I missed out on buying Rolls-Royce Holdings (LSE: RR.) shares in early 2023. So unlike those who bought, I didn’t treble my money.
It really has been one of the FTSE 100 success stories of the year. And a remarkable rise of a company that was facing such a bleak future just a short time ago.
I guess when times are hard, that’s when quality shines through.
Time to sell?
I don’t go much on what the market is doing at any one time. But I did just see something that made me sit up and take note.
After being one of the FTSE 100’s most traded stocks during 2023, Rolls topped the November table of sells over at investing platform AJ Bell.
It’s often said that in the short term, investors go a lot on sentiment. That includes what the headlines say, what others are buying and selling, and just on how they feel about a stock.
But in the long term, stocks move back in line with company performance and fundamental valuations. Is that happening here, and are people starting to take profits?
Valuation, valuation, valuation
A suspected change in sentiment would usually have no effect on my thoughts. But right now, it coincides with the second reason I might sell.
It’s the most important factor behind a buy or sell decision. It’s so big, it’s worth repeating. I’m talking valuation.
Since he took over, new CEO Tufan Erginbilgiç has made a big difference. He has great ambitions for the future too. And those have led to some bullish forecasts.
The trouble is, these hopes have driven the stock valuation way up. We’re looking at a forward price-to-earnings (P/E) of 38 for 2023. And even by 2025, forecasts would drop it only to 21.
Is that too high now? I don’t know, but it makes me think even a small disappointment over the next year or so could send the shares down again.
Other things to buy
Even with such a high valuation, I still might not sell Rolls-Royce stock. At least, not unless I saw somewhere better for my money — my third reason.
That means other shares that look screaming cheap. Shares in fact that are begging me to buy them. And I think I see lots.
There are individual risks with them all, but I’m looking at Barclays on a P/E of just five and with a 5.4% dividend yield. And strong forecasts too.
Then there’s investing firm M&G with a huge dividend yield of 9.4%. And many more that look super-cheap.
A mistake?
I should point out my two big weaknesses here. First, I’ve always been bad at knowing when to sell. And I don’t have much skill at valuing growth stocks. I’ve sold them more than once and then watched as the prices soar higher.
So I could be wrong about Rolls shares again. Wrong not to buy them a year ago? And wrong to sell now if I had bought?
But with so many great value shares out there, Rolls-Royce is definitely off my ‘buy’ list.
The post Here are 3 reasons why investors should consider selling Rolls-Royce shares appeared first on The Motley Fool UK.
Like buying £1 for 51p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
3 reasons why Rolls-Royce’s share price could shoot to £4 in 2024!
The Rolls-Royce share price is up 233% in a year! Should I buy Ocado instead?
5 shares that Fools have been buying!
Better buy for 2024: Lloyds vs Rolls-Royce shares
The Rolls-Royce share price is still surging! Will this continue in 2024?
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Aj Bell Plc and 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.
