1 Airline Stock to Buy Now and 1 to Sell

Here’s why investors need to remain bullish on Cargojet but should view Boeing as a high-risk investment.

| More on:

The airline industry was decimated with the onset of COVID-19. Over the last two years, most airline companies had to raise debt capital to offset cash-burn rates amid economic lockdowns and travel bans all around the world. While infection rates are still rising in certain parts of the world, several countries have relaxed COVID-19 measures and are limping back to normalcy.

Despite pent-up demand for travel and the reopening of borders, not every airline stock is a buy. Here, we’ll analyze why Cargojet (TSX:CJT) should be on your shopping list and why Boeing (NYSE:BA) is a high-risk bet.

Boeing

Yesterday, shares of Boeing slumped by 3.6% after the company’s 737-800 aircraft crashed in China with 132 passengers on board. Surveillance camera footage suggests the aircraft nosedived into the mountainous Guangxi region before crashing, raising concerns over Boeing’s safety mechanisms.

Investors should note that several countries grounded Boeing’s 737 MAX aircraft for close to 18 months after two crashes occurred in 2019. Further, the production of other Boeing airplanes was also curtailed to focus on additional safety checks. While the 737-800 model is different from the MAX, every airline crash will bring safety regulations into focus.

It has been a difficult three years for Boeing investors, as shares have plunged by 48% since March 2019. Sales were first impacted by the issues related to 737 MAX and then slumped due to tepid demand following COVID-19, as airline carriers scaled back flying.

Boeing reported sales of US$14.8 billion in Q4 compared to US$15.3 billion in the year-ago period. In Q4 of 2018, the company reported sales of US$28 billion. We can see why BA stock has grossly underperformed the broader markets in the last three years.

The company ended 2021 with net debt of US$40 billion, compared to $35 billion in 2018. However, it will be difficult for Boeing to reduce its debt for another two years given the uncertainties surrounding the airline industry.

Cargojet

One of the top-performing airline stocks, Cargojet has returned 2,360% to investors in the last 10 years. Despite its stellar returns, Cargojet stock is down 34% from all-time highs, valuing the company at a market cap of $2.79 billion.

Cargojet provides overnight air cargo services in Canada. These services include the operation of domestic air cargo network services between 14 cities in North America, and the provision of dedicated aircraft to customers on an ACMI (aircraft, crew, maintenance, and insurance) basis. It ended 2021 with an operating fleet of 31 aircraft.

It’s the only Canadian network that enables next-day service for the courier industry to 90% of the country’s population, which is a strong competitive advantage. Cargojet’s long-term customer contracts as well as minimum revenue guarantees and cost passthroughs allow provisions for increases in variable cost overheads.

Cargojet has increased sales from $455 million in 2018 to $758 million in 2021. Analysts expect sales to increase by 16% to $880 million in 2022 and by 8.2% to $952 million in 2023. Due to an inflationary environment and higher fuel prices, Bay Street expects adjusted earnings to fall by 31% to $6.51 per share in 2022.

Analysts tracking CJT stock expect it to gain 46% in the next 12 months, given consensus price target estimates.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns and recommends CARGOJET INC.

More on Investing

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

money goes up and down in balance
Investing

Unveiled: 2 Must-Watch Stocks for Your TFSA Before 2025

Value-conscious TFSA investors should consider Bank of Nova Scotia (TSX:BNS) and another great dividend pick.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »

how to save money
Dividend Stocks

Got $1,000? The 3 Best Canadian Stocks to Buy Right Now

If you're looking for some cash flow from your $1,000 investment, these are the ideal investments to make.

Read more »

Data center servers IT workers
Tech Stocks

Better Buy: Shopify Stock or Constellation Software?

Let's dive into whether Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) are the better options for growth investors in this current…

Read more »