Aircraft engine maker Rolls-Royce (LSE: RR) has had a turbulent couple of years. But in the long term, I reckon the Rolls-Royce share price could move up from its current level. Here are three reasons why.

A return to flying

A key reason for the company’s problems over the past few years has been a decline in the number of planes flying as governments scrambled to deal with the pandemic. Civil aviation is one of the main areas of business for Rolls-Royce. Less flying affects it in several ways. Not only are airlines less likely to spend large sums on new engines, they also fly their existing planes for fewer hours. Lucrative servicing contracts are partly based on an engine’s flying hours. So, the slowdown in civil aviation has been bad for both sales and service revenues at Rolls-Royce.

As flying hours return closer to normal, I expect that to be good for revenues and profits at Rolls-Royce. The company reports its full-year results next week. That should give some perspective on the scale and speed of the recovery it expects. But there are positive signs already, such as the announcement today by plane maker Airbus that it would resume its dividend.

Installed base

The economics of the aircraft engine business are attractive in my view. The skill base and cost involved in developing and making engines means only a few companies can do it at scale. That is good for profit margins in the industry. Meanwhile, the lifespan of an engine can stretch over decades. Maintaining it can be a lucrative source of long-term revenues. In its interim results, Rolls-Royce reported revenues of £5.2bn and 56% of that figure came from after-sales services.

Once an engine has been sold, it will need to be maintained – and the experts in maintenance tend to be the people who made it. So I think Rolls-Royce’s large installed base of engines bodes well for its future finances. Servicing them ought to help revenues and profits for years to come.

Robust defence demand

As well as civil aviation, a key driver for financial performance at Rolls-Royce is the company’s defence business. That has been more resilient than civil aviation throughout the pandemic – and I expect it to stay that way for the foreseeable future.

Governments are willing to spend money on military preparedness. As geopolitical tensions persist, I expect that to be the case for years to come. At the interim stage, the company said its defence business had a strong order book.

My move on the Rolls-Royce share price

Although I am upbeat about the prospects for Rolls-Royce, risks remain. Unexpected shutdowns could send civil aviation demand plummeting again at short notice, hurting both revenues and profits. The company’s recent return to positive cash flow is good news, but maintaining liquidity remains critical. Shareholders were heavily diluted in a 2020 rights issue. If positive free cash flow is not maintained, that could hurt liquidity and maybe lead to further dilution in future.

Overall, though, I like the outlook for Rolls-Royce’s business. As recovery continues, I would consider adding it to my portfolio.

Christopher Ruane 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.

Yesterday, the latest inflation figures for the UK economy were released. It showed that in the past year through to January, the price of the basket of goods measured rose by 5.5%. This was slightly ahead of expectations of 5.4%. However, some City economists are forecasting inflation to continue to rise, peaking at 8% in April. With that in mind, here’s my stock investing game plan to try and ensure I generate a real return in coming years.

Understanding how inflation works

Firstly, I don’t need to panic in trying to find guaranteed ways to make at least 8% from stocks this year. At a basic level, there’s no guaranteed way to make such a return. Any investment in the stock market has some kind of risk involved. If I want a guaranteed return, I can find a high-interest cash account. But with the base rate currently at 0.5%, it’s not going to net me a real return.

The reason why I don’t need to overly panic is that inflation is calculated by looking at the shopping basket of goods measured a year ago versus present day. It’s not an indicator that is based on the future. The price rise has already happened. So what I should really be focusing on is future expectations of inflation when thinking about my stock investing plan.

Inflation could hit 8% in April, but in the latest Bank of England meeting, the committee decided it sees it returning back to the target level of 2% within the next couple of years. Therefore, I’m of the opinion that I want to try and find sustainable long-term investing options that can help me get a real return in coming years.

My stock investing plan

Based on the above, over the next year I expect the average rate of inflation to be around 4%. So this gives me a lower threshold with which to try and find good ideas to help me exceed this rate. My two favourite investing plans relate either to dividends or growth stocks.

For dividends, I can use the income payouts to counterbalance the inflation impact. For example, if I bought shares in homebuilder Taylor Wimpey that has a dividend yield of 5.4%, the dividends would provide me with this in annual income. Then if over the next year the average inflation rate is around 4%, I’d still have a positive real return after inflation.

