This FTSE 100 stock still looks ludicrously cheap

The share price of this top-tier giant takes a dive following interim results, but Paul Summers thinks its even more attractive than before.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

An airplane on a runway

Image source: Getty Images.

Shares in British Airways, Iberia and Aer Lingus owner International Consolidated Airlines (LSE: IAG) hit a fresh bout of turbulence this morning as the shares dived following the publication of its latest set of interim numbers and news that the FTSE 100 company had suffered disruption costs as a result of strikes by French Air Traffic Control.

If you ask me, this just made the stock even more attractive than it already was. Let me explain.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Growth AND income

Taken on their own, the numbers were solid (despite being slightly below consensus estimates).

Total revenue rose 3.1% over the first six months of 2018 to 11.2bn. Operating profit after exceptional items almost doubled to 1.74bn from €873m the year before. In addition to non-fuel unit costs before exceptional items falling 2% at constant currency over the last quarter, adjusted net debt also fell almost 12% to €6.2bn.

Positively, IAG also stuck to previous guidance. Despite the aforementioned strikes and rising fuel costs (the latter increased 15% at constant currency over Q2), IAG still thinks it will post a rise in FY operating profit with passenger revenue and non-fuel costs also expected to get better once foreign exchange fluctuations are taken into account.

As well as sticking to its guns, CEO Willie Walsh stated that IAG was “committed to accelerating” the growth of the company’s budget airline LEVEL by increasing its fleet in Paris and Barcelona in 2019. This follows on from the recent launch of short-haul flights from Vienna to 14 destinations in Europe, thereby allowing it to compete with the likes of easyJet and Ryanair. 

Before today, IAG’s shares were changing hands for under 7 times forecast earnings. This just looks far too cheap to me, despite the hugely competitive industry in which the company operates. Moreover, the forecast 3.7% dividend yield, while not among the largest on offer in the FTSE 100, is likely to be covered almost four times by profits, suggesting there’s a high chance of further double-digit hikes to the payout going forwards.

On the cheap

For those less concerned with receiving income from their investments, I think online travel agent On the Beach (LSE: OTB) is another top pick for those wishing to add a leisure-related holding to their portfolios. 

Despite registering stellar trading for a few years now, the stock has fallen out of favour with investors over recent months, perhaps as a result of the superb weather we’ve had in the UK and the assumption that many families will have opted for staycations. Since May, the value of the Stockport-based business has fallen almost 35% — a reversal of fortunes for investors who’ve seen the share multi-bag since hitting post-EU referendum vote lows of 176p.

Personally, I see this as a blip on what remains a compelling growth story. Beach holidays abroad won’t suddenly become unpopular on the basis of one period of exceptional weather. Nor will Brexit spell certain doom for operators in this industry, particularly those who already have a decent share of the online market (which On the Beach does).

So, having once profited handsomely from the stock, I’m starting to get interested again. Although expectations may be revised after the company next reports to the market, the valuation of 20 times earnings for this year, reducing to 16 in 2018/19, is starting to look reasonable for a company with a PEG ratio below one.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Paul Summers has no position in any of the shares mentioned. 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »