Arrival

Arrival (NASDAQ: ARVL) can be easily dismissed as another electric vehicle company. However, what makes this growth stock unique is its approach to producing vehicles. Arrival aims to utilise its in-house technologies to produce rapidly scalable microfactories around the world.

With an estimated cost of $50m, these factories can be set up in a matter of months. Not to mention, they are also 24 times smaller than most other factories. This model allows each factory to achieve unprecedented growth, with an annual gross margin of $100m, producing 10,000 vans a year.

Nonetheless, Arrival now trades at a mere $1.44 after losing 95% of its value from its all-time high. This was the result of an overpriced valuation, delays, and share dilution. That being said, I think the stock is now fairly priced given that its market cap ($920m) is now lower than its total assets ($1.5bn).

After numerous delays, start of production for its vans is set to begin this quarter. This leaves me excited as a long-term investor. Provided that all goes according to plan, I think this growth stock could be a huge winner for years to come.

Astra Space

Astra Space (NASDAQ: ASTR) is a company targeting a niche portion of the space launch market. The firm offers to deliver payloads that are less than 300 kg to low earth orbit (LEO) while charging the most affordable fees.

The company has experienced unprecedented growth in its route to getting to space, as it’s the fastest space launch company to reach orbit. Its cheap method of producing rockets is what sets it apart from the competition. Even with a base launch cost of $2.5m, the Alameda-based firm is twice as cheap as its nearest competitor, Rocket Lab. This has allowed Astra to secure a backlog of over 50 launches with the likes of NASA, Spaceflight, Planet, and many others.

Having said that, Astra has also suffered a monumental drop in its share price of 80% this year. The current bear market hasn’t done growth stocks any favour either. Fears of a potential recession have soured investor sentiment and kept share prices low. Nevertheless, if Astra can manage to somehow deliver on its promises of daily launches by 2025, its current share price is going to be a steal.

Stunted growth?

Given the tremendous amount of potential from these growth stocks, are they a buy? Well, it’s important to note that while these companies have the potential to deliver a monumental return on investment, they can also fail.

I’m definitely intrigued by Arrival’s growth prospects. Even so, its cash position leaves me worried. With just $500m of cash, the unicorn has proposed restructuring its business. On the other hand, Astra has gone quiet since its most recent failed TROPICS launch. With no word from management as to what lies next for the company, I think there’s too much risk involved to buy more shares. As such, I’m holding onto both my Arrival and Astra positions for the time being.

The post These 2 growth stocks could be huge winners in the next decade and beyond appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Choong owns shares of Arrival and Astra Space. 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.

The Astra Space (NASDAQ: ASTR) share price has been plummeting as of late. The space launch company had already lost more than 80% of its value since its initial public offering. Nonetheless, recent events and a failed satellite deployment have plunged the Astra Space share price to an all-time low. Therefore, this could be a buying opportunity for me.

A tropical storm

After weeks of delays in getting a launch license from the US Federal Aviation Administration, Astra finally got under way on Sunday to launch its payload of satellites into space. However, despite a successful launch, the rocket’s second engine abruptly shut down. This meant that the satellites failed to reach the desired destination. While the reasons for this are still being investigated, NASA did release a statement, and has paused its next two launches with Astra.

Despite a loss of the first two of six satellites, the TROPICS constellation will still meet its science objectives with the four remaining CubeSats distributed in two orbits. With four satellites, TROPICS will still provide improved time-resolved observations of tropical cyclones compared to traditional observing methods… NASA will lend any expertise needed but would expect to pause the launch effort with Astra while an investigation is being conducted to ensure we move forward when ready. 

Source: NASA

Renowned astronomer Scott Manley gave his opinion on why the satellites didn’t reach their destination. He believes that the engine failure led to the rocket’s inability to orient itself toward the designated coordinates. As a result, the rocket overshot its target. Having said that, he isn’t sure what caused the engine to fail either.

‘Cheap’ failure

Amid all the panic, however, I think it’s important to zoom out and assess the economics and business model of Astra. The Alameda-based company offers the cheapest launch price of any of its competitors. At a base launch price of $2.5m, Astra would theoretically need to fail two out of its three launches, before its nearest competitor, Rocket Lab becomes economical. And, Astra transports satellites weighing less than 150kg (Class D), which are much easier to build than other, bigger satellites. This means that for smaller satellites, Astra still remains the straightforward option.