An alternative stock investing plan would be to target high-growth stocks that could offer me share price appreciation. For example, over the past three years the Glencore share price has risen 43%. This works out an an average return of 14.3% per year. Clearly, past performance is no guarantee of future return. But if I thought these gains could continue in coming years, then the increase in value would offset the inflation impact. This would be tangible whenever I chose to sell the stock further down the line.

Jon Smith and The Motley Fool UK have 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.

Buying a share and seeing it increase in value by 1,000% is an investor dream. But a few UK shares do indeed become what are known as “10 baggers” due to increasing in value by a factor of 10. What sort of indicators do I look for when choosing shares for my portfolio that might have the potential to offer me a 1,000% return?

Some UK shares that have grown 1,000%

What sort of shares have grown by 1,000% in value over the past decade? There are not many — but there are some. Plant hire group Ashtead is up 1,965% over the past decade – even after losing ground in the past couple of months! Another strong performer is scientific instrument maker Judges Scientific. Over the past decade, it has seen a share price increase of 1,536%.

Meanwhile, the sweetest thing for shareholders in sweeteners group Treatt has been its financial performance. The shares are up 1,237% in a decade. Like Ashtead, that growth is actually after a fall. If I had bought Treatt a decade ago and sold it at the end of last year, I would have benefited from a 1,000% increase in its share price.

What drives phenomenal share price growth

Are there any common themes to help understand why these three shares showed such phenomenal growth?

Interestingly, none of them started the period as massive companies. For the biggest companies, such huge business growth gets harder – and that affects share price growth potential. It is not impossible, though. If I had bought Apple at the beginning of 2012 when it was already a large company, I would have started this year with the shares showing a return in excess of 1,000%. But in general, dramatic growth is easier to sustain from a small or medium base than a large one.

None of the trio of companies above was in a new business area. They were operating in industries with proven customer demand and profitable competitors. Not one of the three companies is what I would call high-tech. They had simply identified industries with strong demand that was likely to continue, with profitable selling prices and an ability to differentiate their own offering from competitors. Whether that was equipment availability in a certain geography or proprietary product technology, it gave each of the companies pricing power. That can be very good for profits.

Hunting for shares to buy now

Growth rarely happens by accident. All three companies had a clear vision for business growth.

Here is what Ashtead said in its 2012 annual report: “We aim to extend our industry leading position and deliver superior returns for shareholders.” That year, Treatt said it was about to “realign its strategy to ensure that it is well placed to grow profit sustainably over the coming decade.” In 2012, Judges was barely a decade old — but reported its seventh consecutive year of growing revenue and profits.

So, these future success stories were hiding in plain sight a decade ago. They had clear growth strategies and focused on shareholder returns. It is very hard to find shares to buy now for my portfolio that will end up rising 1,000% in a decade. Many shares would show far more modest price growth. Others could lose me some of my capital. But using lessons from past share price growth, I think I can improve my chances of success.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple, Judges Scientific, and Treatt. 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.

Key points

• A small number of countries have already fully reopened borders without any restrictions
• The transatlantic route is worth $1bn to the firm per year
• Risks remain regarding future variants and rising fuel prices 

Global travel effectively shut down for large parts of the pandemic. This had a devastating impact on the finances of the travel sector and International Consolidated Airlines Group (LSE: IAG) was no exception. Boasting a number of instantly recognisable brands, like British Airways and Aer Lingus, the company operates flights the world over. With the end of travel restrictions in sight, I think the IAG share price could soon take off. Is now the time to be adding to my holding? Let’s take a closer look.

The reopening of borders

Just this month, broker Liberum stated it “remains optimistic” about the IAG share price. This is primarily because it anticipates a “resumption in the relaxation of travel curbs”. Indeed, it is not difficult to understand why Liberum struck such a positive note.

In recent weeks, more countries have been reopening borders. Some have lifted the restrictions altogether. Last weekend, for instance, Norway decided to allow international visitors to enter regardless of testing or vaccination status.

Switzerland followed yesterday, with the Federal Council stating that it “will no longer be necessary to provide proof of vaccination, recovery or a negative test or complete an entry form”. 

