Some challenges

Like many other airlines, Wizz Air was pummelled by the pandemic. Border restrictions meant that the majority of scheduled flights were cancelled.

Given that the firm’s base is in Hungary, the outbreak of war in Ukraine also caused the shares to plummet. Many investors believed that this event would materially impact the company’s ability to fly.

More recently, there have been concerns regarding how rising oil prices will affect the business. This trend has resulted in climbing jet fuel prices and, given that Wizz Air suspended its hedging policy for a period, rising costs have dented recent balance sheets. 

All of these factors have weighed heavily on the firm, but things now seem to be starting to recover.

In recent months, the company completed a deal with Airbus to purchase 102 additional A321 aircraft. These will be delivered over the coming years, but this is an early indication that Wizz Air is once again focused on expansion and maintenance of its fleet of aircraft.

Calmer skies ahead?

There are other, arguably more important, metrics by which to gauge the health of an airline, however.

These include passenger statistics and load factors. The first obviously tells us the number of passengers who travelled, while the second shows what proportion that number is of the total number of available seats.

Wizz Air releases monthly passenger number reports. For September, it carried around 4.57m passengers. This represents a 51.5% increase compared to the same period in 2021.

Furthermore, the load factor for September was 87.1%. This suggests that the firm also now has more planes in the sky. 

The company announced that it’s expanding operations into Romania. This could be an opportunity to tap into a market that still may be underserved by other airlines. 

Like the purchase of new aircraft, the move into Romania gives me confidence that Wizz Air is beginning to think about growth, instead of being focused on survival during the pandemic.  

With an operating cash flow of £1.1bn, the business should also be able to respond to any challenges that may arise in the short term. 

Overall, the airline has endured a difficult period over the last couple of years. While it’s not out of the woods yet, it seems that things are starting to take a more positive turn. The fall in the share price is significant and may present value. 

However, I would like to see further recovery in the travel sector, and consistently improved passenger statistics, before I think about buying the shares.

Key challenges facing Wizz Air

It has been difficult for Wizz Air to influence the costs of landing fees, maintenance, and fuel over the last couple of years as these costs were dependent on the number of flights it operated. Consequently, cutting crew costs has proved pivotal for low-cost airlines like Wizz Air, with staff predominantly paid flexibly by the flight hour and not a fixed full salary.

During the pandemic, European low-cost airlines took on £9.18bn in debt in order to raise funds to rescue cash flow. As a result, rising interest rates will ultimately stunt recovery, increasing the cost of debt.

With rising liabilities, there is also an increased importance placed on liquidity. Money tied up in assets certainly threatens this, especially with added pressures on airlines to reduce their emissions and invest in cleaner aircraft.

How is Wizz Air best positioned?

Wizz Air’s reported operating loss for the second quarter of 2022 was 285m euros, with CEO Jozsef Varadi stating that the “Ukraine war dented our momentum”. This certainly doesn’t instil confidence in me. Yet the ultra-low-cost airline has seen its liquidity “strengthen significantly to 1.6bn euros” in the same report.

Compared to competitors, Wizz Air has been the most aggressive in trying to generate cash inflow through sale and leaseback transactions. This is where an airline will buy aircraft directly from manufacturers, proceed to sell it to a leasing company for more than they paid and then lease it straight back for an agreed period. 

As a result, the average age of Wizz Air’s fleet of aircraft is just under five years, making it the youngest of any major airline. Not only does this mean assets are converted to cash more regularly, enabling Wizz Air to respond to industry changes more quickly, but a younger fleet ultimately means lower maintenance costs.

Wizz Air is not without its faults, however. It has had to cut flights due to its lack of fuel hedging and data from the Civil Aviation Authority shows it had the biggest share of flights delayed in 2021. Yet, the share prices of Wizz Air and competitors like Jet2 and easyJet have all suffered fairly equally this year. I believe with some of the most aggressive cost-cutting measures, and its adaptability, it could grow much stronger than competitors.

Consumers are still uncertain and suffering from the effects on inflation. The rising costs of air travel will likely only grow their demand for cheap tickets. It will then be a case of how much can they stomach a compromised service?

Although I don’t currently have a position in Wizz Air, I will be looking to buy once the share price sees some sustained recovery from its current slide.

Clearer skies?

The Wizz Air (LSE:WIZZ) share price is down 56% in the past year. But in the last month, it’s up 20% and the shares are currently trading at 2,226p.

The short-haul airline was battered during the pandemic. This was mainly because travel restrictions led to flights being grounded. 

As a result, the business posted consecutive pre-tax losses, for the year ended March, in both 2021 and 2022. These amounted to €566m and €641m, respectively.

However, revenue is starting to show signs of improvement. It rose from €739m to €1.6bn over the same period, suggesting that more passengers are flying as restrictions have been relaxed.

On the other hand, losses widened for the three months to 30 June. This was primarily down to higher jet fuel costs and more flight cancellations due to low staff numbers. But revenue was up 300% year-on-year.