Nevertheless, Astra has plenty on the line. With its share price deep into penny stock territory, Astra needs to prove its worth or risks going under. Another failure would deem its following TROPICS launch redundant, and impact its already tarnished image.

Refuelling is very likely

To make matters worse, Astra isn’t in the best cash position either. With an accelerating cash burn, I am beginning to worry whether the company can survive without having to raise capital. Given its low share price already, dilution isn’t expected to happen. As such, the company is likely to take on debt. This isn’t ideal with interest rates expected to grow over the coming months.

So, is Astra Space stock a buy for me then? While many have been exiting their positions lately, it’s important to remember that the space industry is new and challenging. Elon Musk has even said so himself.

SpaceX, for all its success, had its fair share of failures too. It’s easy to forget in gloomy times that Astra is the fastest company to get its rocket to space, and it’s still this same management team that will be addressing this recent setback. Thus, I’ll be waiting for the results of the investigation before buying more. But for now, I’ll be holding onto Astra Space stock.

The post Astra Space stock is crashing. Should I buy? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Choong owns shares of Astra Space at the time of writing. 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.

American launch vehicle company Astra Space (NASDAQ: ASTR) reported its Q1 earnings results yesterday evening. EBITDA was in line with guidance at a loss of $47.5m, and comments made on the earnings call paint a bright future ahead. With plenty of launches coming up and the development of its other offerings that include space products and space services, I think the Astra Space share price could be set for lift off.

Cheap rockets, cheap valuations

Since Astra IPO’d last year, its share price has taken a beating. It’s down 70%, as is the case with many growth and tech stocks. Nonetheless, given the success of its most recent payload delivery, I believe the company has a bright future ahead of it. Astra’s USP is its ability to manufacture the cheapest rockets on the market, on scale. It also aims to provide weekly launches by 2024 and daily launches by 2025. This is something its competitors are yet to offer.

As the first batch of revenue came in, Astra managed to secure $3.9m for its two launches (One failed, one successful). Although the cost of revenue is almost three times of that, the team expects this to reduce with higher margins as the service scales. Alongside that, it also secured orders for 61 Astra Spacecraft Engines from a number of customers. The company expects the order pipeline to grow given the industry’s high demand for satellites.

Hot Tropics

When CEO Chris Kemp was quizzed about the status of the upcoming Tropics launches on the earnings call, he noted that rockets were on standby and awaiting license confirmation. While he doesn’t expect all six rockets to launch by the end of Q2, he mentioned Astra’s intention to launch all of them before Q3 concludes. If the team from Alameda can pull all these launches off successfully, I think that the share price will start to pick up some momentum.

Could fuel burn out?

A business like this one needs cash to keep going. I was worried when I saw Astra’s cash and equivalents come in at a mere $162m. This is significantly down from $325m in the last quarter as the Nasdaq-listed company burned cash at its fastest rate. With that spend, Astra has completed the expansion of its facility. Additionally, it has installed most of the equipment for high-scale rocket manufacturing.

CFO Kelyn Brannon mentioned on the earnings call that capex and opex should taper off substantially in the coming quarters. However, Q2 is still expected to weigh heavily on the balance sheet. As such, I am wary of the firm’s potential need to raise capital in the near future.

Nevertheless, a balance sheet with no outstanding debt leaves Astra in a healthy position to grow and expand. Another launch from the Department of Defense was also added to the $160m launch backlog, showing that demand for Astra’s services is increasing. With Rocket 4 set to be showcased at next week’s Spacetech Day, these are exciting times for firm and for me as a shareholder. So, with the Astra share price currently at historic lows, I’ll be buying more shares before take off!

The post The Astra Space share price could be about to lift off! appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Choong owns shares of Astra Space at the time of writing. 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.

With an abundance of space stocks having recently come to market, I believe that Astra Space (NASDAQ: ASTR) is best suited to conquer the small launch vehicle market. The company delivers satellites and other payloads for its customers with the use of its small rockets. So, with the Astra share price down 45% year to date (YTD), this could be an opportunity for me to buy the dip on this space stock.

