The Rolls-Royce (LSE: RR) share price has gone bananas since CEO Tufan Erginbilgic took over. It’s up 525% over two years and 138% over 12 months. No FTSE 100 stock comes close to matching that.
But with a market cap of £47bn and price-to-earnings ratio of 40.2, it’s inevitable that Rolls-Royce shares will slow.
Can this FTSE 100 winner keep flying?
The recovery phase is over, but I still think Rolls-Royce shares remain a brilliant long-term buy-and-hold. On 7 November, it confirmed that full-year 2024 underlying operating profit is on course to hit between £2.1bn and £2.3bn. That’s up from £1.6bn in 2023.
Erginbilgic expects Rolls-Royce to remain “a high-performing, competitive, resilient and growing business”, despite supply chain challenges.
Its main business is making aircraft engines and the real money comes from the maintenance contracts, which are based on miles flown. Rolls-Royce benefitted from a sharp rise in large engine flying hours since the pandemic.
As well as civil aerospace, its defence and power systems divisions are doing well, with robust order intake. Plus it has a major growth opportunity in small module nuclear power plants, with the Czech Republic, Netherlands and Sweden keen.
As with every stock, there are dangers. A tiny technical fault in an aircraft engine could crash the share price overnight. A wider economic shock could hit hours flown and maintenance contract revenues. Yet we live in bumpy times but with a long-term view, I feel omitting Rolls-Royce from my portfolio would be a huge error.
There’s no question of selling my shares and the same goes for my most successful FTSE 100 holding, private equity specialist 3i Group (LSE: III).
Its shares are up an impressive 65.95% over 12 months, trailing Rolls-Royce, but over the longer term they’ve smashed it.
The 3i share price is up 202.34% over five years, against 107.32% for Rolls-Royce, but it’s the 10-year performance that really gets me. In that time, it’s up a massive 773%, against just 86% for Rolls.
3i Group is a hidden winner
Rolls-Royce’s recent stellar figures started from a low base, the shares having crashed 75% first. By contrast, 3i Group didn’t have that dubious advantage. Its shares have been bombing along for a decade.
Private equity can be an up and down business but my colleague Stephen Wright has pointed to one big advantage 3i has. Since 2015, it has only invested its own capital. That means it’s not reliant on inflows from others, which can be highly volatile.
3i Group has a solid track record dating back to 1945 but I do have one worry. Its portfolio is now heavily skewed towards just one holding, European discount retailer Action, which has more than 2,600 stores across 12 European countries.
The value of 3i’s stake has jumped from £106m in 2011 to £14bn today, and it’s received almost £3bn of dividends along the way. Action now makes up a staggering 72% of 3i’s private equity portfolio value. Massive wins like that don’t come along every day.
This heavy reliance on just one company worries me, especially since 3i is now my biggest stock holding. Like Rolls-Royce, 3i may struggle to repeat recent success. But like Rolls-Royce, there’s no way I’m selling.
The post Up 202%! This hidden FTSE gem has outpaced the Rolls-Royce share price and is still climbing! appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
More reading
Here’s the best-performing FTSE 100 stock of the last 10 years
Is the Rolls-Royce share price too high? Here’s what the experts say
Rolls-Royce shares just fell 7%. Is it time to buy?
After a bumper year, is there any value left in Rolls-Royce’s share price?
3 reasons the Rolls-Royce share price could soar over the next decade
Harvey Jones has positions in 3i Group Plc and Rolls-Royce Plc. 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.
