What a difference a day has made to the Rolls-Royce (LSE: RR) share price. Yesterday, it jumped an incredible 43.76%, driven by independent trial results showing the Pfizer and BioNTech vaccine could have a 90% effectiveness rate.
Anybody who took a chance on the Rolls-Royce share price in recent weeks will be celebrating right now. Others will be wondering whether there’s still an opportunity to hop on board.
Here at the Fool, we constantly urge readers to buy shares after a stock market crash, because that’s when investors can pick up top companies at bargain prices. But we don’t urge indiscriminate buying, because there’s often a very good reason for a company’s share price to crash.
Covid vaccine drives FTSE 100
The outlook for Rolls-Royce is undoubtedly tough, hence its share price problems. The FTSE 100 aircraft engine maker has been hit hard by the flying ban, as it makes its money from servicing contracts, based on miles flown.
The Rolls-Royce share price crashed from 229p at the start of the year to just 40p in early October, but has now taken off. Today, it trades at 114p. The question is, where does it go next?
Shares in Rolls-Royce continue to climb today, up another 14.15% this morning. The implications of a successful vaccine are sinking in, and investors are hunting for ways to play the post-Covid recovery pencilled in for next year.
As always, investors are buying the future. Today saw horrible news on redundancies, which hit a record high of 314,000 in the three months to September, while unemployment rose from 4.1% to 4.8%. They’re looking beyond that dismal tally, towards a brighter 2021.
I’d buy into the Rolls-Royce share price recovery
When the vaccine starts rolling out, and life returns to normal (or something like it), the airline industry will be a prime beneficiary. We saw how people rushed to book holidays during the summer. If so, the Rolls-Royce share price could have further to fly.
There are dangers, of course. This vaccine had better live up to its early results. Also, I’m wary of chasing a share price just after it’s jumped like Rolls-Royce just has. This week’s surge has partly been driven by short sellers covering their positions. It may fall back as others bank profits.
Rolls-Royce share price performance may also depend on the fate of the ‘Biden Bounce’, and whether his administration prioritises a UK trade. Chief executive Warren East previously warned of the impact of Brexit disruption, and the group has faced problems with its Trent 1000 engine.
I would buy Rolls-Royce for the long-term share price and dividend growth. I wouldn’t buy it to make a quick profit, that moment has passed. The future will remain bumpy. Even if the vaccine lives up to expectations, there’ll be plenty of economic after-shocks. Rolls-Royce remains a great British company though, and one I want to hold.
Harvey Jones 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.