Astra ordinary

Astra has achieved a feat that its competitors haven’t. It’s the fastest space launch company to reach orbit, only taking five years. This wouldn’t have been possible without the leadership and vision of CEO Chris Kemp and his co-founder, Adam London. Prior to being Astra’s co-founder, Kemp was the CTO at NASA while London led initiatives of miniaturising high-performance rocket tech.

This attracted the support and funding of multiple governmental space agencies, which has led to Astra’s obtainment of a Part 450 license from the US Federal Aviation Administration. The license allows for a higher launch frequency and greater regulatory flexibility.

The launch company’s financials are also in tip top condition. Its excellent balance sheet with zero debt and $325m in cash and equivalents leaves the launch company in a healthy position. As such, it can scale its services without having to raise capital for the foreseeable future. This is in part due to its ability to produce the cheapest rockets in the market.

Space to grow

Although Astra’s current rocket only carries up to 150kg to low earth orbit (LEO), Kemp has mentioned his intention to build another rocket. Rocket 4 will be able to carry much heavier payloads beyond LEO with trials expected to commence in Q3. This is to capture customers from the sanctioned Soyuz service that have heavier satellites. Moreover, its partnership with Spaceflight, the leading global launch services provider, should help Astra achieve its goal of daily launches by 2025.

To complement this, Astra has launch contracts with NASA, Space Force, the US Department of Defense, Planet, and Spire Global. With industry tailwinds of an increasing lightweight satellite market, Astra has plenty of momentum on its side, having already secured $160m in total deal value as of Q4 2021.

So, what happens after 2025? Well, Astra is expected to expand its offering beyond launch services, as the CEO disclosed Astra’s goals to offer space products and services. These include electric propulsion systems and constellation services for networks. In fact, Astra recently secured a deal with Leostella to provide multiple engines and propulsion systems for its satellites.

Staying grounded

Despite the potential of this space stock, I think it’s also important to be realistic with my expectations. Delays and setbacks are more not uncommon in such a new industry, with Astra already experiencing a couple. Pair that with a slowing economy, and Astra’s goal of daily launches may suffer hiccups along the way. Nevertheless, I am bullish about the company’s prospects for the future and its ability to outdo its peers. With an average target price of $5, this presents a 50% upside to its current share price. Therefore, I’ll be looking to buy more shares in Astra at a bargain.

The post The best space stock to buy and hold until 2030! appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Choong owns shares of Astra Space at the time of writing. 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.

Cash is king

With early-stage growth companies like this, I always pay close attention to two financial variables — cash and debt. Fortunately, Astra reported healthy balance sheet numbers. The company finished the year with $325m in cash and equivalents as well as zero debt. Although total cash came in lower than in Q3 2021, I was relieved to see cash burn decrease from $68m to $53m. This eases my nerves as Astra may be able to develop and scale its services without having to significantly dilute its shares to raise capital in the near future.

Bigger rocket share

Aside from cash and debt, I pay an equal amount of attention to total deal value, because it gives an indication of future cash flows. This is the total amount Astra could stand to make from launch contracts. Astra’s deal value didn’t increase exponentially due to the smaller capacity on its Rocket 3 limiting the number of customers it can do business with, but there was still a 33% increase year-on-year to $160m. Nonetheless, with Astra’s latest payload success and cheaper prices than its competitors Rocket Lab and Virgin Orbit, I have confidence that CEO Chris Kemp and his team have got what it takes to grab a bigger market share as Astra continues to scale.

Rocket 4 customers

When Chris Kemp went on CNBC last month, he mentioned that customers from the now-sanctioned Soyuz service could switch to Astra. This sent the Astra share price soaring 31%. However, its Rocket 3 can only support less than half of Soyuz’s customers due to its weight limit. Astra also lost a potential customer in OneWeb that chose to launch its satellites with SpaceX instead. When questioned about this on the earnings call, Kemp mentioned Astra’s ambitions to create Rocket 4, which will be able to accommodate heavier satellites. He also spoke about the introduction of a new launch system that will be more efficient and effective, and will be on display at its upcoming launches later this month.

Making progress

Despite the pros, I remain cautious. Although the company recently launched its first successful payload, there’s always a possibility that the next launch is a failure, hindering progress and profits. The soaring prices of aluminium that Astra uses to build its rockets could dent profit margins too.

Nevertheless, having witnessed Astra overcome many hurdles, I have faith in Kemp and his team. The 33-day period between its last two launches shows it’s getting closer to its target of weekly launches by 2023 as the gap between launches is narrowing. Therefore, with the Astra Space share price currently slumbering, I see it as a bargain and this as a good time to pick up more shares for my portfolio.

