Canadian travel stocks have taken a beating over the last few years. If you've been an investor in those types of Canadian stocks expecting a quick rebound, you've likely been disappointed.
The COVID-19 pandemic has wreaked havoc on the global economy for much longer than many anticipated, and a speculative bet on travel stocks has simply not paid off.
However, as we're seeing wide scale vaccine rollouts and travel restrictions eased, many travel related companies are starting to see revenue recover and can get down to business in terms of repairing their balance sheets and becoming profitable once again.
Travel stocks here in Canada could provide a strong opportunity for outperformance moving forward, and you'll likely want to add the 3 we've got in this article to your watchlist.
I hate to spoil the surprise... but this article does not contain Air Canada stock.
Yes, Air Canada was impacted significantly by the pandemic over the past year or two. However, we'd like to bring to light more opportunities in Canada that might not be as obvious as you'd think.
The top Canadian travel stocks to buy today
Alimentation Couche-Tard (TSX:ATD.B)
Alimentation Couche-Tard (TSE:ATD.B) is not only one of the largest companies in the country and what I would consider to be a blue-chip stock here in Canada, but it is also an underrated and overlooked company when it comes to travel stocks here in Canada.
Couche-Tard is one of the largest convenience store operators in the world, operating under brands like Couche-Tard and Circle K. Although the company does sell things like cigarettes and junk food, the bulk of the company's revenue comes from the sale of fuel, making it a perfect travel related rebound option.
Couche-Tard has proven to be capable of providing strong earnings growth despite global shutdowns. During the midst of the pandemic, the company managed to keep revenue relatively flat while growing earnings. It is safe to say that if Couche-Tard can drive bottom line growth during the midst of a global shutdown, it can do so once life is back to normal.
Flat growth in terms of revenue is expected to continue over the next few years, but analysts are expecting some strong earnings growth from Alimentation Couche-Tard once it gets through current pandemic driven headwinds. Both EBITDA and earnings are expected to grow at a double digit pace annually in 2022, and beyond.
The company does pay dividends, but the yield is relatively small. However, don't let this deter you from investing in Couche-Tard for dividend growth, as the company is one of the fastest dividend growers in Canada. Over the last decade, the company has grown the dividend by more than 600% to go along with a 900% increase to its share price.
Many Couche-Tard bears state the emergence of EV vehicles is going to kill the fuel business. However, Couche-Tard has been on top of this for quite some time. Over the last while, it has been testing charging stations in Norway, and has begun to roll them out in North America as well.
Overall, this is just a blue-chip Canadian travel stock that is no doubt set to benefit from a full economic reopening.
Speaking of exposure to re-opening economies, are you interested in learning about how Canadians can buy US listed stocks in Canadian dollars? Check out our piece on Canadian Depository Receipts.
You may remember when it was possible to invest in Westjet. To get that exposure now you simply have to buy Onex (TSE:ONEX). Why? Onex purchased Westjet in late 2019 in a friendly deal to absorb the company into its outstanding portfolio.
Onex Corporation is a private equity investor and asset management firm. At the time of writing, the company has nearly $39 billion of invested and committed capital and its assets contain or at one point have contained some well known names such as Allison Transmission, Westjet, Tropicana, Spirit Aerosystems, Pure Canadian Gaming, Pinnacle Renewable Energy, and more.
Investing in an asset manager like Onex can be confusing. However the one thing that is for certain, is a sizable number of businesses inside of Onex's portfolio are set to benefit from a recovery in the global economy and the easement of COVID-19 restrictions.
The company does pay a dividend, but it is a non factor. Its yield is only around 0.43% and its payout ratio is around 9.5% of cash flow. An investment in Onex is one that investors seeking capital appreciation should consider, not for passive income.
The company has had a rough go of things since the major market correction in late 2018. It was never able to recover in terms of price, and then the COVID-19 pandemic seemed to give it a knockout punch.
As it stands right now, the company is still relatively undervalued, trading at only 0.77 times book value and around 5.4 times EV/EBITDA. With consistent double-digit returns of capital, Onex management has made it clear they know how to target successful investments.
We've gotten away from the "travel" part of Onex a bit here, but the company is set to ultimately benefit from the potential for when Westjet can begin operating in a normal environment. The company's $5B purchase of the Canadian airline couldn't have come at a worse time. However Westjet has proven to be one of the most efficient airlines in the country, and should help Onex in its post-pandemic recovery.
CAE Inc (TSX:CAE)
CAE Inc (TSE:CAE) is a unique company when it comes to travel stocks here in Canada. That is because although CAE doesn't directly provide the means to travel, it is impacted significantly by the pace of travel around the globe.
That is because this is a company that focuses on delivering training for the civil aviation, defence, security and, healthcare markets. The company also generates revenue from supplying aviation personnel on lease. It's safe to say that the more people that are flying and the more planes that are in the air, CAE stands to benefit.
The company generates the largest portion of its revenue (around one third) from the United States, but operates in a multitude of countries.
Prior to the pandemic, CAE was a pillar of consistency. The company had provided consistent earnings and revenue growth for the better part of a decade, and was a strong dividend payer, and Canadian Dividend Aristocrat.
However, with the global pandemic wreaking havoc on the airline and healthcare industry, annual revenue dipped by more than 20% on a year over year basis and earnings fell by more than 70%.
But make no mistake about it, despite the pandemic impacting this company, it has a strong management team and is set to rebound in a big way. As the pandemic subsides, analysts expect double digit earnings and revenue growth over the next few years. This makes sense as we are seeing many major airlines like Air Canada (TSE:AC) show significant increases in revenue in recent quarters as people once again start to fly.
The only caution we'd share against CAE, and something we're seeing in recent times, is COVID-19 variants causing fears of further shutdowns. Although it is unlikely governments go back to full scale lockdowns, travel restrictions have the chance to rear their ugly heads and cause more short term pressure on the company.
But overall, if you've got some long term conviction, there shouldn't be much doubt in a rebound with CAE. The only question will be the length of time. This is a unique airline stock, one that should rebound in the event of more passengers getting back in the air.