When I bought IAG (LSE: IAG) shares last year, I knew it would be a long wait before they would pay off. My big motivation for buying them was their low price compared to what I saw as their real value. This was to be expected of travel stocks during the pandemic. As the Covid-19 situation improved, however, these stocks started picking up, including the IAG share price. And at many times since buying it, I have made notional gains on the investment.
IAG share price weakness
However, since yesterday, travel stocks have once again been impacted. The stock markets took quite a wobble as Russia went to war with Ukraine. Cyclicals, in particular, have weakened. These are stocks like banks, travel, and leisure, that are highly sensitive to potential macroeconomic fluctuations. And that includes IAG. It plunged some 6.3% yesterday. It has recovered some of these losses in trading so far this Friday afternoon. I reckon this is partly because the stock markets have stabilised a bit today, but also because the company released its full-year 2021 results.
Results are encouraging
The numbers are encouraging. The company’s revenues are up by 8.3% and its post-tax loss has declined significantly by almost 58%. And things are about to get even better for it. CEO Luis Gallego says in the results statement “We are confident that a strong recovery is underway”. This is also evident in the company’s projections for 2022. While it expects to continue clocking a loss in the first quarter of this year for reasons like seasonality and the impact of Omicron, it sees operating profits from the second quarter. For the year as a whole, it expects “both operating profit and net cash flows from operating activities to be significantly positive for the year”.
Don’t forget the risks
However, there are still risks associated with the stock too. The big one of course is the return of Covid-19. We have likely put the pandemic behind us only until such time that a new variant is discovered. If another one does in fact come along, we might just go back into lockdowns. And that would be a huge negative for IAG, whose debt is already mounting. I am also concerned about the impact of inflation on IAG. Even though it is hedged against the impact of rising fuel prices, non-fuel costs could rise along with overall inflation. This is something I am looking out for in the near future.
Why I’d buy IAG shares
Overall though, I think risks to the IAG share price have declined significantly over the past year. The company’s own projections give me confidence, as does the improving macroeconomic environment as well as the fact that Covid-19-related restrictions are a thing of the past now. There are risks, of course, that include high inflation and the appearance of another coronavirus variant, but on balance they are not as big as the risks last year. I will increase my holdings of the FTSE 100 stock in 2022.
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Manika Premsingh owns IAG. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
