3 Factors That Make Rolls-Royce Holdings plc A Soaring Stock Pick

Royston Wild looks at why Rolls-Royce Holdings plc (LON: RR) is a terrific investment choice.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.


Today I am looking at why I believe Rolls-Royce Holdings (LSE: RR) (NASDAQOTH: RYCEY.US) is a great stock option for intelligent investors.

Sales outlook underlines solid growth prospects

Recent headlines about Rolls-Royce have unfortunately — at least for the firm itself — concerned the ongoing investigation over bribery allegations in Asia. Of course, the  possible implications of the case could have significant ramifications for the firm, and shares have dived by almost a fifth since Serious Fraud Office agents arrested two men earlier this month.

But in my opinion, this issue is not core to the company’s compelling investment case. Rolls-Royce builds industry-leading products across a multitude of engineering sectors, making it a top-tier equipment builder for the world’s largest original equipment manufacturers (OEMs).

This prowess is reflected in surging sales volumes, and Rolls-Royce saw underlying revenues a mammoth 27% higher during 2013 to £15.5bn. Meanwhile while an order book of £71.6bn — up 19% from the previous year — provides fantastic earnings visibility well into the future.

Excellent civil aerospace exposure

In particular, Rolls-Royce’s aircraft-building expertise places it in pole position to gain on accelerating demand for civilian aircraft, and the business reported a 22% order book improvement last year to £18.9bn.

The company can thank its Trent engine in helping to deliver sustained growth in this division, while its Totalcare service package is also driving orders from the world’s largest airlines — combined, Trent and aftermarket orders account for almost three quarters of the Civil Aerospace book. Rolls-Royce has opened new facilities across the globe to fulfil rising demand in these areas, moves which should drive sales still higher.

A terrific growth performer

Broadly speaking, Rolls-Royce has a terrific reputation of delivering solid — and largely dependable — annual earnings expansion. Although earnings dipped a meagre 2% in 2010, the engineer still boasts a weighty compound annual growth rate of 13.4% during the past five years.

The rate of expansion has slowed in recent years, however, as lower government defence budgets have crimped performance. Rolls-Royce is expected to punch a 5% rise this year before earnings accelerate again, with a 9% increase pencilled in for 2015, helped by recovering Western economies and emerging market demand for military hardware rising.

The aforementioned share price weakness makes Rolls-Royce a blue-chip bargain, in my opinion. Boasting P/E ratings of 14.2 and 13.7 for 2014 and 2015 respectively, these projections compare favourably with a forward average of 14.7 for the complete aerospace and defence sector, of which many constituents boast neither the hi-tech expertise or earnings reliability of ‘Double R.’

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Royston does not own shares in Rolls-Royce Holdings.

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Here’s how I’d aim to build a £50K SIPP into a £250K retirement fund

Our writer outlines the approach he would take to try and increase the value of his SIPP multiple times in…

Read more »

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »