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How the Rolls-Royce share price could help you to beat the meagre State Pension

Even though the FTSE 100 has enjoyed a bull market that has lasted for almost 10 years, a number of its constituents continue to offer good value for money. In fact, it could be argued that the stock market is not highly-valued at the present time, since stocks such as Rolls-Royce (LSE: RR) still have wide margins of safety. As such, the aerospace and defence giant could help you to overcome what remains a relatively disappointing State Pension.

Although the company has experienced a difficult past, it now seems to have the right strategy to deliver an improved financial performance. Alongside another stock that reported impressive performance on Monday, now could be the perfect time to buy it.

Improving outlook

That encouraging performance reported today came from Future (LSE: FUTR). The global platform for specialist media showed trading for the full financial year ahead of previous expectations. It has seen positive performances from World Cup-related campaigns, while also benefitting from some larger-than-expected product launches. As a result, its full-year EBITDA (earnings before interest, tax, depreciation and amortisation) is expected to be ahead of current guidance.

Looking ahead, Future is forecast to post a rise in its bottom line of 16% in the 2019 financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.3, which suggests that it offers a wide margin of safety. This could help its shares to deliver improving capital growth over the medium term, with investors not appearing to have fully priced-in its growth potential.

As such, now could be a good time to buy the stock. It appears to offer an improving business model which is focused on growth and diversity. Recent acquisitions could have a positive impact on its overall performance in future years.

Changing business

The outlook for the aerospace and defence sector seems to be improving, and this could propel the Rolls-Royce share price higher. Spending on the military by the US and other NATO members looks set to increase over the coming years, while continued growth in the global economy could help to boost demand across the civil aerospace sector.

At the same time, Rolls-Royce is seeking to make major changes to its business model. It has already announced a major cost-cutting programme that may lead to a more efficient company over the medium term. Improved free cash flow may also mean it’s able to invest more heavily in new products, with greater innovation having the potential to create a larger competitive advantage.

With the stock trading on a PEG ratio of 0.3, it seems to offer excellent value for money. It has the potential to beat the FTSE 100 over the long run, and this could help an investor to generate a higher level of income in retirement. Given the relatively low level of the State Pension, buying the stock now could be a shrewd move.

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Peter Stephens owns shares of Rolls-Royce. The Motley Fool UK has no position in any of the shares mentioned. 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.