I missed out on buying Rolls-Royce Holdings (LSE: RR.) shares in early 2023. So unlike those who bought, I didn’t treble my money.
It really has been one of the FTSE 100 success stories of the year. And a remarkable rise of a company that was facing such a bleak future just a short time ago.
I guess when times are hard, that’s when quality shines through.
Time to sell?
I don’t go much on what the market is doing at any one time. But I did just see something that made me sit up and take note.
After being one of the FTSE 100’s most traded stocks during 2023, Rolls topped the November table of sells over at investing platform AJ Bell.
It’s often said that in the short term, investors go a lot on sentiment. That includes what the headlines say, what others are buying and selling, and just on how they feel about a stock.
But in the long term, stocks move back in line with company performance and fundamental valuations. Is that happening here, and are people starting to take profits?
Valuation, valuation, valuation
A suspected change in sentiment would usually have no effect on my thoughts. But right now, it coincides with the second reason I might sell.
It’s the most important factor behind a buy or sell decision. It’s so big, it’s worth repeating. I’m talking valuation.
Since he took over, new CEO Tufan Erginbilgiç has made a big difference. He has great ambitions for the future too. And those have led to some bullish forecasts.
The trouble is, these hopes have driven the stock valuation way up. We’re looking at a forward price-to-earnings (P/E) of 38 for 2023. And even by 2025, forecasts would drop it only to 21.
Is that too high now? I don’t know, but it makes me think even a small disappointment over the next year or so could send the shares down again.
Other things to buy
Even with such a high valuation, I still might not sell Rolls-Royce stock. At least, not unless I saw somewhere better for my money — my third reason.
That means other shares that look screaming cheap. Shares in fact that are begging me to buy them. And I think I see lots.
There are individual risks with them all, but I’m looking at Barclays on a P/E of just five and with a 5.4% dividend yield. And strong forecasts too.
Then there’s investing firm M&G with a huge dividend yield of 9.4%. And many more that look super-cheap.
A mistake?
I should point out my two big weaknesses here. First, I’ve always been bad at knowing when to sell. And I don’t have much skill at valuing growth stocks. I’ve sold them more than once and then watched as the prices soar higher.
So I could be wrong about Rolls shares again. Wrong not to buy them a year ago? And wrong to sell now if I had bought?
But with so many great value shares out there, Rolls-Royce is definitely off my ‘buy’ list.
