In the middle of what many consider to be a stock market correction, we have a great opportunity to invest some money. With shares trading cheap relative to only a few weeks ago, now is a great time for me to get in and invest in some high-quality FTSE stocks.
I will look at the investment case for two great companies that I am considering: Anglo American (LSE: AAL) and International Consolidated Airlines Group (LSE: IAG).
Anglo American
Anglo American is a global mining company, being the world’s largest producer of platinum as well as a major producer of copper, nickel, iron ore, and diamonds.
When it comes to the economic fundamentals of a mining company, fixed costs are high as a proportion of total costs. As a result, with any increase in addition revenue comes a significant increase to profits. This results in a business model in which changes in demand from consumers has a large proportionate impact on performance.
Tailwinds
While mining companies have fairly predictable economic fundamentals, they are also highly cyclical. This means that they typically correlate with the business cycle.
Therefore, in a year where the economy is still fighting back to recover from the pandemic, we should see growth in demand for goods that rely on the materials Anglo American produces. If I believe this to be the case in 2022, then I expect high profits and associated share price growth.
Headwinds
In attempts to control and suppress inflation, it is safe to assume that hawkish policy making is on its way. With rate rises comes a slowing of short-term economic growth. Therefore, as mining companies are cyclical businesses, if I believe the cooling effects from tightening monetary policy will have a substantial impact on the economy, then I will steer clear.
International Consolidated Airlines Group
IAG has had a terrible time over the last few years. Being hit extremely hard by the pandemic due to the reduction in consumer air travel, the share price has fallen from 420p (pre-pandemic) to around 160p today. However, this potentially presents a huge opportunity for share price gains.
Tailwinds
With societies across the world opening up and attitudes towards being comfortable with travel reverting back to the norm, one would assume the demand for air travel will recover in due course.
This could be the year we see that return. The business fundamentals of International Consolidated Airlines Group are sound, and as a result recovery from the pandemic is the driving force for my optimism.
Headwinds
The main cause for concern with International Consolidated Airlines Group is vulnerability to shocks stemming from new variants or regulation, as seen with the discovery of Omicron, where the share price fell 17% in the final five days of November.
Conclusion
For me, both Anglo American and International Consolidated Airlines Group are great opportunities. With the economic recovery I expect this year, I think Anglo American will perform well. When it comes to IAG, if I can look past short-term volatility with a long-term view, it should definitely be in my portfolio.