Furthermore, passenger numbers climbed to 12.1m from 2.9m over the same time period. This comes as travel conditions continue to improve as the world emerges from the pandemic.

Calmer waters?

Carnival (LSE:CCL) has seen its share price fall by 56% in the past year and 7% in the last week. At the time of writing, the shares are trading at 630p.

The cruise operator was also greatly impacted by the pandemic. For the year ended November 2020, for instance, it slumped to a $10.2bn pre-tax loss. The following year was not much of an improvement, resulting in a $9.5bn pre-tax loss.

However, for the three months to 31 May, occupancy aboard ships was 69% of pre-pandemic levels, up from 54% in the previous quarter. In addition, booking volumes doubled in that quarter and customer deposits grew from $3.7bn to $5.1bn.

Furthermore, the company stated that it had cash and borrowings at $7.5bn towards the end of May. This could potentially help the firm to navigate its recovery to pre-pandemic levels. On the other hand, its debt pile stands at $36.4bn. This has grown significantly over the past two years, and this is something I would like to see the business pay down in the coming months and years.

Overall, these two travel companies have endured a torrid time over the past couple of years. Having taken a look at the businesses, however, I think they could now be on the road to recovery. As passenger numbers climb and revenue increases, I think they may potentially turn losses into profits in the near future. To that end, I’ll add both firms to my portfolio soon. 

Clearer skies ahead

Wizz Air’s (LSE:WIZZ) share price has plummeted in the past year. In that time, it’s fallen 57%, while over the last three months it’s down 40%. The shares are currently trading at 1,911p.

The short-haul airline suffered badly during the pandemic when virtually all planes were grounded. However, passenger numbers for June were 4.3m, up 179% year on year. This was at a load factor of 86.1%. 

Whatever way I look at these figures, they tell me that more planes are flying, and more passengers are on board. This can only be good news for the shares.

Furthermore, the firm also reinstated its jet fuel hedging policy, meaning it will be protected to some extent from surging oil prices.

However, for the three months to 30 June, the business swung to a €285m operating loss. While this may seem disappointing, it’s important to note that this could be short-term in nature. In recent months, many flights were cancelled as airlines across the world struggled to meet demand.

As the company recruits more cabin crew, I suspect financial results may continue to improve. Also, the easing of international restrictions mean that demand for travel will likely rise in the coming months. 

Citi recently upgraded the firm from ‘sell’ to ‘neutral’, citing its expectation that Wizz Air will surpass pre-pandemic profit levels in the coming years.

Steely determination

Shares in Ferrexpo (LSE:FXPO) took a hit when Russia invaded Ukraine. This is chiefly because it’s a mining and iron ore pellet manufacturer operating in Ukraine. However, in the past week the share price is up 24%, currently trading at 145p.

Barclays recently upgraded the company to ‘equalweight’ and stated that it thought the shares may be cheap at current levels. Indeed, it increased its price target from 215p to 265p.

However, the firm lowered its production schedule due to the ongoing war. For the three months to 30 June, production fell 27%. On the other hand, Ferrexpo is working to resume sales through other seaports.

Moreover, Ukraine and Russia signed a deal last week to resume grain exports and this could be an early signal that hostilities are potentially moving towards some type of conclusion. This would only be good news for Ferrexpo, although there are no guarantees.

Overall, both of these companies have been battered for different reasons. However, financial results and geopolitical developments mean that both could see their share prices soon soar. Accordingly, I’ll be adding both businesses to my portfolio soon.

These are problems that a trader and a short-term investor needs to consider carefully. But as someone who invests for the long haul, I think the 2022 market downturn provides many excellent dip-buying opportunities for me.

Wizz Air Holdings (LSE: WIZZ) is one dirt-cheap UK company I’m considering buying today. It has endured a stock price drop of 35% in the past three months alone. I think it could deliver exceptional investor profits once strong economic growth returns.

Flying lower

2022 has been a nightmare for many UK airline stocks. Flight cancellations have ballooned as staff shortages have emerged. Indeed, Wizz Air reduced its summer capacity again this month in response to the crisis.

Meanwhile, fuel costs are soaring as the price of crude oil rockets. And fears over ticket sales are growing as consumers and businesses start to tighten the pursestrings.

What’s more, Wizz Air’s share price in particular has been badly hit following Russia’s invasion of Ukraine. With a focus on Central and Eastern Europe it is particularly susceptible to changing economic and geopolitical conditions in the region. Its operations in Ukraine remain closed, of course.

Having said all that, right now it still retains a bright long-term outlook. The emerging regions it concentrates on remain tipped for strong economic growth in the coming years. This could ignite demand for its low-cost plane tickets.

Robust regional growth

To illustrate that potential, take Poland and Romania as examples. These are by far the stock’s biggest markets by number of routes. The Polish economy has tripled in size over the past three decades. And, looking ahead, Romania’s could be on course to grow above the European average too. The European Commission has also tipped GDP growth of 3.6% in 2023, above the EU average of 2.3%.

