Is this TSX security a silent killer in your portfolio?


Weak global indices, high unemployment, weak economic activity, rising infections strongly suggest that the stock market may collapse again. With too much uncertainty, the time has come for investors to reshuffle their portfolios by adding quality stocks and reducing exposure to those who can seriously damage their portfolios.

Air Canada (TSX: AC) is one TSX stocks that could turn out to be a bad investment in 2020. Investors should delete this stock of Canadian airlines, even if it trades cheaply. Another stock market crash or the second wave of viruses could prove disastrous for Air Canada stocks and ruin your entire portfolio.

Air Canada shares destroy wealth for investors

At the beginning of this year, we did not know that the coronavirus would prove to be a global pandemic and would cause serious damage to the airline industry. Air Canada’s shares, which peaked at $ 52.71 in mid-January, fell dramatically, destroying a significant portion of investor wealth.

Although Air Canada’s stock has rebounded strongly from its March lows, hoping that the reopening of the economy will help reduce cash consumption, it has still been down about 64% since the start of the year. In addition, the Air Canada equity rally quickly collapsed, indicating that there is even more pain to come.

Losses increase

Air Canada suffers huge losses as its flights remain grounded and have not been operational since March due to house arrest orders and travel restrictions. Air Canada recorded a loss of $ 1.05 billion in the last quarter, reflecting lower revenues and increased liquidity.

The company’s revenues are under pressure as the airline burns money while its planes remain immobilized. Investors should note that the company reported a 16.4% drop in operating revenue, which broke its long (27 quarter) streak of generating positive operating income. In addition, Air Canada’s net cash was $ 688 million in March, which turns out to be $ 22 million every day.

If the resumption of operations should bring some respite, traffic could remain weak. The risk of infection would prevent travelers from flying, which is not a good sign for airlines.

Can Air Canada recover its losses?

Air Canada spares no stone to stay afloat in these difficult times. The company has already raised about $ 5.5 billion since mid-March and plans to save $ 1.1 billion. The company has reduced approximately 20,000 of its employees and permanently eliminated approximately 79 aircraft to increase liquidity.

Air Canada recently suspended 30 regional routes and eight stations at domestic airports in Canada to reduce cash consumption, as the company is expected to travel with limited capacity in the coming quarters.

However, a heavy debt burden, increased cash consumption and the slow recovery may continue to affect Air Canada’s outlook. Earlier this month, Fitch downgraded the Air Canada issuer’s long-term default, anticipating a slow recovery.

In addition, the increasing number of coronavirus cases indicates that traffic may not return to normal levels anytime soon, particularly for business and leisure travel.

The persistent headwinds imply that Air Canada will take a long time to recover its losses and reach its pre-pandemic levels.

While investors should avoid Air Canada stocks, take a look at these stocks instead.

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The crazy contributor Sneha Nahata has no position on any of the titles mentioned.


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