Air Canada (TSX: AC) had a difficult month in March 2020. Between January 13 and March 19, 2020, the stock price fell 76%. With the announcement of the government’s stimulus package to help keep the economy afloat, the stock market is beginning to recover. Air Canada’s actions also benefit shareholders.
Resurgence or false hope?
In writing, the stock is trading at $ 18.12 and is up 49% from its 52-week low of $ 9.26 from March. Investors who went public in March should be happy see their investment pay off. However, perhaps the worst is yet to come for the country’s largest airline.
With an effective shutdown of operations, Air Canada generates no significant revenue. The company has yet to announce its report for the first quarter of 2020 results. Although the report has not yet been released, it does not take a genius to understand that the numbers will be a mess.
Air Canada’s main operations have closed. While government support has boosted its payroll, the company still refuses to grant refunds. This indicates that Air Canada is facing persistent cash flow problems. The situation can take a horrible turn for Air Canada unless it receives support from a fully-fledged government bailout.
If you are an investor looking for beaten stocks that can provide you with substantial returns with a recovering market, there are better options to consider. To this end, I will discuss today Toronto-Dominion Bank (TSX: TD) (NYSE: TD) stocks.
Toronto-Dominion is the second largest operator in the banking sector in Canada in terms of market capitalization. It has grown faster than its peers over the past decade, thanks to its growing exposure to retail banking in the United States.
Like most banks, TD was one of the stocks hard hit by the initial sales frenzy caused by the COVID-19 pandemic. Between February 20 and March 15, 2020, the stock fell 35% absurd. While this represents a significant drop for the bank, it does not compare to the AC wings which were cut for a 72% dive over the same period.
Canadian banks may not be able to move forward smoothly due to their exposure to precarious mortgages, bad consumer credit, and oil and gas defaults. Yet, the banking sector is more likely to rebound after the current financial crisis, unlike Air Canada. Banks will continue to suffer from COVID-19 and low commodity prices for oil.
There is another factor that puts Canadian banks at greater risk. Toronto-Dominion is safe from this risk compared to its peers.
The large presence of Toronto-Dominion in the US retail banking industry may be useful in the future. It reduces the bank’s exposure to the oil and gas sector relative to other major banks in Canada.
Most Canadian banks are facing difficulties due to mortgage deferrals and poor consumer credit. However, oil and gas loans are a bigger problem for financial institutions due to the oil price war between Russia and Saudi Arabia. Although the situation appears to be resolving, it will have lasting effects on the energy sector in Canada.
TD presents a lower risk than other Canadian banks, making it a safer bet.
There is a rare chance that airline stocks can offer phenomenal returns to shareholders. It depends on the ability of the industry to recover from the current recession. However, there is no guarantee that this will happen. The pandemic will have far-reaching consequences, even after the global recovery.
People may not feel as inclined to travel for pleasure due to potential health crises or because they will work to mitigate the effects of the recession. TD Bank, on the other hand, offers a safer option.
If you have a high risk tolerance, air conditioning may be worth it. If you want lower the risk to your capitalTD could be a safer title to consider.
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