A cheap FTSE 250 share

City analysts also think Wizz Air will bounce back into profits growth in financial 2024. This means the airline stock is now on a rock-bottom PE ratio of just 8.8 times. I think the company’s sinking share price represents a top dip-buying opportunity.

I don’t just like it because of its exposure to Central and Eastern Europe. It’s also expanding into other parts of the continent, a drive that boosts its opportunities in the fast-growing budget airline sector.

Analysts think the low-cost airline industry will be worth $440.5bn by 2030. That’s up almost threefold from the $115bn it was valued at in 2016. And I think Wizz Air could be one of the best ways for me as an investor to capitalise on this trend.

By purchasing now, I may be able to pick up the shares at beaten-down prices. I’ve found three exciting firms that I want to look at further.

Currys

Currys (LSE:CURY) is an online and in-store electronics retailer. This company has been caught up in the wider sell-off in the retail industry.

This has been caused by a combination of factors including inflation, rising interest rates, and higher energy costs. 

These all mean that customers have less money in their pockets to buy items, and this trend may not end for a while yet.

As a result, the shares are down 33% in the past month and currently trade at 69.6p.

However, with a cash balance of £100m at the beginning of 2022, it may be able to navigate any further issues. It has also initiated a share buyback scheme.  

Currys suffered supply chain issues over Christmas but used the time during the pandemic to build its online presence. This development of online operations complements the firm’s tradition of offering face-to-face advice and service for the sale of electronics.

Wizz Air

Secondly, Wizz Air (LSE:WIZZ) is an airline specialising in short-haul flights around Europe, the Middle East, and North Africa.

In the past month, the share price has fallen 33% and currently trades at 1904.5p.

The airline operated an extremely restricted schedule during the pandemic and, with staff shortages and flight cancellations, this summer could bring further disruption. At some point, however, international should return to normal. 

The firm also warned that it could report a loss for the three months to 30 June, citing cancellations and increasing staff costs. 

Furthermore, it had a policy of not hedging its jet fuel. It has since reversed this decision, but this original policy has left the airline at the mercy of surging oil prices for the moment. 

Harbour Energy

Finally, Harbour Energy (LSE:HBR) is a global oil exploration and production business. The shares are down 20% in the past week and currently trade at 375p.

The company is benefiting from high oil prices, with Brent crude currently trading at $116 per barrel. 

Today, it announced a $200m share buyback scheme, indicating that the business is in a financially healthy state.

For the first three months of 2022, the company beat production guidance and had operating costs of $14.1 per barrel. It expected costs to be between $15 and $16 per barrel.

There is the potential threat that further Chinese lockdowns could lead to lower oil prices. In addition, future pandemic variants could cause demand for oil to decline and may cause a fall in the value of Harbour Energy’s produce.

Overall, these three companies have been caught up in the recent market correction and could be good investments for the long term. I will be buying shares in all three businesses soon.  

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Airtel Africa 

What it does: Airtel Africa provides telecommunications and mobile money services in sub-Saharan Africa. 

By Royston Wild. Demand for telecoms services remains largely unchanged during all points of the economic cycle. Therefore, it’s my belief that Airtel Africa (LSE: AAF) could be a top growth stock for June as inflation rises and recessionary risks grow.

City analysts think Airtel’s earnings will rise 12% in the current financial year (to March 2023). They think profits growth will accelerate to 16% next year too. 

And so at today’s prices, the FTSE 100 share trades on a bargain-basement forward price-to-earnings (P/E) ratio of 8.4 times. 

I don’t just think Airtel’s a great buy for these uncertain times, though. Its focus on the fast-growing markets of Africa provides it with exceptional long-term revenue opportunities. Product penetration remains low across both the telecoms and financial services industries in its markets. Meanwhile, personal wealth levels are rocketing and population levels are rising strongly too. 

Pre-tax profits at Airtel leapt 75.6% in the financial year to March, the latest financials this month showed. These came in at a forecast-beating $1.2bn. I expect the Footsie business to continue impressing as its customer base balloons. 

Royston Wild does not own shares in Airtel Africa. 

Rolls-Royce

What it does: Rolls-Royce is a multinational civil aerospace, defence, and power systems company based in the UK.

By Dylan Hood: The Rolls-Royce (LSE:RR) share price has struggled ever since the pandemic first hit. However, the firm recently announced a trading update that contained some encouraging metrics. For FY2021, gross margins increased 23.4% compared to FY2020, leaving the company profitable for the first time since the pandemic’s onset over two years ago.

The firm is also making encouraging steps in its plan to rebuild its balance sheet, and has committed to achieving positive free cash flow by Q3 of 2022.

Investors have already been reacting positively to this news, with the price of Rolls-Royce shares climbing over 6% throughout May. While still under the £1 mark, I believe now could be a great time to open a position in my portfolio for future growth.

Dylan Hood does not own shares in Rolls-Royce.

Softcat

What it does: Softcat provides IT infrastructure solutions. Its areas of expertise include cloud computing, data, and cybersecurity.

