First it was Delta, now it’s Omicron… The Covid-19 variants have meddled with lives around the world, but as an optimist I have to try and take something positive from the current Omicron disruption. For me, Omicron has created plenty of cheap-looking shares, and I think the IAG share price in particular looks like especially good value at the moment.
The airline collective International Consolidated Airlines Group (LSE:IAG) is understandably the type of business suffering because of the Omicron chaos. The way the world works at the moment, the new Covid-19 variant Omicron equates to stricter controls over international travel, which in turn discourages passengers from flying. This means lost revenue for IAG and other travel-focused businesses. I think there are sound reasons though why I should take a chance on the recent IAG share price dip being only a temporary blip.
Look at IAG’s 12-month share price
I feel like we’ve been here before with Omicron. Scroll back 12 months to when the UK went back into lockdown before Christmas in 2020, and the world felt like it was caving in once more. But remember what happened?
We all got through January 2021, the world began to feel a little bit more open again, and we got on with life as well as we could by the summer and autumn. Now, we’re on a bit of a downer again with Omicron.
Take a look at the 12-month IAG share price trend and see how it fits into that pessimism-optimism-pessimism pattern. Call me mad if you want, but I like to pay plenty of attention to the power of public sentiment being able to shift share prices. Public opinion rather than hard facts can sometimes do crazy things to stock markets, and I think IAG over the past year exemplifies this.
Strong IAG management response
I’m not quite mad enough to invest in a business on this basis only, so it’s important to understand the risks involved with investing in IAG. It’s evident every day that globally we are not yet out of the pandemic, and the longer it goes on the longer it takes to get back to full international travel. For a business running iconic international long-haul airline brands such as British Airways, Iberia and Aer Lingus, this is of course a problem.
I’m also well aware that IAG continues to operate at a loss. The losses are so big they look scary, but I think the recently reported operating loss of €485m needs putting into perspective.
IAG is not the only airline group finding times tough at the moment. The one thing the group does have on its side longer-term is those aforementioned strong brands. I also think that past brand marketing investment will pay off over the next few years. Access to €10.6bn cash in the form loans and the like won’t hurt IAG either.
All in all, IAG shares feel cheap to me right now. I’m getting stuck in this coming week, especially as I am happy to sit on the shares for the longer term. Time will tell how I get on!
