This is what I’d do about the easyJet share price right now

Back in October, I flagged up easyJet (LSE: EZJ) as a potential winner after Brexit. The 40% fall seen between June and October seemed overdone to me. I added more shares to my holding and suggested the stock as a potential buy.

One thing I didn’t count on was that the airline would be forced to cancel over 400 flights as the result of drone activity at Gatwick Airport in December.

In a statement earlier this week, easyJet admitted that this disruption cost the firm a total of £15m, including £10m spent on “customer welfare costs”. If you’re wondering, that’s an average of £121 for each of the 82,000 customers affected.

Was I wrong to buy?

Unpredictable costs are one of the big risks of investing in airlines, as my colleague Alan Oscroft explains. So do I regret my easyJet buy? Not really.

The shares have actually performed pretty well since October. They’re now up by 21% from a 52-week low of 1,030p. The airline business seems to be performing well too. Headline costs per seat excluding fuel only rose by 1% during the final quarter of 2018, most of which was accounted for by the Gatwick disruption.

In the meantime, revenue rose by 13.7% to £1,296m and passenger numbers climbed 15.1% to 21.6m, thanks to an increase in capacity.

Although revenue per seat fell by 4.2%, excluding the impact of exchange rates, this was mostly due to a number of one-off gains last year. The bankruptcies of Air Berlin and Monarch and widespread cancellations by rival Ryanair last winter all boosted easyJet sales. Together, management reckons these one-off events added £50m to last year’s revenue.

The outlook for easyJet isn’t completely without risk. But in my view, this airline remains one of the top picks in this sector. I’m still tempted by the shares, which trade on 10.7 times 2018/19 forecast earnings and offer a twice-covered 4.6% yield.

This unloved stock yields 6.5%

Another company that’s fallen out of favour with the market over the last year is online financial trading firm CMC Markets (LSE: CMCX). CMC and rivals including IG Group and Plus500 were hit by regulatory changes in August which restricted the amount of leverage they could offer to retail customers.

All three have reported falling revenue as a result of the changes, which have forced some customers to trade less. However, the impact so far on CMC seems to be manageable. In a statement today the company said that more volatile market conditions during the final quarter of 2018 resulted in an increase in quarterly revenue compared to Q2.

Although the numbers are still lower than during the same period one year earlier, this is no worse than expected. The company says that client money held with the firm remains “at similar levels” as before the new rules were introduced.

I’d buy

CMC is continuing to diversify into stockbroking and I’m confident it will adapt to changing market conditions, as it’s done before in its 30-year history.

Today’s statement suggests to me that the firm’s 2018/19 results are expected to be in line with market forecasts. These put the stock on a price/earnings ratio of 12 with a dividend yield of 6.5%.

For a business that’s historically generated an operating profit margin of more than 20%, I think that’s probably too cheap.

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Roland Head owns shares of easyJet and IG Group Holdings. 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.

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