Sweden and Spain have also made moves to make entry easier for international travellers. I believe this may have a domino effect, as potential tourism revenue may inspire more countries to fully open. Increased travel will likely be very positive news for the IAG share price. 

The risks and rewards of the IAG share price

Adding to my holding is not without its risks, though. There is the eternal possibility of further variants shutting down travel again. Furthermore, rising fuel prices could negatively impact the IAG share price, because this affects the firm’s purchase of jet fuel, unless it is currently hedged at lower levels. 

Nonetheless, Morgan Stanley placed a €2.50 (£2.09) price target on the company. It cited recovering cash flow for doing so. What’s more, the business is truly global, meaning that it will also benefit from the recovery of corporate travel. Rival airlines, like easyJet and Wizz Air, do not have this luxury, because they are short-haul-focused. Indeed, it is estimated that the transatlantic routes operated by British Airways and Aer Lingus are worth around $1bn to IAG annually.

This reopening investment does come with its risks, like further variants and fuel prices. Nonetheless, I predict that more countries will follow in removing all pandemic restrictions. These moves could mean a surge in the IAG share price, owing to increased global travel. I will be adding to my holding without delay.

Andrew Woods own shares in International Consolidated Airlines Group. 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.

In recent months, several famous investors have been warning of an imminent stock market crash. Michael Burry, who predicted the housing crash, recently warned of a “mother of all crashes”. Only last month, Jeremy Grantham wrote that US equities are in a “superbubble” with the most “dangerous breadth of asset overpricing in financial history”. So, are investors sleepwalking into a catastrophic loss of wealth? Here’s why I believe the dire predictions have been overdone!

Rampant inflation

In the UK and US, inflation stands at multi-decade highs. A large part of this can be attributed to Covid. However, I believe the problems are more deep-rooted than that. As oil heads toward $100 a barrel, you would expect BP and Shell to be pumping money into exploration projects. Instead, they are divesting themselves of their assets.

Inflationary pressures are not solely being seen in energy. A whole basket of goods is rising. Second hand cars prices have surged 30%. Rent prices are rising at their fastest rate in over a decade. Food prices are rising on the back of increases in agricultural commodities.

We are also starting to see evidence of wage-price inflation. As record numbers of people quit their jobs, vacancies are soaring. Today, most people want to work in technology. The dearth of talent in large swathes of the natural resources sector, further reinforces the inflation thesis.

Interest rate hikes

On its own, inflation will not lead to a stock market crash; but rising interest rates could. The problem is that raising rates by 2% will not extinguish red-hot inflation. But central banks are scared to raise rates too much given the record levels of debt both governments and companies hold.

My fear is that large interest rises may be unavoidable. In such a set-up, tech stocks and particularly software companies would be hit hard. We have already seen what happens when companies fail to meet growth expectations. Meta, Netflix and PayPal provide early warning signs that traders’ confidence is beginning to drain away — but, then, they’re less likely to be looking at the long-term outlook, unlike Foolish investors!

It is also interesting to note that recently the likes of Jeff Bezos, Mark Zuckerberg and Elon Musk have all been offloading shares in their companies.

Where I am investing

As a long-term investor, I don’t fear stock market crashes. But that doesn’t mean I want to risk my hard-earned cash by buying into growth stocks that face uncertain future cash flows.

Whether a stock market crash is due or not, I am putting my money to work in tangible assets. Oil and gas, base and precious metals stocks are all cheap as chips. They have near-term growth potential and are generating huge quantities of free cash flow. If the Covid crash taught me anything, it is that cash is king.

At such a time as this, I remember one of Warren Buffett’s most unknown quotes. Before investing always ensure you have a “margin of safety”. Today, in my opinion, many tech stocks don’t display such a characteristic and I will, therefore, be “fearful when others are greedy”.

Andrew Mackie owns shares in BP and Shell. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Microsoft and PayPal Holdings. 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.

I have had my eye on consumer goods company Reckitt (LSE: RECK) as a possible investment for my portfolio for a while. I like its stable of well-known brands. That gives the manufacturer pricing power, which can help it maintain profits even as inflation increases. The Reckitt share price is now 3% cheaper than a year ago. Is now the time to buy it for my portfolio?

