Flying ace International Consolidated Airlines (LSE: IAG) has been one of the FTSE 100?s (INDEXFTSE: UKX) worst performers since Britain decided to jettison itself from the EU.
Concerns over a slowing domestic economy on holidaymakers? spending power have seen the share rattle 23% lower in the three months following the vote. But I believe this represents a terrific buying opportunity.
Indeed, a predicted 17% earnings rise in 2016 leaves IAG dealing on a meagre forward P/E rating of 5.4 times. This is some way below the big-cap average of 15 times, and suggests that the risks facing the business are…
Concerns over a slowing domestic economy on holidaymakers’ spending power have seen the share rattle 23% lower in the three months following the vote. But I believe this represents a terrific buying opportunity.
Indeed, a predicted 17% earnings rise in 2016 leaves IAG dealing on a meagre forward P/E rating of 5.4 times. This is some way below the big-cap average of 15 times, and suggests that the risks facing the business are more than baked-in.
On top of this, the British Airways operator sports a dividend yield of 4.8% for the current year, smashing the mean of 3.5% for its FTSE 100 comrades.
IAG carried 10.6m passengers across all its planes during August, up 9.9% on an annual basis, with robust growth enjoyed across all its airlines. And while a slowing UK economy may dent revenues to some extent, the carrier’s pan-global presence should help take the sting out of this.
Also, IAG can look to its cut-price brands Vueling and Aer Lingus to relieve the pressures created by any economic turbulence. And with group cost-cutting clicking through the gears, plus fuel-related expenses likely to remain subdued, I believe the carrier is in great shape to navigate the current storm and deliver robust long-term returns.
Like IAG, banking colossus Royal Bank of Scotland (LSE: RBS) has also endured a colossal share price fall since the referendum, the firm shedding 28% of its value to date. However, I believe it’s still too expensive given the huge growth obstacles that are likely to persist well into the future
The City expects the firm to endure a 59% earnings slide in 2016 alone. And this projection creates a prospective earnings multiple of 15.2 times, well ahead of the widely-regarded watermark of 10 times associated with stocks carrying high risk profiles.
RBS is already fighting a losing battle to generate meaningful revenues growth, the result of massive asset shedding in the years following the financial crisis. Indeed, the bank endured more than £2bn of losses during January-June as the top line toiled, and warned that June’s EU vote “has created considerable uncertainty in our core market.”
This phenomenon looks set to persist, in my opinion, as the Bank of England keeps interest rates locked at rock-bottom to stop the economy flatlining. And many market pundits are tipping a further rate cut as early as November.
An additional PPI charge in the first half underlined the bank’s ongoing battle with the FCA regarding previous misconduct. But this isn’t RBS’s only problem, of course — the $14bn penalty imposed on Deutsche Bank last week for selling sub-prime mortgage securities before the global recession could also have serious implications for the British financial giant.
I reckon the firm is far too risky to justify investment at the present time.
Make a mint with the Fool
Times of macroeconomic uncertainty like these mean that picking the 'right' stock can be more difficult than usual.
Indeed, there are a multitude of traps share investors can fall into, from timing their trades incorrectly to listening to the wrong information. And this is where The Motley Fool can help.
Our crack team of boffins has drawn up a report titled Worst Mistakes Investors Make that outlines the key things you should consider before taking the plunge.
Click here to download the report. It's 100% free and can be delivered straight to your inbox.
Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.