£10k invested in red-hot IAG shares after the ‘Liberation Day’ dip is now worth
International Consolidated Airlines Group (LSE: IAG) shares are right on the front line of Donald Trumpâs global tariff war. Where else would they be?
Running an airline is one of the most exposed businesses on Earth. The pandemic showed just how quickly the skies can empty. Fixed costs like aircraft leases, maintenance and thousands of staff donât disappear when planes are grounded.
Even in normal times, disruption lurks around every corner. Geopolitical shocks, local conflicts, economic crunches, natural disasters, and even faulty electrics (remember the recent Heathrow substation fire) can all ground operations. And I havenât even mentioned air traffic control strikes. This isnât a sector to enter lightly.
International Consolidated Airlines Group, known as IAG, only survived the pandemic by taking on huge debts.
Even once planes took off again, the share price struggled to lift, trading for ages at just three or four times earnings. I watched, tempted, but wary. Then the price doubled last year, and left me behind.
Right place, right time
When Trump dropped his âLiberation Dayâ tariff bombshell on 2 April, IAG shares were pummelled again. With transatlantic routes such a crucial earner for the group, the market panicked. By 7 April, the stock had crashed to 224p, a full 26% below its January opening level.
I didnât catch the bottom, but I got in just three days later at 259p. Today, the shares sit at 325p, giving me a lightning-fast return of 25%.
If somebody had invested £10,000 at the 7 April low, theyâd be sitting on a 45% gain. Their stake would be worth £14,500 today. Itâs almost impossible to catch the very bottom of any stock.
Growth prospects
Iâm delighted to have got off to a flying start but it wonât always be this smooth. This isnât a short-term trade for me. I invest to buy and hold for the long term. But that low 259p entry gives me a welcome cushion if turbulence returns.
Q1 results, published on 9 May, landed well. Revenue climbed 9.6% and operating profit rose â¬130m to â¬198m, despite cost pressures. IAGâs operating margin widened to 2.8%, helped by softer fuel prices and steady bookings.
British Airways delivered a solid performance, and Iberia and Vueling continued to lead the punctuality league tables.
Demand for premium cabins has stayed resilient even with economic clouds gathering. Net debt’s falling and a â¬1bn share buyback is under way.
Still, airlines always carry risk. War, recession, natural events. Theyâre all out there.
Cruising for now
The 25 analysts serving up one-year share price forecasts have produced a median target of just over 380p. If correct, thatâs a solid increase of another 17% from today. I donât take forecasts too seriously, but that one’s comforting. Out of 26 analysts giving stock ratings, 18 rate it a Strong Buy. Just one says Sell.
With the shares trading at a price-to-earnings ratio of 6.85, I think investors might still consider buying today. But a word of warning: the skies wonât always be this clear.
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More reading
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Harvey Jones has positions in International Consolidated Airlines Group. 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.
