaccine rollout, making for a key pair of stocks to buy for recovery upside.

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 Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CARGOJET INC. and Enbridge. The Motley Fool recommends Nutrien Ltd.

More on Stocks for Beginners

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

Asset Management
Stocks for Beginners

TFSA: 4 Canadian Stocks to Buy and Hold Forever

Thinking about what to buy with the new TFSA contribution space in 2025? These four Canadian stocks are worth holding…

Read more »

concept of real estate evaluation
Stocks for Beginners

2 No-Brainer Real Estate Stocks to Buy Right Now for Less Than $1,000

These two real estate sector-focused stocks have the potential to deliver strong returns on your investments in the coming years.

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »