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Should I buy IAG shares after the recent vaccine news?

Rupert Hargreaves
·3-min read
University graduate student diploma piggy bank
University graduate student diploma piggy bank

IAG (LSE: IAG) shares have surged in value over the past few weeks. Positive data from two vaccines under development has led to dramatically improved investor sentiment towards the stock. With a vaccine on the horizon, it seems as if the end of the pandemic may finally be in sight.

However, this doesn’t mean the crisis is over. The vaccine news was a positive development, but it could be years before the rollout is complete. And there are other risks facing the business, which are discouraging me from buying IAG shares at current levels.

IAG shares: turbulence ahead

Like most airlines, IAG has been struggling to keep its head above water this year. The number of people flying on the group’s planes has collapsed. Losses have increased as a result.

To try and stem the bleeding, management has slashed jobs. A cash call and increased borrowings have helped stabilise the balance sheet.

Nevertheless, despite these efforts, IAG isn’t out of the woods just yet. The company needs customers to fill its planes. But no one can be sure how long it’s going to be before customer numbers return to the levels seen in the year before the pandemic.

As such, it’s difficult for me to place a value on IAG shares right now. While I believe the company is one of the strongest in the airline sector, that doesn’t guarantee its success. The big unknown is how long the coronavirus pandemic will continue. Another 12 months of uncertainty may lead to serious problems for the business.

Survival of the fittest

If the aviation market does start to recover in 2021, IAG shares may rally substantially from current levels. I say this because, over the past six months, several of the company’s main competitors have collapsed, or come close to collapsing.

This puts the owner of British Airways in a strong position. If its competitors are struggling to survive, they’re unlikely to be able to offer the same level of service. That may lead to customers deserting these businesses in favour of IAG.

Therefore, while I’m not a buyer of IAG shares right now, I’m going to keep a close eye on a business over the next six months. If the market starts to recover, I reckon the airline group is in the best position to capitalise on the recovery. This could lead to a substantially improved share price performance.

On the other hand, if the aviation market continues to struggle, I think IAG could see further turbulence ahead.

That’s why I’m not rushing to add to the stock to my portfolio right now. I want to wait and see how things play out over the next six months, before making a final decision on whether or not to buy. In the meantime, there are plenty of other companies that have captured my attention.

The post Should I buy IAG shares after the recent vaccine news? appeared first on The Motley Fool UK.

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Rupert Hargreaves 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.

Motley Fool UK 2020