The pandemic. Recession. The American elections. International tension. Cheap Oil… Anyone looking at a list of stressors like this in 2019 would probably have cashed in their chips and left the markets. The year 2020 has been a cancellation.
Where does he have it? This is certainly the conventional, albeit bearish, view of the current year. But a more optimistic view might take into account this year’s surprise in new tech trends, for example. A more bullish view of the markets also takes into account the potential for a rescue rally. With some big names coiled like springs, a return to pre-pandemic normalcy could launch some battered names into the stratosphere.
Assess the market advantages
Indeed, in a better positioned 2021 market, investors could end up viewing the pandemic as a temporary hibernation of economic activity. Essentially, a big “reset” button was pressed, allowing an entire generation to enter ground level stocks. A correction was long overdue. Browsing through the P / B ratios of some big names, notoriously plagued by disastrous market forces, the price of the book is only now reached.
But let’s stick with this concept of a rescue rally for a moment. Gatherings are often short-lived affairs. Even a market plateau ultimately has its drawbacks. But the end of the depressed pandemic market will technically not be followed by a rally. Instead, 2021 could see a return to a pre-pandemic market – as well as the Bull Run record that characterized it.
This means that the increase in salvage stocks could in fact be sustainable. This recession is not like the others that came before. A regular recession is caused by a breakdown in the economy. But the Canadian economy has not broken – it has been put on hold. Airlines such as Air Canada (TSX: AC) didn’t go (and didn’t go) organically – neither did chain restaurants, movie theaters, or hotels.
Look past the damage and see the growth
Instead, these industries have been quarantined. And that means they’re still viable businesses – if they’ve managed to stay afloat during the pandemic. While this is a big ‘if’, the point is that markets are like any other system, and every action always has an equal and opposite reaction. In short, eliminate the pandemic and the markets will regain a prepandemic equilibrium. Air Canada, in particular, could take off.
But what advantage are we talking about here? Air Canada’s conservative stock price estimates are mixed. However, there is a lot of attention to this name, which makes these estimates as accurate as one might reasonably expect. We could therefore expect Air Canada to gain 33%. A more optimistic projection would see the aviator rocket up to 80% in the right conditions.
Down 10% in the past five days, Air Canada is down. Having already lost 69% of its price market share since this time of last year, it’s hard to imagine the flagged commercial airline operator would experience a worse 2020. But with the pandemic not yet over and new lockdowns looming, you never know.
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