By Edward Sheldon, CFA. Softcat (LSE: SCT) shares have experienced a significant pullback since September 2021 and I think this has presented an attractive buying opportunity.

A recent trading update showed that the tech company still has plenty of momentum. Indeed, the group advised that for the quarter ended 30 April 2022, it generated double-digit year-on-year growth in revenue, gross profit, and operating profit. It added that it now expects operating profit for the full year to be “slightly ahead” of its previous expectations.

Meanwhile, after the recent pullback, the stock’s valuation now seems quite reasonable. At present, the forward-looking P/E ratio here is about 27, which is not high in my view, given the company’s track record, growth potential, high level of profitability, and strong balance sheet.

Of course, if future growth is disappointing, the stock could underperform. All things considered, however, I like SCT’s long-term risk/reward profile.

Edward Sheldon owns shares in Softcat.

Ceres Power

What it does: The Sussex-headquartered firm is a world leader in metal-supported solid oxide fuel cell technology.

By Dr. James Fox. The hydrogen industry has enormous potential and that’s why I’m keeping a close eye on Ceres Power (LSE:CWR).

The UK-based fuel cell developer is yet to turn a profit. However, revenue is growing. Ceres reported a 44% increase in revenue and other operating income in 2021, reaching £31.7m.

As such, it currently has a price-to-sales revenue of around 40. That’s not cheap, but equally this also reflects the sector’s potential.

Ceres licences its energy technology to individual manufacturers, reducing costs relating to the building of manufacturing facilities. It also has lucrative partnerships with Bosch and Doosan.

Doosan is preparing for a soft launch of its 10kW SOFC product this year and will open a 79,200sq metre plant in 2024. With production being scaled up, 2022 could be a transformative year for the firm.

And with the share price falling over the past 12 months, it looks like a good time to add this stock to my portfolio. 

James Fox does not own shares in Ceres Power.

Petrofac

What it does: Petrofac designs, builds, manages and maintains oil, gas, and renewable infrastructure internationally. 

By Michelle Freeman. The recent windfall tax announcement may have made headlines for the oil & gas giants like BP and Shell, but it also created an instant demand for oil & gas infrastructure services. 

Why? Because the ability to offset investment spend against the new levy means that right now, plenty of UK-based projects will have been given a huge business case boost.  

But getting the go-ahead is only part of the battle. They’ll also need to be able to spend the money – and that’s going to lead to a spike in demand for the next few years at least. 

Petrofac (LSE:PFC) is one of a few companies that are well positioned to benefit from this upturn – alongside the wider trend globally as infrastructure spend returns with the high oil and gas prices. 

The best part for me, though: it’s not a one-trick pony, having also diversified nicely with its complementary renewables infrastructure arm. Win-win! 

Michelle Freeman does not own shares in Petrofac.

Howden Joinery Group

What it does: Howden Joinery is the UK’s largest vertically integrated trade kitchen supplier within the home improvement industry.

By Zaven Boyrazian. Renovating or constructing new kitchens may not sound like a lucrative investment opportunity. Yet Howden Joinery (LSE:HWDN) seems to disprove that. Looking at its latest trading update, the firm delivered an impressive 21.8% revenue growth – almost twice what it’s historically achieved. And that’s during its low season.

With its peak trading period just around the corner, the stock looks primed for a bounce-back after its recent tumble in the general market turmoil. There are valid fears of a slowdown risk due to rising inflation and a consumer spending crunch. However, given management continues to pursue its expansion plans in the UK and France, there appears to be a high degree of internal confidence that I like to see.

From what I can see, Howden Joinery is delivering its fastest growth in years, yet its share price is trading near a 52-week low. That, to me, looks like a fantastic buying opportunity for my portfolio.

Zaven Boyrazian does not own shares in Howden Joinery Group.

Hikma Pharmaceuticals 

What it does: Hikma develops, manufactures and markets a wide range of high-quality generic, branded and in-licensed pharmaceutical products. 

By G A Chester. Hikma Pharmaceuticals (LSE: HIK) has been out of favour for a while. Its shares are down around 30% over the last 12 months. 

The latest knock to market sentiment came in May. Hikma downgraded its guidance on the expected performance of its generics division in 2022. 

Management’s previous guidance was for revenue growth of 8%-10% over 2021’s revenue of $820m and an operating margin of 24%-25%.The new guidance lowered revenue to $710m-$750m and the operating margin to around 20%. 

The reason was a change in expectations of the launch timing of a generic medicine, shifting its revenue and profit contribution from the second half of 2022 to the first half of 2023. 

I don’t think this damages Hikma’s long-term growth story. The recent resignation of chief executive Siggi Olafsson — to pursue other opportunities — adds further uncertainty. But I reckon the weak share price represents a great opportunity for me. 

G A Chester does not own shares in Hikma Pharmaceuticals 

Greencore

What it does: FTSE 250 firm Greencore supplies convenience foods to retailers and food-to-go outlets all over the UK.

