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Air Canada (TSX:AC) Is a Scary Investment – The Motley Fool Canada

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Air Canada (TSX:AC) Is a Scary Investment – The Motley Fool Canada


No less than a year ago, most investors viewed Air Canada (TSX:AC) as one of the best investments on the market. There was a good reason for that position. Air Canada was one of the best-performing stocks on the market with double-digit (and sometimes triple-digit) growth spanning back years. The company was renewing its fleet, adding new routes and profitable. Unfortunately, that’s all changed now. To be blunt, Air Canada is a scary investment, and not just on Halloween!

Old fears are returning

More than a decade ago, Warren Buffett famously commented on airlines. He alluded to their high costs and specialized needs, which continued to plague the industry. That position eventually gave way to the Oracle of Omaha investing heavily in several airlines. Once 2020 rolled around, he exited that position and has moved on to another intriguing segment.

Nobody can argue that 2020 hasn’t been an absolute disaster for the airline industry. Many of us may struggle to recall the segment prior to the onset of the COVID-19 pandemic, but it was already in decline. Remember the 737-max fiasco? In case you’re wondering, the plane is still grounded, and the FAA last month was calling for design changes to be made before the jet is reintroduced to passenger service. Air Canada has 24 737-Max aircraft in its fleet.

In other words, it could be at least a year before the airline is flying its max fleet again, and several years before the full impact of the pandemic is behind us. That’s also assuming that international governments open their airports to passenger travel, too. The uncertainty around the next two years alone makes Air Canada one scary investment.

Air Canada is a scary investment, but for how long?

To be clear, Air Canada is still operating during the pandemic, just on a reduced schedule with lower passenger volumes. This doesn’t bode well for results that continue to be anything but stellar.

In the most recent quarter, Air Canada moved just 4% of the passengers than it did in the prior quarter. That was the contributing factor in the airline posting a whopping $1.7 billion loss. The loss only adds to the $1.1 billion reported in the prior quarter this past spring. Fortunately, Air Canada still has the liquidity to weather this current storm.

To be clear, there’s little reason to doubt that the pandemic won’t end within the next year and that the worldwide economy (including air travel) will resume again. Air Canada has been through challenging times before, and it will continue to persevere. It’s just that based on the current market conditions, there are far better options on the market at the moment for investors. (even within the airline industry).

In other words, unless you’ve already backed up the truck on Air Canada and are holding on for the recovery, there are far better investments that are a lot less scary to be had.

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More China coal investments overseas cancelled than commissioned since 2017

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EU, U.S. agree to talk on carbon border tariff

More China-invested overseas coal-fired power capacity was cancelled than commissioned since 2017, research showed on Wednesday, highlighting the obstacles facing the industry as countries work to reduce carbon emissions.

The Centre for Research on Energy and Clean Air (CREA) said that the amount of capacity shelved or cancelled since 2017 was 4.5 times higher than the amount that went into construction over the period.

Coal-fired power is one of the biggest sources of climate-warming carbon dioxide emissions, and the wave of cancellations also reflects rising concerns about the sector’s long-term economic competitiveness.

Since 2016, the top 10 banks involved in global coal financing were all Chinese, and around 12% of all coal plants operating outside of China can be linked to Chinese banks, utilities, equipment manufacturers and construction firms, CREA said.

But although 80 gigawatts of China-backed capacity is still in the pipeline, many of the projects could face further setbacks as public opposition rises and financing becomes more difficult, it added.

China is currently drawing up policies that it says will allow it to bring greenhouse gas emissions to a peak by 2030 and to become carbon-neutral by 2060.

But it was responsible for more than half the world’s coal-fired power generation last year, and it will not start to cut coal consumption until 2026, President Xi Jinping said in April.

Environmental groups have called on China to stop financing coal-fired power entirely and to use the funds to invest in cleaner forms of energy, and there are already signs that it is cutting back on coal investments both at home and abroad.

Following rule changes implemented by the central bank earlier this year, “clean coal” is no longer eligible for green financing.

