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The FTSE 100 soars 5% on vaccine hopes. Is it time to buy these travel stocks?

Stuart Blair
·3-min read
travel company bus greets tourists at the airport to take to the hotel
travel company bus greets tourists at the airport to take to the hotel

Last week, I wrote an article about how the FTSE 100 was at its lowest level since March. Since I wrote this article, it has climbed nearly 12%. This has been due to both the ‘Biden bounce’, and news that Pfizer has developed a Covid-19 vaccine with a claimed 90% protection rate. This has caused a number of FTSE 100 stocks to climb rapidly, with a specific focus on travel stocks. But does this positive news make this the perfect time for me to buy these stocks?

This airline stock just soared 38%

After Rolls-Royce, IAG (LSE: IAG) was the largest riser in the FTSE 100 in Monday’s trading. Of course, the travel stock has been heavily affected by the pandemic, and its recent third-quarter trading update saw the company making an operating loss of €3.2bn. The recent imposition of further lockdowns in the UK and Europe has also been disastrous for the travel industry. This follows an incredibly hard summer brought about by the lack of tourism. As such, the British Airways owner has already had to raise £2.5bn in a rights issue to stay afloat. This resulted in share price lows of 66p (down from 260p at the start of the year).

Nevertheless, after the recent news of a potential effective vaccine, there is certainly far more optimism surrounding this stock. For example, it now seems possible a third wave can be avoided, and this could allow the airline owner to return to profitability next year.

As a result, this particular travel stock now looks to me to be a far more appealing buy than it did a month ago. Although problems do still abound within the travel industry, and there’s uncertainty over when this potential vaccine would be available, I’d now be more tempted to buy IAG shares at some point. Even so, I do still believe that the market has reacted slightly too positively to the vaccine news. On the back of its 40% rise, I’d therefore expect a short-term decline and would wait a little longer before buying.

This travel stock is a quality operator

National Express (LSE: NEX) is the other travel stock that particularly interests me. While the coach operator has had a dismal 2020, this follows consecutive years of growth, leading to good consumer relationships and strong liquidity. Contracts with local authorities have also allowed the company to offset some of its losses. As such, the recent vaccine news looks capable of propelling National Express shares back towards its former glory, as already shown by a 26% increase yesterday.

Of course, similarly to IAG, the most recent lockdown will have had a severe effect on the coach operator. I’d therefore continue expecting short-term pain for the FTSE 250 stock. But in the long term, I remain optimistic, especially in the light of vaccine news. As such, I’d buy this stock. Once again, I wouldn’t rush into buying, but would wait, in expectation of the market correcting itself over the next few days.

The post The FTSE 100 soars 5% on vaccine hopes. Is it time to buy these travel stocks? appeared first on The Motley Fool UK.

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Stuart Blair owns shares in National Express. 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