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Prudential

What it does: Prudential is a life insurance and asset management company operating solely in Asia and Africa.

By Andrew Mackie: Following the spin-off of its UK and US businesses, Prudential (LSE: PRU) is now focused entirely on some of the world’s fastest growing markets. This makes complete sense when one considers its growth drivers. Across Asia, for example, despite rising levels of prosperity, insurance penetration is still extremely low. This market is estimated to be worth $1.8trn.

What I particularly like about Prudential is that it is diversified across geography, channel and product. Not only does this provide it with multiple sources of growth but also adds resilience to its business performance. Its distribution network encompasses over 500,000 licensed agents as well as through partnerships with banks (known as bancassurance).

Prudential’s share price has come under severe pressure throughout 2022. It is down 30% year to date. This has been primarily driven by the ongoing closure of the border between Hong Kong and Mainland China. This has hit revenues in its largest market. However, when one considers the explosive growth potential across several of the regions it operates in, today’s depressed share price offers investors an attractive entry point.

Andrew Mackie owns shares in Prudential.

Games Workshop

What it does: Games Workshop designs, manufactures, and sells fantasy miniatures for its Warhammer tabletop gaming experience.

By Zaven Boyrazian. Games Workshop (LSE:GAW) is arguably one of the world’s most recognised tabletop gaming companies. This is the group behind the immensely popular Warhammer franchises, generating the bulk of its revenue through selling miniatures to hobbyists through its global network of retail partners.

Over the last 12 months, the share price hasn’t been the best performer, dropping by over 40%. It seems investors are growing increasingly pessimistic about the short-term performance of this consumer discretionary business. And the latest trading update did show some shrinkage in profits, as consumer spending takes a hit from the cost-of-living crisis.

However, this drag on earnings ultimately stems from a short-term problem. And with the group’s long-term strategy still intact, backed up by an impressive cash war chest of £71m, I can’t help but see the recent share-price drop as a buying opportunity for my portfolio.

Zaven Boyrazian does not own shares in Games Workshop.

Smurfit Kappa Group 

What it does: Smurfit Kappa manufactures packaging products for e-tailers, supermarkets, consumers and industrial customers. 

By Royston Wild. A slew of positive trading updates from the packaging sector would encourage me to buy Smurfit Kappa Group (LSE: SKG) shares for November. 

The FTSE 100 business released financials of its own on Wednesday, 2 November. I think this could help it to record further healthy share-price gains across the month, and beyond. 

Industry rival Mondi reported a 55% rise in underlying EBITDA in the third quarter, it reported in October. It commented that “higher average selling prices and overall volume growth more than offset significant cost pressures.” 

Shortly before this, DS Smith announced that it expected “very strong” revenues growth in the six months to October. Trading was so strong in fact that the firm lifted its half-year profits forecasts. 

Smurfit Kappa’s cheap share price certainly leaves scope for fresh gains if its own financials impress. The packaging powerhouse trades on a forward price-to-earnings (P/E) ratio of just 7 times. 

Royston Wild own shares in DS Smith. 

AstraZeneca

What it does: AstraZeneca is a biopharmaceutical company that develops medicines used by millions of patients worldwide.

By Charlie Carman. AstraZeneca (LSE: AZN) has been a top FTSE 100 performer for a decade. An anticipated return to pre-Covid levels of cancer diagnostics should boost sales for the healthcare heavyweight’s range of oncology products, including Tagrisso, Lynparza, and Imfinzi.

Indeed, AstraZeneca is well positioned for an ongoing transformation in global demographics. Demand for pharmaceuticals to treat chronic diseases continues to rise, and the World Health Organisation predicts one in six people will be aged over 60 by 2030.

Disappointingly, the business suffered a recent setback in a trial for a nasal spray version of its Covid-19 vaccine. Initial testing revealed it didn’t provide adequate protection in humans. However, there’s more to the company’s drugs portfolio than coronavirus treatments, and I think growth prospects look bright elsewhere.

AstraZeneca’s share price has fallen nearly 15% since reaching a 52-week high in August. I believe this presents an attractive buying opportunity to increase the position in my shares.

Charlie Carman owns shares in AstraZeneca. 

Persimmon

What it does: Persimmon builds houses. And when prices are right, it builds up its land bank to build even more houses on.

