IAG (LSE: IAG) shares are flying, soaring 125% in a year. Only one FTSE 100 stock has done better: gold miner Fresnillo (LSE: FRES), which skyrocketed 210%.
However, I remain wary of chasing last year’s big winners. So I’m looking closely at the outlook for these two.
FTSE 100 high-flyer
International Consolidated Airlines Group, to use its full name, took time to bounce back from the pandemic. Then belatedly, the share price took off.
Yet the pandemic has left one lasting scar. It reminds investors how risky airlines can be. Natural disasters, economic downturns, terror events, war, pandemics and other nasties can batter them.
The British Airways owner relies heavily on the US transatlantic trade, and was hit hard by Donald Trump’s Liberation Day tariffs on 2 April. When they were eased, it bounced back strongly.
IAG posted a strong set of H1 results on 1 August, with revenues up 8% year on year to €15.91bn, while operating profits before exceptional items surged 43.5% to €1.88bn.
Despite its incredible run, the stock still has a low price-to-earnings ratio of 8.17. Why so cheap? Some worry about net debt, but it’s now whittled that down to €5.46bn. A global recession would inflict damage. Global tourists are said to be shunning the US. So what do the experts say?
Consensus forecasts predict the share price will grow a modest 9.33% over the next 12 months, from 394.6p to 431.4p. Add in the forecast yield of 2.47% and total return climbs to 11.8%. That would lift a £10,000 investment to £11,180.
Obviously, that’s not as exciting as it was, but it’s still respectable. I think investors might consider buying with a long-term view. Ideally, in a stock market dip.
Golden opportunity?
As a gold and silver miner, Fresnillo has been a beneficiary of the precious-metals surge. Its 210% gain thrashes gold, which rose just 34% in a year. Yet over five years gold is up 73% while Fresnillo is up just 37%. So the correlation is quite loose, with Fresnillo the more volatile.
It posted a bumper set of interim results on 5 August, with net profit jumping almost 300% to $467.6m. Fresnillo now boasts a strong balance sheet with just over £1.82bn in cash.
Rising precious metal prices weren’t the only booster. Falling costs and a 15.9% increase in gold production also helped.
The obvious risk is that gold prices fall back at some point. Having regularly broken all-time highs, the yellow metal is vulnerable to a shift in sentiment. I’m also concerned by Fresnillo’s hefty P/E ratio of more than 60. There’s a lot of optimism built-in here. So do analysts share it?
Answer: nope. The consensus one-year price target is 1,433p. That’s down 15.15% from today’s 1,689p. The forecast yield of 3.8% would trim the loss to 11.35%, but that would still shrink £10,000 to £8,865 over the next year. As ever, all predictions should be taken with a pinch of salt.
So what’s my view? Fresnillo has delivered stunning returns, but I’d urge extreme caution as a result and don’t think it’s worth considering at today’s price.