By Roland Head. Convenience food specialist Greencore (LSE: GNC) is bouncing back strongly from the pandemic. The firm reported sales up 34% to £771m during the half year to 25 March, thanks to “strong growth in food to go”.

I think the company’s growth is set to continue. City forecasts suggest Greencore’s pre-tax profit will hit £63.5m in the 2022 financial year and £80.6m next year.

The business is expanding beyond its historic strength in sandwiches to offer foods such as salads, sushi, ready meals and soups and sauces. Over time, I think this strategy is likely to support steady long-term growth.

Of course, larger retailers such as supermarkets are tough customers. They’re likely to keep pressure on Greencore’s prices and margins.

Today, Greencore shares trade on 12 times 2022 forecast earnings, falling to a forecast P/E of nine for 2023. That looks good value to me.

Roland Head does not own shares in Greencore.

Plus500 

What it does: Plus500 provides online trading services in Contracts for Difference (CFDs) across a range of asset classes.

By Charlie Carman. Benefitting from the rise in retail trading activity over the pandemic, the Plus500 (LSE: PLUS) share price has soared nearly 90% since the start of the UK’s first lockdown in March 2020.

The FTSE 250 fintech company’s latest quarterly results revealed impressive 33% year-on-year increases in revenue and EBITDA. Admittedly, Plus500 experienced a 35% decline in active customers compared to Q1, 2021. However, average revenue per user rocketed by 104%, which sufficiently offsets any potential concerns for me.

Plus500 continues to expand its global operations. The Israel-based business recently obtained a new licence in Estonia, improving its core product offering in European markets. In addition, its acquisition of EZ Invest Securities signalled an entry into the substantial Japanese retail trading market.

It seems elevated stock market volatility is here to stay for the time being. I believe Plus500 shares should perform well in this macroeconomic environment. I’d buy in June.

Charlie Carman does not own shares in Plus500. 

Dr. Martens

What it does: Dr. Martens is a luxury brand that sells footwear. Its boots are a cultural staple and its best selling item.

By John Choong – With stagnating retail sales data over the last quarter, I was originally bearish about Dr. Martens (LSE: DOCS)’ prospects. However, its stellar FY 2022 results blew my expectations out of the water. As a result, its share price surged by 18%.

Being a luxury brand, Dr. Martens has managed to pass its costs onto customers without negatively impacting its top and bottom lines. In fact, its profit margins saw an increase to 19.9% for the year, along with strong sales figures. This has pushed its free cash flow in the right direction too.

Additionally, management expects a strong FY23, citing “huge headroom for growth in key markets”, as well as a strong wholesale order book with fixed factory prices. The latter allows the firm to hedge against inflationary pressures, which is crucial given the macroeconomic environment. 

Therefore, I’m optimistic about the future of the company, and will be looking to buy shares in the near future.

John Choong has no position in Dr. Martens

Wizz Air

What it does: Wizz Air is a Hungary-based airline, specialising in the operation of short-haul flights around Europe, North Africa, and the Middle East.

By Andrew Woods. The improvement in the firm’s passenger numbers in recent months is quite staggering. For May, Wizz Air (LSE:WIZZ) flew 4.1m people, with a load factor of 84.2%. This was up from 3.6m and 83.4% in April. These passenger figures for May and April also equate to 390% and 542% increases, compared to the same periods last year.

As pandemic travel restrictions are relaxed, the airline is expecting a very busy summer. It has been recruiting cabin crew at pace to try and keep up with demand, but many flights have already been cancelled. This disruption could subside once the business hires more employees.

Wizz Air recently signed a memorandum of understanding with the Saudi Arabian government to explore the potential development of routes throughout the country. This would greatly increase the company’s presence in the Middle East.

In addition, a cash balance of €1.3bn suggests that the firm is in decent financial shape and well positioned for returning to higher capacity in the coming months.

Andrew Woods does not own shares in Wizz Air.

Royston Wild: BAE Systems 

The BAE Systems (LSE: BA) share price lifted off in February as tragic events in Ukraine unfolded, and it’s stayed strong since then. The war in Eastern Europe illustrates the tense geopolitical backdrop that I think will support sustained and strong demand for BAE Systems’ defence products. 

In fact, BAE Systems has grown earnings in four of the past five years as global arms spending has risen. The only reversal came in 2020 when Covid-19 disruptions hit the bottom line. City analysts expect profits to keep heading northwards this year, and next too, as the West bumps up arms spending in light of recent events.

I think BAE Systems could be a particularly strong performer in May too as rising fears over rampant inflation boost demand for safe-haven shares like defence companies. 

Royston Wild does not own shares in BAE Systems.

Zaven Boyrazian: Alpha FX Group

Alpha FX (LSE:AFX) is a financial services group specialising in currency risk management and alternative banking solutions. The firm helps businesses mitigate foreign exchange risk while simultaneously enabling almost instant enterprise-scale international transactions – something not possible with archaic methods like wire transfers.

