The Best Stock to Own if You Think the Loonie is About to Rise

When the Canadian dollar starts to strengthen, smart investors look for stocks that benefit directly from currency shifts. One of the clearest winners when the Loonie rises is Air Canada (TSX:AC). The airline sector and Air Canada stock, in particular, are highly sensitive to currency fluctuations because of how much of its costs are tied to the U.S. dollar. That includes aircraft leases, maintenance, airport fees, and jet fuel. A stronger loonie means those costs become cheaper, and that can lead to better margins and more investor confidence. Let’s get into why.

The numbers

As of the most recent update, Air Canada stock trades at about $19.80 per share, with a market cap of around $6.4 billion. It’s the country’s largest airline, with routes across Canada, the U.S., Europe, Asia, and more. That global presence gives it a broad customer base and significant pricing power. It also means that any change in costs, especially those tied to currency, can have a major effect on the bottom line.

In the first quarter of 2025, Air Canada stock reported revenue of $5.2 billion. That was up slightly from the year before. However, it still posted a net loss of $102 million for the quarter. While that’s not ideal, it’s a big improvement over the $644 million loss in the previous quarter. Gross margins remain strong at 29.6%, and the company’s trailing 12-month net income is approximately $1.7 billion. Earnings per share (EPS) over the last year are $4.71. While airlines are rarely smooth rides, this shows Air Canada stock is stabilizing post-pandemic and making strides in profitability again.

Lucky loonie

A rising loonie would give it a big tailwind. That’s because many of Air Canada’s operating expenses are in U.S. dollars, while most of its revenue is in Canadian dollars. When the Canadian dollar strengthens, it reduces those expenses, widening margins. It also makes international travel more appealing to Canadians, since a strong loonie improves spending power abroad. That can boost demand for international flights and increase ticket sales.

Air Canada stock’s management seems optimistic about the future. The airline recently announced a $500 million share buyback program set to run until September 2025. That’s a strong signal that management believes the stock is undervalued. It also shows confidence in future cash flows. In addition to the buyback, Air Canada stock has been adding new international routes to places like Manila, Porto, and Prague. This kind of strategic expansion could pay off if demand holds up and operating costs decline thanks to currency support.

Considerations

Despite these positives, there are still risks. The airline carries a debt-to-equity ratio of 5.1, which is high. Fuel prices and labour costs also remain elevated, and the global travel industry is sensitive to sudden shocks. A weaker loonie would reverse many of the potential benefits mentioned earlier. But if you’re confident that the Canadian dollar is poised to rise, Air Canada stock becomes a much more attractive opportunity.

Valuation-wise, the stock is trading well below its pre-pandemic highs. Analysts estimate it may be undervalued by nearly 80% relative to fair value, with expected annual revenue growth of 5.3%. The airline is also trading above its 20-day, 50-day, and 200-day moving averages, which points to positive short-term momentum at writing.

Bottom line

Air Canada stock doesn’t pay a dividend, so this isn’t an income play. But if you’re looking for growth and think the loonie is on the rise, it’s a compelling option. Few companies are as directly affected by currency changes as an international airline. That makes Air Canada stock uniquely positioned to benefit if the Canadian dollar continues to climb.

In short, Air Canada stock isn’t for the faint of heart. But with improving fundamentals, a strong travel rebound, and a rising loonie, it could be one of the best TSX stocks to own right now for a currency-driven upside.

The post The Best Stock to Own if You Think the Loonie is About to Rise appeared first on The Motley Fool Canada.

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More reading

• Are Airline Stocks a Good Buy in 2025?
• The Airline Stock I’d Choose Over Air Canada Right Now
• Should You Buy Air Canada Stock While it’s Below $19?
• 5 Undervalued Stocks Worth Adding to Your $7,000 TFSA Today
• Where Will Air Canada Be in 10 Years?

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Air Canada. The Motley Fool has a disclosure policy.

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