Almost exactly one year ago, I asked whether I should buy British Airways owner International Consolidated Airlines (IAG) for the SIF portfolio. Remarkably, one year later IAG has popped up in my stock screen again.
Last year, I decided not to add to the stock to the portfolio. Coming just a few days before the EU referendum, this decision has helped me avoid a loss. The shares slumped after the Brexit vote and didn’t start to recover until late October. Had I sold in December after six months, in line with last year’s portfolio rules, I’d have logged a 10% loss.
However, IAG’s recovery has continued and the shares are now worth more than 600p. That’s about 20% more than when I last looked at the stock a year ago. Remarkably, the firm’s recent IT fiasco hasn’t dented the share price. Perhaps this is because the rumoured £80m cost of the IT failure is peanuts to a company of this size.
Or perhaps investors believe that British Airways has a sufficiently entrenched position to hang onto its customers, however badly it treats them. Any underlying issues facing the firm’s brands have yet to hit sales, so the market may be ignoring this risk.
Luckily, my job here is not to try and judge IAG’s operational performance. It’s to assess the firm’s financial profile and decide whether I should add the stock to my rules-based Stock in Focus portfolio.
Not straightforward
This FTSE 100 group currently has a StockRank of 98 and a StockRank Style of Super Stock. Stocks with these characteristics have historically tended to outperform the market, although there’s no guarantee this will continue.
This stock also qualifies for nine of the long Guru Screens which model the investing strategies of famous investors. Several of these screens have delivered annualised returns of more than 20% since they started running on this website. The only fly in the ointment is that IAG also qualifies for two short-selling screens. Should this be a concern?
In the remainder of this piece I’m going to look at the bull case for the stock and investigate why IAG qualifies for these short-selling screens. Should I steer clear of the stock, or is it a buy for the SIF Portfolio?
It’s still cheap
Rigorous cost management, rising passenger numbers…