Industrial and Commercial Bank of China, the world’s biggest bank by assets and a major source of global coal financing, is also drawing up a “road map” to pull out of the sector, its chief economist Zhou Yueqiu said at the end of May.

 

(Reporting by David Stanway; Editing by Kenneth Maxwell)

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Bank of Montreal CEO sees growth in U.S. share of earnings

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Bank of Montreal earnings beat estimates, adds mortgage safeguards

Bank of Montreal expects its earnings contribution from the U.S. to keep growing, even without any mergers and acquisitions, driven by a much smaller market share than at home and nearly C$1 trillion ($823.38 billion) of assets, Chief Executive Officer Darryl White said on Monday.

“We do think we have plenty of scale,” and the ability to compete with both banks of similar as well as smaller size, White said at a Morgan Stanley conference, adding that the bank’s U.S. market share is between 1% and 5% based on the business line, versus 10% to 35% in Canada. “And we do it off the scale of our global balance sheet of C$950 billion.”

($1 = 1.2145 Canadian dollars)

 

(Reporting by Nichola Saminather; Editing by Leslie Adler)

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GameStop falls 27% on potential share sale

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Air Canada (TSX:AC) Is a Scary Investment – The Motley Fool Canada

Shares of GameStop Corp lost more than a quarter of their value on Thursday and other so-called meme stocks also declined in a sell-off that hit a broad range of names favored by retail investors.

The video game retailer’s shares closed down 27.16% at $220.39, their biggest one-day percentage loss in 11 weeks. The drop came a day after GameStop said in a quarterly report that it may sell up to 5 million new shares, sparking concerns of potential dilution for existing shareholders.

“The threat of dilution from the five million-share sale is the dagger in the hearts of GameStop shareholders,” said Jake Dollarhide, chief executive officer of Longbow Asset Management. “The meme trade is not working today, so logic for at least one day has returned.”

Soaring rallies in the shares of GameStop and AMC Entertainment Holdings over the past month have helped reinvigorate the meme stock frenzy that began earlier this year and fueled big moves in a fresh crop of names popular with investors on forums such as Reddit’s WallStreetBets.

Many of those names traded lower on Thursday, with shares of Clover Health Investments Corp down 15.2%, burger chain Wendy’s falling 3.1% and prison operator Geo Group Inc, one of the more recently minted meme stocks, down nearly 20% after surging more than 38% on Wednesday. AMC shares were off more than 13%.

Worries that other companies could leverage recent stock price gains by announcing share sales may be rippling out to the broader meme stock universe, said Jack Ablin, chief investment officer at Cresset Capital.

AMC last week took advantage of a 400% surge in its share price since mid-May to announce a pair of stock offerings.

“It appears that other companies, like GameStop, are hoping to follow AMC’s lead by issuing shares and otherwise profit from the meme stocks run-up,” Ablin said. “Investors are taking a dim view of that strategy.”

Wedbush Securities on Thursday raised its price target on GameStop to $50, from $39. GameStop will likely sell all 5 million new shares but that amount only represents a “modest” dilution of 7%, Wedbush analysts wrote.

GameStop on Wednesday reported stronger-than-expected earnings, and named the former head of Amazon.com Inc’s Australian business as its chief executive officer.

GameStop’s shares rallied more than 1,600% in January when a surge of buying forced bearish investors to unwind their bets in a phenomenon known as a short squeeze.

The company on Wednesday said the U.S. Securities and Exchange Commission had requested documents and information related to an investigation into that trading.

In the past two weeks, the so-called “meme stocks” have received $1.27 billion of retail inflows, Vanda Research said on Wednesday, matching their January peak.

 

(Reporting by Aaron Saldanha and Sagarika Jaisinghani in Bengaluru and Sinead Carew in New York; Additional reporting by Ira Iosebashvili; Editing by Sriraj Kalluvila, Shounak Dasgupta, Jonathan Oatis and Nick Zieminski)

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