The Rolls-Royce (LSE: RR) share price is a sight to behold. In the last 12 months it’s climbed 233%, turning a £5k investment into £16,650. And it isn’t done yet. It’s up 25.65% in the last month. Coincidentally, UK tech hopeful Ocado Group (LSE: OCDO) is up a similar 25.55% over the same period.
Yet over 12 months, investors in Ocado haven’t done nearly so well, with the stock down 8.03% in that time.
I’m looking to spice up my portfolio of mostly FTSE 100 high-yielders with a whizzy growth stock or two. They don’t get much more whizzy than Rolls-Royce and Ocado, so which should it be?
Tough choice
I actually bought Rolls-Royce shares just as they started to revive in October 2022, and banked a 179% gain in September when I needed some cash. I thought I was a clever so-and-so, but then the stock kept on rising. It’s never wrong to bank a profit, they say, but sometimes it can hurt.
For that reason alone, I’m wary of leaping back into Rolls-Royce. Its turbocharged recovery makes me even more cautious. So does the fact that it trades at a super-expensive 154.77 times earnings.
CEO Tufan Erginbilgic has enjoyed the opposite of an annus horribilis since his appointment in January. He started the year by slamming Rolls-Royce as a “burning platform”, then lit a bonfire under the share price. It is hard to know whether this year’s recovery is down to his bullish pronouncements or predecessor Warren East’s unsung efforts. I like a lucky general just as much as Napoleon did, but Erginbilgic has high expectations to fulfill now. Rolls-Royce shares look overbought and I’ll wait for the pull back.
I noticed over the summer that whenever the stock market picked up, the Ocado share price picked up faster. That made me think that the main thing holding it back was investor sentiment. The market hadn’t given up on Ocado, but decided that rising interest rates and declining sentiment made it too risky amid wider stock market volatility.
A very fulfilling option
That trend continues. The FTSE 100 has leapt 2% this morning, following yesterday’s Wall Street spike. Ocado is up 7.39%, the biggest riser on the index. Do the fundamentals justify this?
Last month, its stock jumped on news of its a deal to provide warehouse fulfilment technology to healthcare provider McKesson Canada. That’s its first outside of grocery retail, and suggests that new markets are there to be explored. Ocado got a further boost on 6 December when JP Morgan upgraded its rating saying that the European internet sector’s “revival is taking shape” after two years of struggle.
Yes, it’s important to remember that Ocado is still losing money with a £500m pre-tax loss in 2022 (up from £176.9m in 2021). Worse, losses are expected in 2023 (£403m) and 2024 (£294m). That will push net debt up to £1.47bn.
Sales are set to climb from £2.5bn in 2022 to £2.75bn in 2023 and then £3.05bn in 2024. That’s not as fast as I’d like and the company remains vulnerable to shocks. Markets are frothy today so I’ll wait until they settle. Then I’ll buy Ocado. I’ll save Rolls-Royce for 2024.
