In the past year, the FTSE 100 has managed to rise over 7%, making it one of the top-performing indexes in the world. For instance, in the same period, the Dow Jones has sunk over 4%, the Nasdaq has dropped 11% and the Hang Seng has plummeted 28%. However, despite this outperformance, many FTSE 100 shares still seem too cheap to me. Here are two that pique my interest at the moment.
A beaten-down airline
It’s been an incredibly difficult environment for travel companies over the past couple of years, as travel restrictions have also come with limited demand. This has resulted in many airlines posting huge losses and having to resort to equity and debt issuances to survive. IAG (LSE: IAG) was one of the worst-affected, with its share price falling 80% since the start of the pandemic. Over the past year, it has dipped nearly 40%, far underperforming the FTSE 100.
Although travel restrictions have mainly been lifted, many risks remain with IAG. Firstly, with the tragic war continuing in Eastern Europe, the oil price is showing no signs of slowing down. Although IAG has hedged a large percentage of oil, this will only mitigate some of the impacts, and company costs are still likely to soar. This may strain profit margins or force the firm to raise prices. Secondly, the coronavirus situation in China remains precarious, which may hinder the recovery.
But I’m willing to disregard these risks for a few reasons. There are signs that travel is recovering, and in Q1, passenger numbers reached 65% of 2019 levels. By Q4, it’s expected that the firm can achieve levels of 90%. And the company expects to return to profitability in the next quarter. If it can achieve this, I believe the IAG share price could soar. Such optimism is the reason why I’d add IAG shares to my portfolio today.
A FTSE 100 underperformer
Despite its large portfolio of consumer goods, Unilever (LSE: ULVR) has underperformed the FTSE 100 as well. In fact, over the past year, it has sunk 12%. This has come after criticism of management strategy and the impact of inflation on the company’s cost base. However, although these are risks, I believe that the sell-off may now have been overdone.
Unilever has continued to record growth, albeit at very low levels. For example, in 2021, underlying operating profits were able to increase 2.9% year-on-year to €9.6bn. This enabled the company to announce a €3bn share buyback programme for 2022-23, a factor likely to boost the Unilever share price.
Tuesday’s news that activist investor Nelson Peltz is joining the Unilever board is also seen as a very good sign by some. This is because he’s expected to shake up operations, which may include management changes. Peltz also has experience at consumer goods companies Procter & Gamble, Heinz and Mondelez, where he helped make important changes. If he can do the same at Unilever, higher profits and shareholder returns could result. Therefore, Unilever is another FTSE 100 stock I’d buy at current prices.
