At the next market wobble I’ll buy more Rolls-Royce shares and this hidden FTSE gem

Harvey Jones took advantage of last week’s stock market volatility to add to his pile of Rolls-Royce shares. Now he has another FTSE 100 target.

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When the FTSE 100 dipped at the start of last week I took my chance and bought more Rolls-Royce (LSE:) shares.

If I’d been quick enough, or brave enough, I’d have swooped on Monday (6 August), during peak volatility. I missed my moment but was in early on Tuesday and bought at 455p, as the shares started to stabilise.

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They closed on Friday at just over 485p, so I’m up 6% on my trade. This ‘profit’ doesn’t interest me. I’m not taking it. I plan to hold the shares for years and years, as the company battles to establish itself as a global engineering powerhouse. The lower the entry price, the higher my stake will fly, relative to its starting position. I’m not done yet. When stock market volatility returns – and it will because it always does – I’ll buy more.

Top UK growth stock

I accept that the glory days of the Rolls-Royce share price are over. It’s up an unbelievable 472.88% in the last two years. Over 12 months, it’s 131.95%. The stock may not grow at all over the next year. There’s a fair chance it could fall.

Created with Highcharts 11.4.3Rolls-Royce Plc PriceZoom1M3M6MYTD1Y5Y10YALL6 Apr 20203 Apr 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '25202120212022202220232023202420242025202502505007501000www.fool.co.uk

Yet the £41bn group’s first-half results published on 1 August suggest there is still a huge opportunity here, with CEO Tufan Erginbilgic hiking full-year profit guidance from between £1.7bn to £2bn to between £2.1bn and £2.3bn.

There is income in the pipeline too, as Rolls finally plans to reinstate dividends. It’s on course to generate between £2.1bn and £2.2bn this year, so can afford it.

If Tufan doesn’t hit his targets, the disappointment will be huge. And if the US falls into recession, and takes the rest of us with it, the volatile air travel sector will take a big knock. Rolls is now expensive trading at 34.95 times earnings. That’s why I’m hanging on for a dip.

Intermediate Capital Group

My first port of call in the next sell-off will be a FTSE 100 share I don’t own: private equity specialist Intermediate Capital Group (LSE: ICG). 

It’s an alternative asset manager supplying capital to growing businesses and has done brilliantly well despite recent economic uncertainty. The ICG share price is up 46.85% in the last year. Over the last decade, it’s delivered a total return of 915% with dividends invested. I’ve been itching for an affordable entry point.

Created with Highcharts 11.4.3Intermediate Capital Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

I missed my moment on Monday, as the stock crashed harder than most on the FTSE 100, then rebounded faster on Tuesday. It ended the week 4.79% higher. Looks like I missed my opportunity again. Next time, I’ll be quicker about it.

In contrast to Rolls-Royce, Intermediate Capital Group looks good value trading at 12.03 times earnings, and with a solid 3.97%. Maybe I don’t need that dip.

Of course, the group could struggle in a recession. Also, the new Labour government is looking to up taxes on private equity. Yet management is raising funds to invest at the rate of $13bn a year, suggesting the growth can keep coming. I’m desperate to buy it. I’m only half joking when I say roll on the next market dip.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. 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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