Corporate banks offer similar solutions and are a significant source of competition. However, these are often prohibitively expensive. By charging on a per-transaction basis, Alpha FX enables its clients to overcome this barrier to entry.

With an impressive track record of double-digit growth and its 2022 performance continuing to impress, I think it’s time to add more shares to my portfolio today.

Zaven Boyrazian owns shares in Alpha FX

Edward Sheldon: Smith & Nephew

My top British stock for May is Smith & Nephew (LSE: SN). It’s a healthcare company that specialises in joint replacement systems.

There are a couple of reasons I like the look of Smith & Nephew right now. One is that there’s a huge joint replacement backlog globally at the moment due to Covid-19. So, the company appears to be well positioned for growth in the years ahead.

Another is that the healthcare sector tends to be quite defensive in nature. So, the stock could hold up relatively well if we see a recession.

It’s worth pointing out that Smith & Nephew shares are not cheap. So, this adds a bit of risk. All things considered though, I see a lot of potential here.

Edward Sheldon owns shares in Smith & Nephew.

Stephen Wright: London Stock Exchange Group

I think that my top stock for May is one of the best companies in the UK. It combines a core business that has virtually no competition with other operations that have high margins, low costs, and generate huge returns.

The stock is London Stock Exchange Group (LSE:LSEG). The company operates the exchanges on which financial market transactions take place. These have high barriers to entry. But the company also has various other operations, including data, fixed income trading, and clearing services.

Stephen Wright does not own London Stock Exchange Group.

Michelle Freeman: Wizz Air

It’s no surprise to anyone that airline shares have had a rough time over the last two years. But with Wizz Air (LSE: WIZZ) down over 30% since the start of the year, I think its shares look potentially oversold compared to others. 

Yes, Wizz has more exposure to those Eastern European travel destinations that are impacted from the on-going war. But it has been diversifying its network and increasing capacity recently, including picking up more Gatwick slots from Norwegian.  

With the WTTC reporting triple-digit growth compared to last year, I wouldn’t be at all surprised to see the share price benefit accordingly. 

Michelle Freeman does not own shares in Wizz Air.

Andrew Mackie: Anglo American

My top stock for May is Anglo American (LSE: AAL). This may seem like a strange choice, given the 20% share price fall in the three days following a disappointing Q1 production report.

However, I would look beyond the headlines. At the moment, a lot of miners are suffering with high input costs, particularly diesel, Covid-related absences and production issues. However, all this is likely to do is push up prices even further.

The business remains a cash-generating machine, with a dividend policy of returning 40% of underlying earnings to shareholders.

For me, the commodities cycle is still very much in its early innings. With such a diversified portfolio, the sell-off has presented a good entry point for long-term investors.

Andrew Mackie does not own shares in Anglo American.

Andrew Woods: Tullow Oil

Tullow Oil (LSE: TLW) is an oil and gas exploration and production firm. It operates globally, but it has larger operations in Ghana and Kenya in Africa, and Guyana in South America.

The pandemic hit the business hard, resulting in a $1.2bn pre-tax loss in 2020. It recovered, however, to post a $200m pre-tax profit the following year.

In March, it increased its stake in two oil fields in Ghana, potentially increasing production by 4,000 barrels of oil per day. With oil prices at high levels, I think this firm could be a top stock for me in May.  

Andrew Woods has no position in Tullow Oil.

Paul Summers: XP Power

Having once made a big profit on the stock, I’m starting to think about buying XP Power (LSE: XPP) again. The share price of the critical power solutions provider has tumbled in the last few months due to a resurgence of Covid-19 in Asia, higher costs, and limited component supply.

Despite these headwinds, business is ticking along nicely. XP had a record order book of roughly £260m moving into Q2.

The valuation of 17 times forecast earnings looks pretty reasonable to me. There’s also a well-covered dividend to keep investors happy while the dark clouds pass. 

Paul Summers has no position in XP Power

John Choong: Dunelm

Dunelm (LSE: DNLM) was predicted to falter after Covid restrictions were lifted. But its most recent earnings report showed a 25% increase in its profits, with total sales up 10.6% year over year. Additionally, Dunelm has managed to maintain healthy margins of 10.8% whilst boasting a stellar balance sheet with zero debt.

Although its stock has taken a plummet due to disappointing retail sales figures, the fine print proves that the British retailer remains immune for the time-being, as household goods stores saw a 2.6% increase in sales. This is backed up by Dunelm’s own numbers, with an 8.5% increase in active customer growth.

John Choong has no position in Dunelm.

Roland Head: Redrow

I am picking FTSE 250 housebuilder Redrow (LSE: RDW) as my top stock for May. I think that shares in this founder-backed group could offer impressive value.

The risk of a UK economic slowdown is the main concern here. That could hit sales. But recent trading updates have not suggested any slowdown in demand for new housing.

In Redrow’s latest results, the company increased its sales and profit guidance for 2022 and said that profit margins were rising despite higher costs.