By Alan Oscroft. The long-term argument for investing in Persimmon (LSE: PSN) is, I think, straightforward. The UK is in the grip of a chronic housing shortage. And our listed housebuilders enjoy strong barriers to entry.

The short-term argument against buying now is the economy, and the growing fears of house price weakness. After all, the Persimmon share price has fallen 50% over the past 12 months, and we don’t want any of that, do we?

Well, actually, I remember the previous housebuilder slump, and I noticed Persimmon was buying up building land when it was cheap. And after that, the shares entered a long and strong bull run. So what’s happening now? Persimmon has been buying up land again.

But the bottom line for me is a P/E ratio of only about five, and a 19% forecast dividend yield. The short-term risks are real, but I think Persimmon is oversold.

Alan Oscroft owns Persimmon shares.

Renishaw

What it does: Renishaw designs and manufactures high-precision measuring equipment and healthcare technology.

By Stephen Wright. I’ve gone for FTSE 250 stock Renishaw (LSE:RSW) as my best British shares to buy in November. This is a business that’s growing, is well protected, and has a strong balance sheet.

Renishaw makes specialist equipment, which it sells to various end markets, including agriculture, healthcare, and power generation. The company has over 1,800 patents protecting its products. 

The company’s balance sheet also looks sound to me. Renishaw has £16.25m in total debt and £141m in cash, which means that I don’t think it’s in much danger with interest rates rising.

Earnings have been growing at an average of 6% annually over the last decade. But the stock has fallen by almost 30% since the start of the year and is now trading at a P/E ratio of 21. 

Stephen Wright does not own shares in Renishaw.

Taylor Wimpey

What it does: Taylor Wimpey is one of the UK’s largest housebuilders, selling homes to private customers and local housing associations

By Paul Summers. The share prices of UK housebuilders have come under serious pressure in 2022 over concerns that rapidly rising interest rates and a protracted recession will dampen demand. Taylor Wimpey (LSE: TW) has been one of the biggest casualties, losing half its value since the beginning of the year.

This may be an opportunity for long-term-focused Fools like me. The FTSE 100 firm is clearly in far better financial health than it was during the Great Financial Crisis. And while dividends can’t be guaranteed, the 10% yield also looks more secure than the payouts on offer from Taylor Wimpey’s rivals. 

CEO Jennie Daly’s comments on the company’s outlook will be closely scrutinised when it releases a trading update early in November. With a P/E of just five, however, I suspect a lot of fear is already priced in. 

Paul Summers has no position in Taylor Wimpey.

Legal & General

What it does: Legal & General is a British multinational company that provides insurance, savings and investment products.

By Nathan Marks. I’m looking to Legal & General (LSE:LGEN) for my top British shares to buy for November. As one of the UK’s largest pension funds, it’s been grappling with the recent chaos in the bond market.

The Bank of England took emergency intervention in early October. That was to mitigate a material risk to the financial stability of the types of services that Legal & General provides. However, the company said that this episode had a “limited economic impact” on its businesses and still expected a full-year operating profit of 8%.

Market volatility could still worsen, causing further uncertainty in the company’s balance sheet and liquidity. However, the stock looks great all-round value and I think it’s been oversold. Today it trades at a P/E ratio of 6.8 and yields a very attractive 8.2% dividend.

It’s hard for me to ignore this strong business with historically robust demand for its products and services.

Nathan Marks has no position in Legal & General.

International Airlines Group

What it does: International Airlines Group is an Anglo-Spanish multinational group that is host to renowned airlines such as British Airways, Iberia, Aer Lingus, Level, and Vueling.

By John Choong. Despite a potential recession on the cards, travel demand still remains robust. As such, I think International Airlines Group (LSE:IAG) shares look lucrative at their current price.

In its most recent trading update, the firm disclosed that demand for travel remains strong and is still recovering to 2019 levels. There also seems to be an uptick in business and upper-class travel, which was echoed by its American competitors. CEOs are of the opinion that consumers are still spending despite inflationary pressures, just less on goods but more on services. Therefore, IAG is expected to benefit as the holiday season approaches.