The post Is the Astra Space share price a bargain? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Choong owns shares of Astra Space at the time of writing. 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.

As the vaccine rollout continued, along with new contracts being signed, the company started recovering. But last week it jumped by 14% in a day. What caused this sudden growth? And should I be adding this stock to my portfolio?

The surge in the Meggitt share price

Such a substantial rise in a share price is usually attributed to an excellent earnings report or a rumoured takeover. In the case of Meggitt, it appears to have been driven by the latter, a potential buyout. Last week, a report published by Dealreporter indicated that US company Woodward Inc is looking to make an acquisition offer.

An acquisition or merger is plausible but as it stands, it remains only a rumour. Meggitt’s management team has so far refused to comment. But if it turns out to be true, then the company will have to inform its shareholders relatively soon.

Despite the most recent gain and steady recovery over the last 12 months, the Meggitt share price is still firmly below pre-pandemic levels. But it has increased by more than 90% over this time period. Assuming that an offer is made, it’s likely that the stock will surge once again to meet the proposed price, whatever that may be. However, if the rumours prove to be just rumours, then I think it’s likely to see some short-term decline as traders lose interest.

A company worth owning?

Ignoring the possibility of a buyout, is Meggitt a company I would want to own a part of as a long-term investment? Looking at its full-year 2020 results, revenue and underlying profits fell by 22% and 53%, respectively. This is obviously not a good sign. However, upon closer inspection, there are reasons to be optimistic.

The majority of this impact originated from reducing aircraft parts orders in the firm’s civil aerospace division. This is not surprising, given that travel restrictions have kept most planes on the ground. But the vaccine rollout is progressing relatively quickly both here in the UK and in the US. Therefore the order book may soon begin to recover, especially since domestic and short-haul flights are already back on the rise. 

Meanwhile, the firm’s Defence segment actually achieved some growth thanks to the US government ramping up defence spending. And while its Energy segment did suffer some disruptions due to volatile oil prices, its projects were merely delayed and not cancelled. It means this revenue has not been permanently lost. In other words, it looks like the Meggitt share price may be able to fully recover to pre-pandemic levels this year. 

The bottom line

As exciting as a potential buyout is, it’s a poor reason to invest in my experience. But looking at the underlying business, Meggitt appears to be on the road to recovery. And the senior managers seems to agree, as they expect underlying profits to return to growth later this year.

With a seemingly healthy balance sheet and a clear path to recovery, I would consider adding Meggitt to my portfolio as a long-term investment.

The post Why did the Meggitt share price surge last week? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian does not own shares in Meggitt. The Motley Fool UK has recommended Meggitt. 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.

So what’s changed? Why is the stock price suddenly rising? And should I be adding this business to my portfolio?

The explosive Babcock share price

The Babcock share price wasn’t off to a particularly good start in 2021 before today. After new management stepped up to the plate, a trading update was released. It announced that an internal review was underway that would likely result in a negative re-evaluation of the firm’s assets.

This is evidently not a positive thing to hear. However, as new management takes a more transparent approach to running the business, it seems that Babcock’s days of aggressive accounting may be over. At least, that’s what I see. This morning, the company released another update that appears to be the primary catalyst behind Babcock’s exploding share price.

Balance sheet impairments are estimated to be around £1.7bn. And operating profit will be £30m less each year as well. Comparing this revised figure to pre-pandemic underlying income, that’s approximately 10% of profits disappearing. Needless to say, this is not good news, so why did the share price go up?

Beyond removing a lot of uncertainty, the new management team is restructuring the business. Managerial layers are being eliminated to save £40m per year. Certain assets are being divested to raise a minimum of £400m before the end of 2021. And the firm’s net debt (excluding its lease liabilities) has fallen to £750m down from £1.2bn in December.

It is too soon to tell whether the new management team is pursuing the right strategy. But investor confidence is high. And that’s something Babcock hasn’t had in a long time.

Taking a step back

Restructuring a business is not a cheap or straight forward process. There are many costs associated with it that are likely to cause some short-term volatility in the Babcock share price. But even if the contract impairments are ignored, the business’s underlying profit still fell by 36% this year. In fairness, this is during a time of a global pandemic, so I think it’s likely to only be a temporary performance drop. However, it’s something I’ll be keeping an eye on in the future.

A closer look at the balance sheet write-offs reveals that the vast majority of it originates from intangible assets, specifically goodwill. As a reminder, goodwill represents the premium paid when acquiring another business. And so, removing around £1bn of value from the books is a clear indicator to me that the firm vastly overpaid for historic acquisitions. While these were made under previous management, I would be quite concerned if a new acquisition were announced in the near future.

The bottom line

To me, Babcock looks like it could be at the start of a long-awaited turnaround. Once the restructuring is complete, and if the new strategy proves to be viable, then I believe the Babcock share price will continue to climb over the long term. But personally, I want to wait and see how things unfold during 2021. And so, the company is staying on my watch list for now.

The post Why is the Babcock share price surging today? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Babcock. 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.

Pandemic losses

2020 left Rolls-Royce with a loss of almost £4bn. Rolls makes the majority of its money servicing aeroplane engines, an industry largely curtailed by Covid travel restrictions. In an effort to reduce its cost base, the firm slashed 7,000 jobs, in line with what boss Warren East described as “the largest restructuring in our recent history”.

In October 2020, 6.4bn new shares were issued in an emergency move to raise new capital. Shareholders were able to purchase 10 new shares at 32p each for every three shares they owned. Though this raised £2bn, Rolls-Royce shares halved in value as a consequence, slumping to a 15-year low. This also drastically reduced the earnings per share, a key valuation metric for stock performance.

Pre-pandemic problems

Rolls-Royce shares were troubled even before the pandemic. In 2019, the company had to fork out £800m to remedy ongoing durability problems relating to the Trent 100 engines. This raised the total cost of Trent engine problems to £2.4bn for 2017-2023. Rolls therefore upped spending to get grounded aircraft back in the sky. This put excess strain on cash flow, which was magnified tenfold when the pandemic struck.

Rolls-Royce shares’ future outlook

But while 2020 proved disastrous for Rolls-Royce shares, it’s not all bad news. The company is planning to construct 16 mini-nuclear power plants as part of its small modular reactor programme. It’s expected to receive £200m towards the project from the UK government. Projects like these are essential to the UK if it wants to reach its target of zero emissions by 2050.

And with Covid restrictions easing daily around the world, the travel sector is poised for huge growth in coming years. This is good news for Rolls, as it expects hours flown by its engines to increase 80% by 2022. For example, TUI still has 2.8m holidays booked for this summer, which will be delivered by Boeing 787 Dreamliners. These planes are powered by Rolls-Royce Trent 1000 engines.

Civil aerospace accounts for a dominant slice of Rolls-Royce business. However, Rolls-Royce Defence actually saw growth of 8% throughout 2020, generating an underlying profit of £448m. Also, its Spanish subsidiary ITP Aero, which manufactures niche aero engine and gas turbine parts, made £68m profits. These ventures may help bolster Rolls-Royce shares’ future value.

My Verdict

The aerospace sector was decimated by the pandemic. Though cost-cutting and restructuring did take place, the truth is the company’s balance sheet is still shaky at best.

The pandemic still isn’t over and a sluggish restart of global travel could continue to dent the business, whose share price was declining even before 2020. While the current share price rise may look enticing, there’s still a lot that could go wrong. Therefore, I won’t be adding Rolls-Royce shares to my post-pandemic portfolio.

The post Rolls-Royce shares are nudging higher. Should I buy now? appeared first on The Twelfth Magpie.

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• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
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Dylan Hood owns no 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.

No Brexit problem?

I said last week that Rolls-Royce Holdings (LSE: RR) shares could be hurt if we voted to leave the EU, after the company’s bosses wrote to employees to point out the difficulties that could lie along exit route and that it would put a lot of the firm’s investment decisions on hold.

But the vote went the wrong way (for the company, based on those fears), and… nothing happened. In fact, since the close of play on referendum day, Rolls-Royce shares have actually picked up by about 3% to 665p, leaving the price up 28% from its 2016 low point in February. Full-year results provided part of this year’s boost, with the company talking of its growing order book and sounding upbeat about its turnaround prospects.

