3 reasons why I think the IAG share price could rally this year

Jon Smith writes about how improving risk sentiment could help the IAG share price this year, but not without risks remaining.

| More on:
A pastel colored growing graph with rising rocket.

Image source: Getty Images

Over the past year, the International Consolidated Airlines Group (LSE:IAG) share price has fallen by 35%. It struggled last summer, with Omicron still causing problems for the industry in general. I don’t think the company is out of the woods by any means, but I can see several reasons why the IAG share price could move higher over the summer. Here’s why.

Easing commodity price pressures

Two of the reasons why the IAG share price has struggled in 2022 are actually points that I think can be flipped to a positive situation in coming months.

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!

The first one is the war in Ukraine. Ever since the invasion by Russia, commodity prices have jumped higher. Oil is a component of jet fuel, so the high prices above $100 per bbl have meant higher costs for aircraft fleets. Higher prices are good for oil majors, but not for airline operators.

However, I think that measures will be taken over the course of the summer to bring down such high prices. A natural (and much-hope-for) way for this to happen would be for a peaceful resolution to the situation in Ukraine, with a restored, higher output of key commodities such as oil. The higher output should reduce the price. We could also see OPEC increase output from the Middle East, easing pressures.

Positive risk sentiment

The second reason linked to this is that IAG shares have traded sensitively to investor risk sentiment this year. Whenever we see market jitters, the IAG share price usually takes a tumble. Be it inflation concerns, headlines from Ukraine or other worries, it’s clear that investors don’t feel comfortable holding the stock during periods of uncertainty.

I might be wrong in my optimism, but I feel positive risk sentiment could return this summer. First, as mentioned, we could get a resolution to the war in Ukraine. Second, we could start to see that inflation has peaked. Third, we could get some action from the Government helping to ease the cost of living squeeze. In any of these cases, I’d expect the IAG share price to jump as people get back confidence in growth stocks.

Company-specific benefits for the IAG share price

The final reason for a potential bounce is due to specific news relating to IAG. For example, we got confirmation last week regarding the purchase of 50 737 aircrafts. These are geared for the short-haul market, as part of a refresh of some older planes.

Q1 results released earlier in May also showed green shoots. Passenger capacity continues to move higher, now at 65% of 2019 levels. Cash was also boosted to €8.2bn, up from €241m from the end of last year. This was due to increased booking revenues.

Therefore, if we get strong Q2 results and other headlines coming out this summer then I think the IAG share price could outperform. The main risk I see to my view is if my first two reasons don’t materialise. If the economic situation in the UK worsens due to higher prices, then I struggle to see how a big move higher for the shares could happen. As a result, I’m happy to invest a small amount now and then will keep some cash allocated to invest in coming months.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Jon Smith and The Motley Fool UK have 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

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

3 easy actions that could boost my stock market returns

The UK stock market is going through a sticky patch so this Fool is looking for ways to improve his…

Read more »

Hispanic man using laptop in home office and drinking coffee
Investing Articles

Boohoo shares: time for me to admit defeat?

This Fool is nursing heavy losses from his Boohoo Group (LON: BOO) shares. Should he sell up and move on?

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

6% dividend yields! 2 cheap UK shares to buy in July

Harshil Patel considers two cheap UK shares paying fairly high dividends. He'd consider them for his Stocks and Shares ISA.

Read more »

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

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

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »