The investing team at AJ Bell is constantly monitoring which UK stocks investors are keen to buy. And in October, some popular names from the FTSE 100 are seemingly at the top of most people’s shopping lists. This includes:
- Rolls-Royce (LSE:RR.)
- BP
- Lloyds Banking Group
- Shell
- Legal & General
There certainly seems to be a diversified range of interests with these businesses covering multiple sectors, including engineering, energy, banking, and insurance. And several stocks on this list have been strong performers of late, with Rolls-Royce taking the crown as one of the highest-returning FTSE 100 shares of the last five years.
For those who may have missed it, the aerospace enterprise has seen its market-cap explode by over 2,900% since October 2020. However, past performance nor popularity guarantee a successful investment.
With this in mind, should investors be considering these popular picks for their own portfolios?
Digging deeper
At a market-cap of now £100bn, investors expecting another 2,900% gain from Rolls-Royce shares are likely going to be disappointed. After all, that would make it the most valuable company in the world by quite a wide margin.
However, that doesn’t mean the engineering giant isn’t capable of delivering further solid performance for long-term investors.
Management continues to make strides towards expanding free cash flow and operating profit generation. At the same time, more money is being poured into R&D efforts within its energy segment, gearing the company to creep closer towards the commercialisation of its small modular reactor (SMR) technology in the early 2030s.
Pairing that with a steady stream of new defence contracts, the business appears to be in a relatively strong position in 2025.
However, not all terrific businesses make for good investments if the wrong price is paid. And looking at its 53.8 forward price-to-earnings ratio, it seems investors have already baked in some lofty growth expectations for this enterprise.
That could be a serious problem if this anticipated growth fails to materialise – a very real threat. Its SMR project’s riddled with execution and regulatory risks that could slow the rollout. At the same time, with the bulk of revenue still coming from engine maintenance, Rolls-Royce remains highly sensitive to the long-haul travel market.
An unexpected slowdown in travel demand could leave investors disappointed. And at its current valuation, that might open the floodgates to a lot of volatility.
Exploring options
Personally, while I admire the business, Rolls-Royce shares are simply too pricey at current levels. But what about the other stocks on this list?
Just like Rolls-Royce, they also have their pros and cons. Higher interest rates have been enormously beneficial for Lloyds and Legal & General. But at the same time, the weaker macroeconomic environment’s forming headwinds that could hamper future growth.
Meanwhile, both Shell and BP are executing their own efficiency programmes, delivering impressive annualised savings. Yet, they’re also susceptible to the ever-fluctuating price of fossil fuels.
Put simply, like with all investments, investors need to dig deeper to explore both the risk and potential rewards before deploying capital. And right now, I think there are other far better stocks to consider buying than these enterprises.
