I often trawl through the FTSE 100 looking for cheap UK shares. What I look for are solid businesses that have temporarily fallen on hard times. When hunting these ‘fallen angels’, I’m looking for shares that have fallen steeply for no clear reason. Today, I saw something that surprised me about International Consolidated Airlines Group (LSE: IAG). Since mid-March, the IAG share price has been declining steadily. To me, this suggests that there may be value lurking in this stock.
The IAG share price is in descent
Before coronavirus ravaged our world, the IAG share price was cruising at altitude. At end-2019, the stock closed at 625p. In 2020, it peaked on 17 January, hitting an intra-day high of 684p. But as Covid-19 spread, the stock hit turbulence and entered a steep descent. Countries closed their borders, aircraft were grounded, and air passengers almost vanished overnight. Hence, airline shares went into a tailspin. In perhaps its steepest descent in 20 years, the IAG share price collapsed. On 14 May 2020, it closed at a mere 159.25p. In other words, the shares had dropped £5 in four months.
Alas, shares in the owner of UK flag carrier British Airways, Spanish airline Iberia, and Ireland’s Aer Lingus had further to fall. On 25 September 2020, the Anglo-Spanish airline operator’s shares hit a record low of 86.54p. That’s a collapse of almost £6 a share — a crash of almost seventh-eighths (87.3%) — in around eight months. Finally, good news emerged that turned around the IAG share price.
On ‘Vaccine Monday’ (9 November 2020) came news of highly efficacious Covid-19 vaccines. In the subsequent relief rally, the IAG share price shot up like a rocket. By 16 March 2021, the stock hit an intra-day peak of 222.1p. Unfortunately, this was the highest point it has reached in 2021 to date. Over the past six months, the shares came tumbling back down to earth.
I’d buy at current levels
Earlier today, I reviewed the performance of all 101 FTSE 100 stocks (one is dual-listed) over various timescales. I found that the IAG share price has been the worst performer in the Footsie over the past six months. On Wednesday, the shares closed at 137.25p, down 4.85p
Several times this year, I’ve written that I wouldn’t consider buying this stock with the IAG share price around £2. Now the shares have fallen steeply, it’s time to change my mind. After a collapse of this magnitude, this FTSE 100 stock might just be a steal today. If the world gets coronavirus under control and life starts to return to a ‘new normal’, this stock might soar from current levels. I don’t own IAG at present, but I’d be willing to take a punt on it now the IAG share price is closer to 135p than £2.
Of course, I could be proved very wrong. If Covid-19 cases spike or more new variants emerge, then the global economy could plunge back into gloom. Also, if quarantine restrictions were tightened, this would be bad news for airlines. However, if I could buy all of IAG at its current market value of £6.8bn, I probably would!
