It seems barely a week ago that I thought International Consolidated Airlines (LSE: IAG) might be set to regain lost ground. Oh, wait, it was a week ago. And look what’s happened to the IAG share price since then — it’s lost almost another 15%. IAG shares are now down 85% so far in 2020, after one of the very worst stock market performances of the year.
The reason for the latest downturn is clear enough, and it’s all about the UK’s Covid-19 resurgence. The infection rate is rising to levels not seen since March. Further restrictions and an increasing number of lockdowns are in place. Pubs are closing early. Even students are being kept off the booze. Oh, and the prospects of laden aeroplanes flying us all off to sunny foreign climes is receding again.
Trading volumes in IAG shares have been climbing sharply. That’s what you’d expect when investors are offloading their stock. But there’s a flip side to it too. For every one of the 91 million IAG shares sold last Monday, the week’s peak, there were 91 million buys. Enough investors thought the IAG share price was cheap enough to stake their money on it.
Has the market overreacted?
That’s a dilemma we always face though. There’s always a split between those who think it’s a buy and those who think it’s a sell. Personally, I tend to sway to the sell side for shares that are climbing, and buy for those falling. That’s down to my conviction that markets almost always overreact in the short term.
And no matter what the company, no matter what the circumstances, there must be a share price at which it’s a buy. Right? When it comes to something like the IAG share price, I struggle with that idea. I always try to remember Warren Buffett’s suggestion that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Is the IAG share price wonderful?
But investors often make very good profits investing in fair companies at wonderful prices. And despite its current woes, I do think IAG is, at the very least, a fair company. But is the share price a wonderful one? I think that’s a very hard question to answer. I also see it as one I don’t even need to ask.
It’s not like the IAG share price is the only one out there. There’s a whole stock market full. Many of them are easier to evaluate, with companies not under threat for their very existence. I just don’t see any need to even think about investing in a battered company facing a bleak outlook. However cheap.
I still think investors might do well buying IAG right now. But it’ll never be a wonderful company (because it’s an airline). And I see no need to take the risk. Not with all those attractive alternatives out there.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has 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.