2020 was a turbulent year for the stock market, not least for the FTSE 100 and its constituents. While some companies profited from the panic around Covid-19, many made huge losses.
In the same vein, market conditions adversely affected certain sectors more than others. Hospitality took a major hit, as did companies in the retail and leisure sectors.
However, arguably the biggest impact was in travel. In particular, airline stocks have plummeted.
I saw an opportunity with easyJet (LSE:EZJ) shares, despite the risks. But what about its peer, British Airways owner International Consolidated Airlines Group? (LSE:IAG)
It saw a staggering drop in its share price over the last 12 months. In the last year it has lost more than 63% of its value.
Such a huge drop can often represent a buying opportunity. So am I attracted by the IAG share price at 145p today?
Harsh landing
IAG shares have dropped as a result of the widespread restrictions on international travel over the last year or so. The share price is still pinned back by uncertainty around when we will be able to travel freely again.
While the rollout of the vaccine gathers pace in the UK and other countries, the emergence of new variants of the virus are causes for pessimism in the market. Variants have been detected in the UK as well as South Africa, Brazil and California. And more could be to come.
While I think this will continue to affect the price over the short term, my feeling is that most of that pessimism about the future of travel may already be priced in. I believe international travel will return to some sort of normality ‘soon’. But that doesn’t mean next month! It could be one year, three years or even further away. But I believe it will ultimately benefit the IAG share price.
Flying purchase
The other big news coming out of IAG in recent weeks is the acquisition of budget carrier Air Europa. The deal completed for €500m, half of the price initially agreed with Globalia Corporacion Empresarial.
Such a bargained-down price is clearly reflective of the current market. However, it could represent a value-for-money deal for IAG in the long run and removes a smaller competitor from the European runways.
What’s even better about it is that IAG doesn’t have to pay for the acquisition at all for another six years.
Yet the problem with IAG (and other airline stocks) is that time and again over the years they have shown a particular weakness when economic conditions are shaky, more so than many other sectors. The Covid-19 crisis has cemented that view even further among investors.
Any further setbacks in the fight against coronavirus, or any other major market movement could have really detrimental effects on the IAG share price.
In answer to my question in the title. I don’t think a share price bounce-back will happen in the short term, but barring any Covid setbacks, I feel there’s value to be gained from buying these ‘cheap’ shares now. I think they could provide sustainable returns over the next five-to-10 years. With that in mind, I’m doing more research now.