I’m avoiding the Rolls-Royce share price. I prefer this FTSE AIM stock

Jabran Khan explains why he is avoiding the Rolls-Royce share price and prefers this falling FTSE AIM stock for his portfolio.

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Rolls-Royce (LSE:RR.) had a 2020 to forget. And the Rolls-Royce share price has continued to fall in 2021. I prefer another FTSE stock that I believe is a good option for my portfolio.

Rolls-Royce share price continues to falter in 2021

Rolls-Royce was already having issues prior to Covid-19, like the Trent 1000 engine problem which cost $1bn to rectify. The pandemic saw RR cut approximately 9,000 jobs and was staring down the barrel of a multi-billion dollar loss for 2020. 

As I write, the Rolls-Royce share price is down by nearly 15% in 2021. I can currently buy shares in RR for 92p per share. In 2020 alone, its share price fell by 54% from 234p to 107p per share. 

I believe there could be better days ahead for Rolls-Royce, however. It has undergone a cost-cutting exercise which will help save it over £1bn. Next, the aviation sector as a whole will eventually return to what it was pre-Covid-19 although this may take a few years. Finally, the rollout of the vaccine will help normality resume and, in turn, help RR.

Rolls-Royce is due to release first-half results in August. I am not buoyed by the Rolls-Royce share price currently but will check out these results. For now, I will avoid Rolls-Royce for my portfolio and look to other FTSE stocks.

FTSE AIM stock falls to make it cheap

ASOS (LSE:ASC) released its most recent results today. A negative reaction has caused a drop in its share price. I think this could be a prime buying opportunity to add ASOS shares to my portfolio.

Unlike the Rolls-Royce share price, the ASOS share price has performed well in 2021 until the beginning of July. It rose by 5% from 4881p per share to 5150p. As I write, the ASOS shares are trading for 3920p per share. This is a remarkable 23% dip in 2021 overall. At current levels it is at its cheapest point since August last year.

Traditional clothing retailers were hit hard by the Covid-19 pandemic but e-commerce clothing giants such as ASOS benefited. In ASOS’s trading statement for the four months to June, retail sales rose by 36% year-on-year to £1.24bn. UK sales rose by 60% year-on-year while international sales rose 15% compared to the same period last year.

Despite ASOS experiencing strong sales, I believe investors have reacted negatively to news that trading had slowed in recent weeks. The final three weeks of the trading period was described as “more muted” due to Covid-19 uncertainty and poor weather. ASOS said it expects such trading volatility to continue in the short term. In addition to this, global supply chain issues with freight and delivery will hamper ASOS too.

My verdict on ASOS

I think comparing just the ASOS share price and Rolls-Royce share price to consider which to buy would be the wrong way of looking at things. There is lots more to consider and I much prefer FTSE AIM incumbent ASOS despite its share price drop today.

I am fully aware of the challenges ASOS faces with headwinds expected from supply chain issues and the ongoing pandemic affecting operations and sales. Despite that, its share price drop has presented an excellent opportunity to add ASOS shares to my portfolio just now.

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.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended ASOS. 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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