Nonetheless, it’s worth noting that IAG’s high debt-to-equity ratio (107%) isn’t ideal in a high interest rate environment, and is something investors should definitely take note of. The group will have to hope that its free cash flow continues to remain robust through an economic slowdown in the medium term, or risks damaging its bottom line and sending its share price back down.

John Choong has no position in IAG.

Flying numbers

As anticipated, the conglomerate surpassed analysts’ expectations. The group’s Q3 update confirmed that demand for travel remains robust, despite the recessionary backdrop. With passenger numbers edging closer to 2019 levels, investors rewarded IAG with a jump in its share price.

Additionally, The FTSE 100 firm has finally returned to profitability for the first time since its pre-pandemic days. CEO Luis Gallego even upgraded the airline group’s full-year profit outlook. The board now expects its pre-exceptional operating profit to be approximately €1.1bn, along with a “significantly positive net cash flow”.

Easy does it

Aside from its results, it’s worth noting that the IAG share price has surged by a further 8% since its Q3 update. Why has this been the case? Rumours have been flying around about a potential takeover of easyJet, with Gallego making no secret of IAG’s desire to continue expanding on the earnings call last week.

We are a platform for consolidation, and we’ll only do what makes sense but we see there are opportunities to be stronger. IAG is a group that wants to consolidate the industry.

CEO Luis Gallego

This is exciting news, potentially allowing IAG to expand market share. However, I’m not so keen on a possible takeover for a couple of reasons. For one, authorities may veto such a deal due to competition concerns. The second would be IAG’s financial priorities — the firm still has a mountain of debt to pay off.

Clear for take-off?

So, should I buy IAG shares following all the positive news? There’s certainly a buzz in the air given the positivity surrounding robust travel demand, and I can understand why. That being said, the state of its balance sheet remains in a terrible state. Although its finances have improved over the last year, it has an eye-watering debt-to-equity ratio of 1,124%.

While I’ve no doubt the company will continue to gain momentum going into the holiday season, I remain pessimistic on its earnings potential afterwards. Debt repayments will start to rack up going into 2023 and beyond, with plenty of headwinds still worth considering.

Also, business travel still lags behind its 2019 figures and needs to rebound at a much faster pace to compensate for a potential drop-off in leisure travel during a recession. This is because demand for business travel tends to be inelastic and has higher revenue per ASK. Moreover, travel to Asia remains muted due to Covid lockdowns. And with Heathrow Airport potentially reinstating its passenger cap due to staff shortages, this could limit IAG’s top and bottom-line growth.

All these reasons have led to brokers such as Deutsche Bank rating the stock a ‘hold’, despite the shares having an average price target of £1.30. Nonetheless, I’ll be putting IAG shares on my watchlist for the time being. In the meantime, I might wish I was among those who bought the stock last month!

However, over the past two months, oil and gas prices have been falling. In fact, their declines were largely unreported until earlier this week when European gas prices dropped below €100 per megawatt hour for the first time since 14 June. Meanwhile, prices in the UK dropped to 180p per therm on Monday, down 72% from their peak.

Gas prices are still ahead of where they were before Russia’s invasion of Ukraine, but the decline since the summer has been significant — further downward pressure on resources is expected in 2023. Oil prices are broadly in line with where they were for much for 2021.

Sectors set to gain

Falling oil and gas prices tend to benefit sectors like paints, retail, petrochemicals, textiles, aviation, tyres, and cement. In many cases, the impact can be very direct. Higher gas prices push up utilities costs for retailer and restaurants, among others, putting negative pressure on margins.

But there are also indirect ways in which higher energy prices can push up costs across multiple industries. Taking the restaurant industry again, higher gas prices mean higher fertiliser costs, which pushes up crop prices and eventually meat prices. Restaurants are either forced to swallow the costs or pass them on to customers, risking damaging demand.

Aviation pick

Jet fuel prices are down from their highs in the summer, albeit above previous years. But the general downward movement on fuel prices are positive. And this is occurring at a time when demand for travel is robust.

IAG (LSE:IAG) is one stock that I’m looking to buy more of. Earlier this month, the Iberia and British Airways owner said it now expects to report a third-quarter operating profit of around €1.2bn after stronger-than-expected trading.

“Forward bookings remain at expected levels for the time of year, with no indication of weakness“, the firm announced.

