Interactive Investor

ii expert tips: two shares to track in 2024

One of these stocks has continued to struggle following the pandemic but could be about to bounce back. A large American company is also in turnaround mode.

3rd January 2024 09:15

by the interactive investor team from interactive investor

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Lee Wild

A FTSE 100 stock to watch in 2024

The airline industry was among the hardest hit during the pandemic. Even now, valuations are nowhere near where they were in early 2020. International Consolidated Airlines Group SA (LSE:IAG), which owns British Airways, was among the worst-performing airlines due to lockdowns and less government support.

But business is improving, and we’re seeing signs of a sustainable recovery in air travel and profitability. Third-quarter profit easily beat City forecasts and bookings are in line with expectations. 

IAG is currently the cheapest airline stock listed on the London exchange. In fact, it’s the cheapest stock in the FTSE 100 index based on forecast price/earnings ratio. There’s also much less short interest in the shares - so far fewer professional investors betting against the company.

IAG has some of the best margins among legacy carriers, and recently outlined ambitious plans to transform the company - delivering sustainable growth, world-class margins and maximising long-term shareholder returns.

Medium-term targets include an operating margin of 12 to 15% (they were 12.7% in 2019), Return on Invested Capital of 13 to 16% (14.6% in 2019); and achieving net debt-to-EBITDA less than 1.8 times over the cycle.

We’re promised a dividend too at some point. And IAG wants to exploit the full potential of BA’s more affluent and recession proof customers. 

Will there be turbulence in 2024? Sure. The oil price is volatile, and a recession is possible. There’s also some uncertainty about allocation of capacity at major UK airports.

But an attractive valuation, growth potential and self-help put IAG in a great position to continue its recovery in the year ahead.

Keith Bowman

My favourite share for 2024

Citigroup Inc (NYSE:C) is a major US bank that’s as big as UK lenders Lloyds, Barclays and NatWest combined.

With a history dating back over 200 years, the S&P 500 bank today serves more than 13,000 institutional clients and many millions of retail customers.

In 2022, Its Institutional Clients business generated almost 55% of all revenues, with Personal Banking and Wealth Management accounting for much of the rest.

A balance of around a tenth came from businesses either sold or being sold.

Third-quarter results saw both revenues and earnings marginally beating analyst expectations, aided by its institutional business.

Citi’s quarterly revenue rose 9% year-over-year to $20.1 billion, driving earnings stripped of business disposals up 1% to $1.52 per share.

Under Jane Fraser, chief executive since February 2021, Citigroup has simplified its operations and reduced costs.

In the autumn, it announced it will operate across five divisions: Trading, US Personal Banking, Wealth Management, Investment and Commercial Banking, and Institutional Services. All five businesses increased revenue in the third quarter of 2023.

In late November, Citi announced plans to cut around 300 senior manager roles – roughly a tenth of all staff at that level. And more cuts to the global workforce are likely in 2024.

Citigroup shares have significantly underperformed many peers over five years, and in October fell to their lowest since the Covid crash.

There’s been a rally since, but the shares still trade at a discount to many rivals and offer a better dividend yield - currently over 4%. With self-help benefits still to come through and the US economy likely to make a soft landing, Citigroup is well placed to continue its recovery.

Fourth-quarter results are due Friday 12 January.

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