With the stock trading on six times earnings and offering a 6% dividend yield, I think Redrow offers excellent value.

Roland Head does not own shares in Redrow.

G A Chester: Integrafin Holdings 

Integrafin Holdings (LSE: IHP) owns Transact, one of the largest independent platforms serving UK financial advisors and their clients. It may not be as well-known as direct-to-consumer operator Hargreaves Lansdown, but it has a strong record of growth. 

Revenue has increased at a compound annual rate of 12% over the last four years and earnings have advanced at a rate of 14%. Negative market movements in asset prices are a risk, and wage inflation is also currently a friction. 

Nevertheless, after recent share-price weakness, and with a tailwind of structural growth in the UK wealth-management market, Integrafin looks a quality business on sale cheap. 

G A Chester has no position in Integrafin Holdings. 

Alan Oscroft: Kingfisher

At around the 250p mark, DIY specialist Kingfisher (LSE: KGF) looks cheap to me. The owner of B&Q and Screwfix staged a strong pandemic comeback. But that’s reversed in 2022, for a 30% fall over the past 12 months. The shares are now on a trailing P/E of only around seven, with dividend yields above 3.5%.

My main concern is that free cash flow for 2021-22 fell sharply. With net debt of £1.6bn, that could bite. But the company is buying up its own shares right now. I’d do the same.

Alan Oscroft has no position in Kingfisher.

What are airline shares?

Airline shares are publicly tradable financial instruments of aviation companies listed on a stock market.

Buying shares in an airline gives an investor part-ownership of a business that operates regular services for carrying passengers or goods by plane. If the business grows its profits over time, the company becomes more valuable. And, all else being equal, the value of its shares will also increase. In addition, companies may pay cash dividends to their shareholders.

Aviation companies come in different shapes and sizes, so comparing individual stocks isn’t always straightforward.

Traditional full-service airlines (also known as legacy airlines) typically offer checked baggage, meals, drinks, in-flight entertainment, pillows and other comforts in the ticket price. They often have long histories and are flag carriers for their countries.

Low-cost airlines (also known as budget or no-frills airlines) generally offer little beyond a seat in the ticket price, with any extras having to be paid for. They typically operate over shorter routes.

Differences have become somewhat blurred over the years. Full-service airlines now often charge for some of the extras. Meanwhile, low-cost airlines operate on a spectrum that could be said to extend from lower-cost to ultra-low-cost.

While no airline business model is inherently superior, an appreciation of the differences can help an investor understand the variations in some of the key metrics in the industry, such as revenue per seat and cost per seat.

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Top LSE aviation stocks

Here are the top four aviation stocks on the London Stock Exchange:

International Consolidated Airlines

British Airways was floated on the stock market in 1987 as part of the spate of privatisations of state-owned businesses by the Conservative government of the era. International Consolidated Airlines (IAG) was formed by the merger of British Airways and Spanish flag carrier Iberia in 2011. The group subsequently added Irish airline Aer Lingus to its portfolio.

In addition to these legacy airlines, IAG owns low-cost European short-haul brand vueling and low-cost long-haul brand LEVEL. In the year prior to the Covid-19 pandemic, the group carried a total of 118m passengers. It has further diversification in the shape of its IAG Cargo division, which operates an extensive airfreight network. This serves over 10,000 businesses.

IAG is the biggest airline stock on the London market. The group is also the most diversified with its multiple passenger brands and air freight operations.

Key Metrics:

• Market Cap: £7bn (as of 26 April 2022)
• Average Daily Volume: 34.5m
• HQ: London, UK

easyJet

easyJet was founded in 1995 and was floated on the London Stock Exchange in 2000. It’s a pan-European low-cost airline that’s built a strong position at many leading airports, with high customer demand. Indeed, it’s the number one or two operator in those primary airports it’s targeted. Its main competitors at such airports are the legacy airlines and charter carriers. It doesn’t need an ultra-low-cost model to compete successfully against these operators.

In the year prior to the pandemic, easyJet carried 96m passengers. That year it also launched package holiday brand easyJet Holidays. Over 80% of its customers travel for leisure. By offering holiday packages, it encourages those customers to spend more with easyJet, rather than book accommodation elsewhere.

Key Metrics:

• Market Cap: £4.2bn (as of 26 April 2022)
• Average Daily Volume: 7m
• HQ: Luton, UK

Wizz Air

Ultra-low-cost airline stock Wizz Air was founded in Hungary in 2003. By the time of its London flotation in 2015, it had grown to be Central and Eastern Europe’s largest low-cost airline. It has since continued to expand its network of European destinations. It also has some medium-haul destinations in the Middle East and North Africa. In the year prior to the pandemic, Wizz carried 40m passengers.

The company has largely shunned expensive, slot-constrained airports, enabling it to focus on stripped-down ticket prices. It’s also shunned merger-and-acquisition activity in favour of organic growth. Having said that, management’s stated it hasn’t ruled out acquisitions should a compelling deal emerge. In fact, it was rumoured to be the mystery bidder behind a spurned approach for easyJet in 2021.

