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FTSE investing: International Consolidated Airlines vs Carnival shares. Would I buy?

In 2020, investing in FTSE 100 travel and airline stocks has meant capital loss for shareholders. Today I’m taking a look at the share prices of cruise operator Carnival (LSE: CCL) and International Consolidated Airlines Group (LSE: IAG) (the owner of British Airways and Iberia) to see how £1,000 invested in each would have fared over the past five years. 

Year-to-date (YTD), the stocks are down about 76% and 64% respectively, which means the shares are clearly in bear market territory. 

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Reading the numbers

Under each company name below, you can see how the price has changed over the past five years and what this change equates to in terms of the compound annual growth rate (CAGR). Then, I’ve shown how £1,000 would have fared over five years.

Past share prices are for late April 2015. Current ones are closing prices on 24 April. I haven’t factored-in any brokerage commissions or taxes.

Please note that until recently, both FTSE 100 firms paid regular dividends. The calculation below doesn’t take into consideration the dividends or reinvesting that income.

Given the uncertainty the industry is facing, in late March Carnival axed its dividend. Then in April, IAG took a similar step. CFO Stephen Gunning said the board was withdrawing the proposal to pay a final dividend of €0.17 per share.

Carnival

The share price has fallen from 3,008p to 849.20p, although on 2 January 2020, CCL shares were around 3,648p. It means CAGR of -22.35% so £1,000 would have decreased to about £282.

On 2 April, Carnival stock price hit a 52-week low of 581p. It was indeed an all-time low for the shares. Could it be that the City is having doubts about the potential long-term survival of the cruise operator? 

The company is expected to release its Q2 earnings in late June.

International Consolidated Airlines

The share price has fallen from 557p to 217.7p, but on 2 January 2020, IAG shares were around 636p. That’s a CAGR of -17.13% and means £1,000 would have decreased to about £390.

In April so far, the stock is up about 4.5%. And the airline is expected to report Q2 2020 earnings on 7 May. 

So should you invest in travel stocks now?

As the numbers above show, both CCL and IAG  shares have had a downward and difficult trajectory. Shareholders would have lost considerable capital in either one over the past five years. But in fact, the steep losses occurred in 2020. Thus if we had done a similar calculation in early January, the results would have looked a lot different.

So what does this mean for these two travel giants’ investment prospects? According to the International Monetary Fund (IMF), the global economy will contract 3% in 2020. Yet in 2021, the IMF forecasts robust growth. Stock prices generally reflect expectations of future profits. If you agree that these grey clouds may dissipate in the coming months, it may also be time to start investing in FTSE 100 travel and airline stocks.

Today, if I had to choose between Carnival and International Consolidated Airlines stocks, I would go for IAG.

However, given the current lockdown and travel restrictions, I believe the light at the end of the tunnel for the industry may still be some time away away. Also as their dividends are now suspended, I do not expect passive income seekers to return to either stocks.

Even with their recovery potential, I think there may be better bargains in the FTSE 100. 

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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. 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.