Amid a cost-of-living crisis, I believe the firm’s capacity to pass increasing costs onto customers is impressive. The firm has a fuel hedging strategy — 70% for the first quarter of 2022 and 60% for fiscal year 2022 — but that still leave 40% to be passed on.

Supermarket pick

Food stores are some of the biggest energy users in the country. With aisles packed full of energy-burning fridges and freezers, supermarkets are forced to internalise fuel costs or pass them on to customers.

Sainsbury’s (LSE:SBRY) is a stock I’m looking to buy. It’s actually the only supermarket with a store run entirely off-grid. But that’s besides the point, lower energy prices should be a big benefit for Sainsbury’s and its near 1,500 stores.

The group has also been successful in moving business online. Internet sales at Sainsbury’s were up 94% versus pre-pandemic levels during the 16 weeks to 25 June. And this is an important move in light of trends pushing retail online.

There are still headwinds for the sector as Britons reduce their household spending. But down 35% over the year, the current entry point, around 190p, looks attractive to me.

Is this an opportunity to pick up a well-known FTSE 100 stock for my portfolio at a great price? Or are IAG shares a value trap? Let’s discuss.

Is now the time to buy IAG shares?

There are certainly reasons to be optimistic about IAG shares. For starters, CEO Luis Gallego told investors last month that he expects all airlines within the group (British Airways, Iberia, Vueling, Aer Lingus, etc) to be profitable this year. This is a positive development. Last year, the group posted a net loss of €2.9bn. Profits are, of course, a major driver of a company’s share price.

Secondly, the stock appears to be cheap. Right now, analysts expect the group to generate earnings per share (EPS) of 17.2 euro cents for 2023. If we assume the company can achieve this forecast, the forward-looking price-to-earnings (P/E) ratio here is less than seven. That’s low compared to the broader market.

Will the IAG share price rebound?

Having said that, there is quite a bit of uncertainty here. To my mind, for the IAG share price to recover, a few things need to happen.

We need to see less disruption across the airline industry for a start. This year has been a mess in terms of delays and cancelled flights and this has hit the group’s capacity and revenues. Staff shortages have been the main problem. During the pandemic, 2.3m people left the global industry. As a result, there’s been a shortage of pilots, cabin crew, airport security, and more.

We also need consumer spending to hold up. This year, people have splashed the cash on flights after not travelling during Covid. However, it remains to be seen whether they will keep spending so much on holidays going forward. Right now, money is tight for a lot of people.

Additionally, we need to see oil prices take a breather. If the price keeps rising, it’s likely to have an impact on IAG’s profitability as fuel is a major cost for airlines.

Finally, for the IAG share price to rise, I think the group needs to show it has the capacity to pay down debt. At 30 June, net debt stood at €10,979m. This is an issue in the current rising-rate environment. It’s worth noting that my data provider tells me there’s a ‘serious risk of financial distress’ here within the next two years due to the debt levels.

My move now

Given how much needs to go right for IAG in the near term, I won’t be buying the shares for my portfolio any time soon. I’m concerned that the stock could be a value trap.

I think there are other safer stocks to buy for my portfolio today.

Here are two cheap stocks that I’m avoiding at all costs.

Mashed margins

Tesco’s (LSE: TSCO) profits are getting battered as it tries to compete with the discount chains on price. Operating profits at its retail division sank 10% between March and August. Costs are soaring, but the business can’t pass these on without losing customers.

Tesco remains determined to keep slashing prices even as margins evaporate too. Last week, it announced plans to slash prices on thousands of more products until next year.

The problem for Tesco is that it might be forced to keep cutting prices for the foreseeable future. The IMF has warned inflation in the UK will be higher than all eurozone countries at the end of 2023, except for Slovakia. In this environment, it faces a growing threat from the likes of Aldi and Lidl.

Moreover, it faces a prolonged period period of elevated product costs. Wheat, corn and sunflower oil prices, for example, have been rising again due to the war in Ukraine.

However, I think Tesco’s online operation could make the stock a winner as e-commerce steadily grows. I also like the company’s low forward P/E ratio of 9.6 times. But this cheap share carries more risk than I’m happy to accept.

Flying into trouble?

International Consolidated Airlines Group (LSE: IAG) shares also offer terrific value, on paper.

The British Airways owner isn’t expected to return to profit in 2022. But City analysts tip it to move back into the black next year. This leaves it trading on a P/E ratio of 5.4 times for then.

I like IAG because of the steps it’s taking to expand in the budget travel market. It owns Vueling and Aer Lingus and recently acquired a 20% stake in low-cost airline Air Europa. It’s rumoured that the Footsie firm could launch a fresh takeover bid for the Spanish business.

But this isn’t enough to encourage me to buy IAG shares. I’m primarily concerned about slumping demand for airline tickets as the cost-of-living crisis worsens.

Travel agent association ABTA said this week that 61% of Britons it surveyed plan to holiday abroad in 2022. However, a sizeable 36% also said they will take fewer holidays, and 28% are planning cheaper travel options.

This has the potential to subdue overall passenger numbers at IAG. It also threatens the profits it might make from its money-spinning transatlantic routes. At the same time, the airline industry faces a period of elevated fuel and staffing costs that further endanger profits.

It’s a double whammy that’s especially worrying, given the company’s huge debt pile. Net debt remained at an enormous €11bn as of June. IAG has terrific investment potential but it’s also vulnerable to further share price weakness.

Ascending numbers

When IAG reported half-year numbers a couple of months ago, its figures were rather promising. The FTSE 100 group showed signs of continued recovery and targeted profitability by the end of the year.

Although its outlook was revised downwards, the company still expects capacity (passenger load factor) to hit 78% of 2019 levels. From this, North Atlantic capacity (including IAG’s most profitable routes) is estimated to hit 92% of 2019 levels in Q3.

The probability of it meeting its outlook edged higher after its industry peers reported their results recently. Ryanair flew a record 15.9m passengers in September. Meanwhile, Wizz Air finished Q3 with an average load factor of 89.1%. This is a healthy increase of 8.9% on a year-on-year (Y/Y) basis, and an increase of 4.5% on a quarterly (Q/Q) basis, with its passenger numbers also seeing a 49.7% Y/Y rise.

Getting the green light

Tailwinds for IAG pick up when taking other factors into account. The first major one would be the removal of Heathrow’s passenger cap. Britain’s largest airport had a passenger cap of 100,000 daily departing passengers a day due to staff shortages. This caused British Airways to cancel thousands of flights and revise its outlook downwards. But with the cap set to end on 29 October, investors will be hoping for an improvement to the company’s numbers going into 2023.

To complement this, CEO Luis Gallego reassured investors last week by reaffirming the group’s outlook, stating that all of IAG’s airlines should finish the year in profit. This will most likely be aided by the reopening of key Asian countries such as Japan and China, as well as the World Cup in Qatar in Q4. IAG investors should get further affirmation regarding international travel in the coming weeks when international competitors Delta, United, and American Airlines report their numbers.

Strong headwinds coming

On the flip side, there are strong headwinds to account for too. Oil prices are expected to head higher going into Q4 after OPEC+ opted to cut production by 2m barrels a day. Although IAG has hedged 60% of its fuel for the rest of the year, its bottom line could still be impacted, especially if black gold hits the $110 estimate that Goldman Sachs has predicted.

IAG will also have to deal with the impact of a potential recession going into next year as inflation continues to run rampant. Pair that with an already weak pound and suddenly the rebound for IAG shares may not be as smooth as initially expected.

Overall though, I’m confident in management’s ability to bring the IAG share price back to pre-pandemic levels eventually. After all, analysts at Davy Group recently upgraded the stock to ‘outperform’, and it’s got an average target price of £1.47. Nevertheless, the state of its balance sheet remains undesirable given its cash-to-debt levels. As such, I’ll be placing IAG on my watchlist for now and may consider investing when I see further improvements in its financials.

At 95.8p per, IAG’s shares are now 38% cheaper than they were at the start of the year.

Having said that, the British Airways owner still remains a popular share with many investors. Should I consider buying it ‘on the dip’ for my own portfolio? And should I buy the FTSE 100 firm for next year’s dividend?

Dividends returning?

You might be tempted to think that I’ve banged my head. But City analysts do indeed think the business will start paying dividends again. Thats despite the uncertain outlook for the travel industry and the fact that IAG is swimming in debt.

Following the onset of Covid-19, the company axed the final dividend for 2019. This resulted in a total payment of 14.5 euro cents per share for the year, down from 31 cents in 2018. And it hasn’t paid any dividends since.

