An airline stock ready to return to the skies

International Consolidated Airlines Group (LSE:IAG) experienced considerable turbulence during the pandemic. The IAG share price took a journey from 668p in January 2020 to penny stock levels, before eventually arriving at 140p today.

The outlook for IAG shares appears rosy to me, with the company likely to benefit from continued relaxations in travel restrictions. According to IATA, 38 of the world’s top 50 travel markets are now open to vaccinated travellers without quarantine — up from 28 just a month ago.

Indeed, this summer, the airline aims to fill 85%-90% of its 2019 capacity. CEO Luis Gallego foresees “significant profits” for 2022. This would mark a positive change in IAG’s fortunes. Last year, the company only managed to cut its pre-tax losses (from £7.8bn to £3.5bn).

At present, I view IAG as one of the cheapest FTSE 100 stocks. Granted, the emergence of a concerning new Covid-19 variant or escalating conflict in Ukraine could derail this hypothesis. Nonetheless, supported by improving financials and a recovering travel market, IAG stock looks like a good long-term buy for me.

A FTSE 100 dividend stock

Asset manager and insurer M&G (LSE:MNG) has one of the highest dividend yields of any FTSE 100 stock at 8.25%. Since it demerged from Prudential in 2019, M&G has delivered strong pre-tax operating profits, namely £788m in 2020 and £721m in 2021.

Other recent achievements include generating capital of £2.8bn in two years and bringing the total value of assets under management to £370bn.

If M&G maintains this performance, I see potential for capital growth for shareholders, in addition to passive income. In my view, this combination makes it a good FTSE 100 stock to beat inflation — currently running at 6.2%.

The firm is not focused on growing its insurance division, which acts as a cash flow bedrock for the business. This could undermine the company’s defensive credentials over time, but I still see value in the M&G share price and bumper dividends.

A Footsie share that consistently beats the index

Drinks giant Diageo (LSE:DGE) has been one of the best FTSE 100 stocks to own over the past five years. Beyond its index-beating returns, Diageo offers investors passive income from its current 2% dividend yield as a bonus.

Diageo delivered an increase in net sales from £11.75bn to £12.73bn for 2021. The company also boosted operating profit to £3.73bn – a 74.6% annual improvement.

Underpinned by intellectual property in an enviable list of brands from Guinness to Smirnoff and a free cash flow in excess of £3bn, the Diageo share price seems to go from strength to strength.

As consumers become more health conscious and possibly reduce their alcohol consumption, there are potential headwinds for Diageo stock. I would still buy it at present, however. My reading of the company’s financials is that demand looks robust.

The post 3 cheap FTSE 100 stocks I’d buy with a spare £1,000 appeared first on The Motley Fool UK.

More reading

• Should I buy the maker of Guinness for snowballing passive income?
• 1 ‘radioactive’ FTSE share that’s worth a second look
• Down 10% already this year, is there any hope for the Diageo share price?
• How £500 unlocks £34.05 passive income with this 6.81% yielding stock
• Want to start investing in the stock market? Have a spare £200 or £300?

Charlie Carman does not own shares in any of the companies mentioned. The Motley Fool UK has recommended Diageo and Prudential. 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.

Multinational drinks powerhouse Diageo (LSE: DGE) has had a strong run over the past 12 months, rising 32.5%. This growth was in the wake of the March 2020 stock market crash and placed Diageo as a standout FTSE 100 stock for the year.

Currently, Diageo shares are trading at 3,538p, dipping slightly from their August highs of over 3,600p. So, is now a good time to add Diageo stock to my portfolio? Let’s take a closer look.

Promising results

The 2021 Annual Report released last month contained some very encouraging metrics. Operating profit was up 75% to £3.7bn and net sales rose 8% to £12.7bn. Organic profit was also up 17.7%, outperforming the 14% target set at the start of the year.

2020 was a tough year for most businesses, so these numbers are to be expected year-on-year. However, in the last six months of 2020, organic sales rose 1%. This highlights to me that the firm was able to deliver positive results in the face of huge macroeconomic uncertainty, which is great news for Diageo stock, I feel.

In addition to this, it made a number of interesting acquisitions over the past year. Notable acquisitions included Loyal 9 and Aviation Gin. Capitalising on up-and-coming brands like this is essential if it wants to remain a frontrunner in the industry.

Another encouraging point was that more broadly, alcohol e-commerce sales were up 45%. Diageo has been able to capitalise on this with online sales rising 70% in the past year. This expansion has been in key markets in the UK, Germany, and China, all massive alcohol markets. A growing business like this is good news for Diageo stock.

Diageo stock value

Diageo stock currently trades on a price-to-sales (P/S) ratio of 6.48. Comparing this to competitors Heineken and Carlsberg that trade on 2.95 and 0.39 P/S ratios respectively, it begs the question of whether the current Diageo share price is too high? I thought it could be when I last covered the stock, however, it has since risen over 200p. Although the price has risen, the continuously encouraging results lead me to believe the stock could push higher. Also, perhaps investors don’t mind the fact that Diageo stock is overvalued on paper. I’m starting to feel that way myself due to its strong performance. If this is the case it could keep pushing higher.

Long-term outlook

Here at The Motley Fool UK, we like to think long term. Looking at Diageo stock, I believe it could be a good long-term investment for my portfolio.

Diageo saw a strong rebound in 2021 and the back end of 2020. The firm’s open attitude towards acquisition is also attractive to me. The existing portfolio of products Diageo already has also gives me long-term confidence. People are going to be drinking household beverage names such as Smirnoff and Baileys for years to come.

Finally, the lofty valuation seems to not be worrying investors. All things considered, I like the look of Diageo stock and would consider adding it to my portfolio today.

The post Should I add Diageo stock to my portfolio? appeared first on The Motley Fool UK.

More reading

• Should I buy the maker of Guinness for snowballing passive income?
• 1 ‘radioactive’ FTSE share that’s worth a second look
• Down 10% already this year, is there any hope for the Diageo share price?
• Are Diageo shares about to pull a Rolls-Royce?
• Investors tempted by beaten-down Diageo shares should mark 6 May on their calendars now

Dylan Hood has no position in any shares mentioned above. The Motley Fool UK has recommended Diageo. 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.