Key Metrics:

• Market Cap: £3.2bn (as of 26 April 2022)
• Average Daily Volume: 0.8m
• HQ: Budapest, Hungary

Jet2

The origins of Jet2 origins go back to a company founded in 1971 to fly flowers from Guernsey to the United Kingdom. Its freight operations subsequently expanded considerably and it was floated on the UK Unlisted Securities Market in 1988. Three years later, it moved to London’s main market, with the name Dart Group.

In 2002, the group launched a low-cost passenger airline, branded Jet2.com. And in 2007, it added a package holiday brand, Jet2holidays. Ultimately, it divested its other operations to focus on these two businesses, changing its name to Jet2 in 2020. In the year prior to the pandemic, the company flew a total of 15m flight-only and package holiday single sector passengers.

Key Metrics:

• Market Cap: £2.8bn (as of 26 April 2022)
• Average Daily Volume: 0.8m
• HQ: Leeds, UK

Investing in foreign airline stocks

Most UK investors will be familiar with no-frills airline Ryanair. The company dropped its London listing last year, but its shares can still be bought on its primary listing exchange, Euronext Dublin.

Of course, there are other foreign airline shares investors may want to consider, such as the four big US players:

• American Airlines
• Delta Air Lines
• Southwest Airlines
• United Airlines

Are airline stocks right for you?

After almost getting stung by a foray into airlines in 1989, legendary investor Warren Buffett bemoaned the economics of the industry. He reckoned the airline industry as a whole had made a cumulative loss in the 100 years since the days of the Wright Brothers.

Yet, in 2016, he made a further foray into airlines, building substantial positions in the four largest US carriers. He would soon regret it. When the pandemic struck, he sold all his airline shares, booking a hefty loss.

Pandemics aside, investing in aviation stocks can be something of a minefield. They’re highly sensitive to macroeconomic gloominess and economic downturns. Businesses cut back on travel expenses and leisure travellers go on fewer holidays during recessions.

And there are other potential pitfalls, more specific to the airline industry. Airlines have big fixed and operating costs. Ongoing purchasing, or leasing, of new aircraft is expensive, and management errors on long-term fleet decisions can be costly.

Fuel and labour are other major expenses that airlines have to manage carefully. Ineffective fuel hedging and negotiating with a quite widely unionised workforce can hurt business performance.

As such, as well as in periods of recession, airlines may struggle to grow profits when fuel and labour costs are rising. High levels of debt at the wrong time may pose additional challenges.

Having said all that, there are times when investing in aviation shares can be very rewarding. When the economy is thriving or fuel or labour costs are depressed, airlines can deliver substantial profits for shareholders.

As the sector is not only one that’s highly geared to the wider economy, but also one that has some distinct financial and operational challenges at other times, anyone looking at investing in airline stocks need to go carefully. A relatively high appetite for risk and a strong stomach for turbulence will help before check-in.

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What’s behind today’s jump?

On Thursday, Wizz Air said it would ramp up capacity beyond pre-pandemic levels for its summer schedule amid a positive forecast. The airline said that available seat kilometres (ASKs) for the three months to June would be 30% ahead of 2019. ASKs would be 40% higher than the 2019 July-September quarter.

“We have been encouraged by demand trends in recent weeks and given the shorter booking horizon expect the bookings for this summer to build significantly after Easter,” a trading update read.

Wizz said that that it was continuing to monitor the situation in Ukraine, Moldova and Russia. It noted that while flights to/from these locations remain suspended, it had successfully reallocated the affected capacity to elsewhere in its network.

The operating result for the final quarter of the 2022 fiscal year was expected to be ahead of the guidance provided at the Q3 update.

Is Wizz a cheap buy for my portfolio?

Wizz Air may be trading at a discount, but there’s a reason for that. The Budapest-headquartered airline has been more afflicted by the Ukraine conflict than its peers, primarily due to its exposure to Eastern European markets. Wizz Air was the only EU carrier to have a base in Ukraine and operated 45 routes out of the country. The operator stopped flights to and from Russia and Ukraine following the invasion, causing it to slash its business growth targets.

But that wasn’t the only way the war impacted the airline. While most airlines had hedging strategies to protect them against fuel price fluctuations, Wizz Air had stopped hedging. The airline was more exposed to the rise in oil and fuel prices. In fact, Wizz cut 7% of its flights in March as a result of its lack of fuel hedging. By comparison, Ryanair had hedged 80% of its anticipated fuel requirements at $65 per barrel of oil until March 2023, meaning it can continue operations with lower fuel costs.

During the pandemic the low-cost carrier invested heavily in new planes and routes, but this could go two ways. Further disruption could force it to absorb higher fixed costs than other leaner airlines. Equally, Wizz may be better positioned to take advantage of pent-up demand for travel.

I do already hold shares in Wizz. I only have a limited number but I believe the share price will improve from here. Yes, there are near-term issues. But I’m holding this one for the long run, even if I’m not buying more for now.