Many investors like me, who are interested in Rolls-Royce (LSE: RR), follow the latest air travel data to get a better grasp on trends that might affect future demand for the company. Air travel is important to Rolls-Royce because the company makes and services the jet engines that many airlines use.
In terms of the numbers, the jet engine business is a pretty big part of Rolls-Royce’s overall sales. In 2019, Rolls-Royce’s civil aerospace division accounted for 51% of the company’s underlying revenue, for instance.
Air travel isn’t the only important source of research for Rolls-Royce, however. There are many other data points that are relevant to the stock these days, including how much progress the world is making in terms of producing a Covid-19 vaccine. If the world has an effective vaccine that’s distributed faster than expected, for example, there’s a possibility that the aerospace industry could return to normal faster than expected as well.
In terms of non-air travel indicators, I believe the stock prices of aerospace securities are also relevant. Here are two stocks that I think every Rolls-Royce investor should follow:
Because Airbus is a big customer of Rolls-Royce, Rolls-Royce’s civil aviation fortunes partly depend on how well Airbus does.
If Airbus’ stock does well, investors might be more optimistic on Airbus’ future demand. Higher future demand for Airbus jets could translate into increased demand for the Airbus jet engines that Rolls-Royce makes, too. Higher demand for the Airbus A330neo could mean more demand for Rolls-Royce’s Trent 7000 engines, for example.
The market might already be factoring in the effect of the change in Airbus stock in Rolls-Royce shares. However, I think it’s worthwhile to keep up-to-date to be aware of events that might be ahead.
If a future event is potentially positive for Airbus, for instance, I think there’s a chance it could be potentially good news for Rolls-Royce stock too.
An airline ETF to follow for Rolls-Royce shareholders
Given that airlines are customers of Airbus, I think following airline stocks is also a good idea for Rolls-Royce investors. If airline stocks do well, it means that the market believes air travel demand will recover. The stock market can’t see the future, of course, but it anticipates events. If air travel demand recovers, airplane demand (and airplane jet engine demand) could also recover, in my opinion.
Given that many airlines only cover a certain part of the world, I think following an airline ETF that covers multiple airlines is a good idea. In particular, I like U.S. Global Jets ETF (NYSEMKT:JETS).
U.S. Global Jets ETF is pretty decently sized with net assets of around $1.8bn. The ETF covers numerous airlines including Southwest, Delta, and United. Some of the airlines in the ETF also have considerable exposure to long-haul international travel, which is a segment of the market that Rolls-Royce has served.
Jay Yao has no position in any of the shares mentioned. 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.