Brokers believe that IAG, which also had a history of paying large special dividends up to the pandemic, will restart shareholder payouts from 2023. A 1.1-cent-per-share dividend is currently forecast, leaving the company with a 1% dividend yield.

Solid forecasts

Clearly IAG’s yield isn’t the largest out there. In fact, it lags the 4.2% average for FTSE 100 shares by a wide margin.

But on the plus side there’s a great chance that the business will meet next year’s dividend target. It’s expected to bounce back into profits in 2023 following three years of losses. And so that predicted dividend is covered a massive 15 times by expected earnings.

I wouldn’t buy IAG shares based on next year’s dividend alone. But would I buy the company in anticipation of robust dividend growth in the years ahead?

Again, the answer is no.

Fragile recovery

News coming out of IAG has been pretty positive of late. In the first half of 2022 it returned to profit as the travel industry rebound continued. Its Iberia and Vueling divisions in particular thrived as travel in Spain and to Latin America roared back (demand in June was actually ahead of 2019 levels).

However, this recovery is in jeopardy as the global economy teeters towards recession. Spending on expensive long-haul holidays and business travel could plummet again in the short-to-medium term amid rocketing inflation.

At the same time, IAG is facing extreme cost inflation in areas like staffing and fuel that might hit profits hard.

Debt questions

The threat of a stalling travel sector is particularly concerning given the huge amount of debt IAG has. While falling over the past year, this still sat at an enormous €11bn as of June. This has the potential to disappoint investors hoping for solid dividend growth beyond 2023.

I like the exceptional brand strength of its airlines like British Airways. And I like its expansion in the fast-growing budget carrier space. But all things considered, I think IAG is far too risky to buy today.

Tough times

It goes without saying that the last few years have been particularly tough for airlines. Following the grounding of flights due to a global pandemic, we now have a cost-of-living crisis squeezing incomes and, consequently, the ability to travel.

I don’t doubt there are better times ahead. However, I very much doubt I’ll ever own a stock like International Consolidated Airlines (LSE: IAG), even if I had free cash to do so.

Now don’t get me wrong — there are things to like here. The company boasts some of the most recognisable brands in the business, including British Airways. And we could see a ‘short squeeze’ if the company releases even a slightly better-than-expected update in the near future.

Debt-laden

But let’s not beat about the bush. Even as weaker airlines fold, the sector will remain hyper-competitive. With fewer people travelling for business, I reckon IAG faces an even greater fight for flyers than before. There are a raft of other issues that all carriers must contend with too, including staffing issues and volatile fuel prices.

Sure, no company’s earnings are completely safe, but I’d much rather own, say, a consumer goods firm where growth isn’t dependent on quite so many factors working in its favour.

On a more fundamental level, IAG now carries a truckload of debt. For this reason, I wouldn’t expect anything significant in terms of dividends for quite a while.

IAG could certainly make me money once the dark economic clouds disperse. Would I want to leave money here with so many other companies on a more solid footing? I don’t think so.

Not on my shopping list

I’ve also been bearish on Ocado (LSE: OCDO) for years now. Up until the beginning of 2021, that looked like an exceptionally bad call. Its stock soared in value as the company penned more contracts with retailers for its impressive logistics tech. Since then however, it’s been a very different story.

Ocado’s share price is down roughly 75% from its record high. That’s severe. But I don’t think it’s unjustified.

Inflation victim

As always, the market has been looking ahead. In addition to increasing costs incurred by the company, the jump in inflation means some shoppers will have switched to cheaper rivals. Worryingly, there could be worse to come with price rises expected to hit 14% in Q4 this year.

More generally, the exodus from growth stocks on concerns over rapid interest rate rises was never likely to leave Ocado unscathed.

Again, it’s not all bad. Ocado could recover strongly when risk appetite returns. It can sometimes be that this year’s most hated shares are next year’s most popular.

Even so, it will take a while before its logistics division contributes to the top line to the same extent as its retail arm. In the meantime, we have an unprofitable company that, again, isn’t about to pay me a dividend.

Given the chance to invest free money, I think I could generate a far better return by looking elsewhere.

