Cheap UK shares like Rolls-Royce, easyJet (LSE: EZJ) and IAG have seen eye-popping price increases since last week when the broad stock market rally started. The bulk of the increase was seen at the very start of the stock market run-up. Rolls-Royce was the biggest single day gainer, with a 44% rise, followed by easyJet with a 36% uptick and finally IAG, with a 26% hike. With progress made on the all-important coronavirus vaccine, these companies are far more likely to benefit than any firm whose business wasn’t affected as badly by the pandemic.
How likely is a turnaround in performance?
If their performances turn around in the coming days and months, I feel these cheap UK shares are starting to look at least like they’re worthy of investor consideration. But the key question is this: just how likely are they to turn around?
Let me focus on the big picture here. I think it’s quite likely that the world will now have a better handle on the coronavirus with not one, but two, companies having reported thumping success in vaccine trials. There’s still some distance to cover before the vaccines become available, however. Even if we assume that all goes well, it will be some time before enough people are vaccinated.
How much can EZJ turnaround?
I reckon we’ll be well into 2021 by the time that happens. So we’re looking at a few months at least before airlines and their suppliers are back in business. That’s all very well, but I think there’s one more point to consider. How much will they be back in business?
There are two reasons I ask this. One, is that I think before we put Covid-19 behind us for good, lockdowns will be lifted and government support to business will reduce. As a result, there may be some hit to business and following from that, to business travel. This adds to the fact that some business travel demand may be lost for good. That comes as working from home and Zoom meetings have become the new normal for companies around the world.
My second reason is that even holiday travel will probably be muted in the coming months as consumers are likely to stay conservative about spending in a weak economy.
I would imagine that aviation companies will struggle for some time. In fact, considering that they’ve suffered enormously during the pandemic, even if good times were to return with a bang, they would take time to get out of a financial funk. So realistically speaking, I think it will be a few years before EZJ is back in peak health.
What I do expect, however, is to see increases in share prices as the news flow becomes positive for travel firms. As an example, consider the easyJet share price. The budget airline just reported its first ever loss. Its share price fell, but still remains well above the levels seen even in early November. It’s a cheap UK share, with improving prospects. I’ve already bought the share, now I’m considering loading up.