There’s going to be a big drop in earnings this year for sure, but analysts are predicting a strong EPS recovery in 2017 with the firm’s slashed dividend set to return to progressive increases. There’s a 2017 P/E of 20 suggested, but if it really is the start of the recovery that could be good value.

Digging dirt

The mining sector is one I’d expect to be pretty resistant to things like the UK’s EU membership — they just dig up the stuff and sell it internationally at the open market rate. And it does seem that way as shares in BHP Billiton (LSE: BLT), for example, dipped but quickly recovered. At 874p they’re actually up since the momentous day. In fact, it’s the kind of movement that can barely be seen against the usual ups and downs in the price.

Since their low in January, BHP shares are now up 45%, even though prices of metals and minerals haven’t really started a recovery yet. But with oil on the way back up and the latest Chinese figures looking better than expected, we could well be near the low point in the commodities demand cycle.

There’s no uptick in earnings for BHP Billiton expected until 2017, but it should be a solid resurgence if the analysts are right.

Transport on the mend

FirstGroup (LSE: FGP), which runs rail and bus services in the UK and school bus and other services in the US, should also be pretty impervious to any adverse effects from uncertainties over the EU single market, I’d have thought. But surprisingly, the shares are down 10% since the event, to 92.6p.

FirstGroup’s results posted a couple of weeks ago appeared to cement the company’s turnaround, which it has been pursuing since a rights issue was needed in 2013. With “significantly increased cash generation expected in 2016/17,” and forecasts putting the shares on a P/E of only around 7.5 for the current year, dropping to 6.5 on March 2018 predictions, I just don’t see how FirstGroup can not be a great recovery candidate. That’s especially so as those figures give us PEG vales of only around 0.4 to 0.5, and there’s a recovering dividend expected to yield 4.5% by 2018.

The post Why Rolls-Royce Holding plc, BHP Billiton plc and FirstGroup plc may be great recovery prospects appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Since the Brexit camp’s following has grown over the past few weeks, Lloyds shares have fallen by 12% to 64.8p,  taking them down 29% over the past year. And that’s a year in which the bank’s fundamentals have been improving with the shares now on a forward P/E as low as 8, and dividend yields of 6.5% and 7.6% forecast for this year and next.

The Bank of England has also weighed in, only this week saying that the EU referendum is the “largest immediate risk” faced by the world’s financial markets. The BoE has plans in place to support banks in the event of a leave vote, which highlights the reality of the risk.

On the other hand, should we get a remain vote, now could turn out to be the best time ever to buy Lloyds shares.

Single market

In another sector, consumer giant Unilever (LSE: ULVR) has warned that it would be harmed if Britain leaves the EU, saying that having access to “a single European market of 500 million consumers” has greatly helped its performance over the past 25 years.

In a letter to employees, Unilever’s chief executives and chairman wrote that “Unilever in the UK […] would be negatively impacted if the UK were to leave the European Union“.

And Unilever shares? After a strong start to the year, since 19 April we’ve seen a 7.4% price fall, to 3,084p. Unilever shares have traditionally commanded a relatively high P/E, but that’s largely dependent on its low risk and predictable markets. EU uncertainty is surely going to dent that confidence, and trusting the leave campaign’s claims that the UK’s European trade wouldn’t be affected if we quit the EU could be a very risky line to take for your investment security.

Aerospace troubles

Rolls-Royce (LSE: RR) is another great British company that’s said it expects to suffer if we leave. While the CBI was opining that Brexit would “put British businesses out in the cold“, Rolls-Royce bosses were writing to their employees to tell them it would “limit any company’s ability to plan and budget for the future”.

Chief executive Warren East told the Today programme that leaving the EU would provide a boost to US aerospace engine manufacturers at the expense of Rolls-Royce’s international competitiveness, adding that “uncertainty created by Brexit puts a lot of [the company’s investment decisions] on hold“.

After having been hit by a series of profit warnings, Rolls-Royce shares had been staging a bit of a recovery, but since early March we’ve seen a 15% drop to 617.5p, with a significant chunk of that coming on the back of the apparent rise in leave support.

Whatever other issues there are behind the EU referendum, looking at these three major companies in three vital sectors clearly suggests an exit won’t be good for your share portfolio.

The post Brexit could seriously harm Lloyds Banking Group plc, Unilever plc and Rolls-Royce Holding plc appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• 3,566 shares in this FTSE 100 stalwart earns a £1,443 second income
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.