Share price underperformance

The share price opened at 142.60p at the start of the year, hitting highs of 160p on the first trading day! However, the current price is 110p. This means that the share price has fallen almost 23%. My £1,000 theoretical investment would be worth £771.39.

How does this match up against the FTSE 100? After all, I could have simply invested in an index tracker at the beginning of the year. From a starting price at 7,400 points, the market is currently at 7,237 points. This reflects a modest year-to-date loss of 2.2%.

Unfortunately, holding IAG shares versus a more diversified index tracker would have caused me to underperform so far in 2022.

One reason for the fall so far this year has been major disruption at airports. Staff shortages have forced flights to be cancelled, resulting in lost revenue. Add into the mix higher costs of flying from the soaring oil price due to the war in Ukraine. A clash with the union regarding higher worker pay has been another headache for management.

I also need to appreciate that coming into 2022, the hangover from the pandemic was still being felt. As a result, the desire to own stock of an airline operator wasn’t high on a lot of people’s wish lists.

Looking ahead for IAG shares

From here, my focus turns to the final quarter of 2022 and the new year beyond. Some of the negative pressure has eased in the past few weeks. For example, an agreement was reached with British Airways staff for a pay increase. We’ve also seen the price of Brent crude oil drop over $10 per barrel from the end of August.

More good news for the future was highlighted in the Q2 results, with capacity for this quarter at 78% of 2019 levels. The steady tick higher from this metric gives me some confidence that the business could get back to 100% of pre-pandemic capacity within the next year.

On that basis, I think IAG shares could outperform the FTSE 100 over the next year as it bolsters the finances and increases flying hours.

The main risk to my view is that the company gets caught up with negative investor sentiment. With the UK due to go into a recession, some investors might sell growth stocks like IAG in favour of safer defensive stocks.

If that’s the case, I’ll look to buy at that point as I think any further selling could push the stock into oversold territory and make it a bargain for a long-term investor like me.

Travel

During the pandemic, all stocks related to travel took a massive hit as demand plummeted. Yet, most travel companies and airlines have recovered well, and that’s particularly the case for British Airways owner IAG (LSE:IAG).

The company’s recent H1 results were particularly positive. Notable successes included Q2 being the first profitable quarter since the beginning of the pandemic. IAG also reduced its debt and is expecting a 78% capacity compared to 2019 levels.

Of course, there are still challenging times ahead as the company must compete with low-cost airlines such as Ryanair and easyJet. The share price has somewhat recovered from its lows in October 2020, but it’s still lower than its pre-pandemic trading levels.

Nonetheless, as business and personal travel continues to rise, I think IAG has a lot of potential to provide long-term gains.

Banking

Inflation in the UK is currently over 10%, which is a 40-year high for the country. With rising inflation comes an increase in interest rates from banks, and the rate is set at 1.75% right now.

A rise in interest rates is particularly beneficial for banking sector stocks, as the likes of Barclays (LSE:BARC) can charge more for products such as mortgages and loans.

Certainly, there’s a level at which high rates deter people from borrowing as they don’t have the ability to pay it back. If interest rates reach considerably higher levels, banks may start to see a reduction in customers, but I believe we are still a way off from that.

Barclay’s share price is up over 11% in the past six months and is still the cheapest bank on the FTSE 100. The company has a P/E ratio of five, compared to competitors such as HSBC that has a 9.13 P/E ratio.

Telecommunications

A stock that offers both a decent chance of performing well and has an impressive dividend yield is Vodafone (LSE:VOD).

During recessions, telecom stocks tend to remain stable and can withstand external pressures. The company also has an impressive dividend yield of 5.9% for this year, which is far higher than the FTSE 100 average of 4%. Vodafone has also set its 2024 yield to 6%.

Although the share price has been pretty flat recently, only down 2.41% year to date, I think this could change soon thanks to increasing roll-out of 5G and broadband. However, it is important to note that telecom companies like Vodafone require extremely large amounts of capital to grow and invest in new technologies, so this may dampen the company’s performance in the short term.

On the whole, analysts seem positive about the stock — there’s a consensus Buy rating, and Morgan Stanley analysts believe the shares could reach 180p. That represents a 60% upside.

Overall, if I had a spare £500 I would split my money across IAG, Barclays and Vodafone, as I believe all will pay off in the long term.