Attractive business

As the company behind premium brands such as Dettol and Clearasil, Reckitt has pricing power. Customers feel there are no direct substitutes for their favourite brands. So they are more likely to remain loyal even if Reckitt decides to raise prices. That is good for maintaining profitability at a time when inflation is pushing up the cost of ingredients and distribution.

In its full-year results today, Reckitt reported that like-for-like net revenue growth of 3.5% exceeded expectations. I think that figure is even better than it sounds, given that last year already saw surging demand for Reckitt’s products. Its health and hygiene focus matches a shift in customer needs, driven by the pandemic. Encouragingly, the company pointed out that it saw strong momentum across its business, not just in brands spurred on by pandemic dynamics.

Excluding a problematic infant formula business that it has largely exited, the operating margin fell from 24.5% to 22.9%. A fall is never good, but I think the drop is modest given the cost inflation the company has experienced.

Reckitt share price slide

Given the strong business performance and positive outlook for the company, why have the shares slid over the past year?

The company’s infant nutrition business continues to drag on its performance, although its decisive steps to withdraw from most of the business mean that it should fade into history in coming years. Inflation concerns have also hit investor sentiment. Reckitt has done a good job managing cost increases so far, but they remain a key risk to profitability.

Is the price a bargain?

On one hand, the company’s brand portfolio is attractive and its sharpened strategic focus is returning the company to financial health. But there are some challenges too. The dividend has been held flat, meaning the current Reckitt yield is 2.9%. I think that is decent, but not especially exciting. Meanwhile, total adjusted diluted earnings per share last year fell almost 12%. Partly that was due to exchange rate movements, an ongoing risk for the multinational company that remains outside its control.

The Reckitt share price is well below its past highs. It is 14% lower than five years ago, for example. The business has less obvious momentum than it had in its heady growth period, so I think that makes sense. The current market capitalisation is around 15 times last year’s operating profit. I find that valuation attractive for a company of Reckitt’s quality, but it is not what I would call a bargain. After all, operating profits, earnings and margins all declined last year. Clearly there is work to be done in continuing to fix Reckitt, even if management has been moving in the right direction.  

For now, I will keep watching the shares. I do not see them as a bargain, but I do regard them as fairly priced and might consider adding them to my portfolio.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Reckitt 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.

My Stocks and Shares ISA is a provision that allows me to keep my investments in one place, with a tax-effective wrapper. Each year, I can invest up to £20,000 into the ISA. As we stand, there’s less than two months before the current Stocks and Shares ISA deadline on the first week of April. With an spare £1,000 right now that I want to put to work, here’s how I’m looking to invest.

Points to consider before investing

One point that will influence where I decide to invest will be what my existing Stocks and Shares ISA looks like. For example, if it’s full of dividend stocks, I might want to consider buying some growth stocks instead. Or if I’m heavily concentrated in holding stocks from a particular sector, I should probably think about including some other areas.

In addition to this, I want to think about what goal I have for the £1,000. Is this money that I ideally want to try and use to protect against a stock market crash? In that case I’m best off considering some defensive stocks. Or is this money that I want to put to work to try and beat inflation, currently running at 5.5%? If so, then I want to consider some more aggressive options, including some higher-risk growth stocks.

Fortunately, whatever the answers to those questions are, my Stocks and Shares ISA can be of use. The benefit of not paying capital gains tax or dividend tax on any proceeds allows me to take advantage of any profits or income I can generate.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

My personal favourites for a Stocks and Shares ISA

Currently, there are a few stocks that have caught my eye since we started the year. In the big pharma space, AstraZeneca continue to impress me. Full-year results out last week showed total revenue increased by 41% year-on-year. It also has a strong pipeline of new medicines for this coming year. This includes recent successful Phase 3 trial results of a treatment for prostate cancer. Although it’s going to have higher costs due to a transformation taking place, I think it’s a solid long-term buy for my ISA.

For dividend options, it’s hard not to like the 8.83% dividend yield for Rio Tinto. It has a 10-year dividend growth rate of 19%, showing that the current dividend payouts aren’t just a flash in the pan. This is a higher-risk option, due to the correlation in earnings to the commodity prices that it mines. 

Finally, I’d also consider adding Greencoat UK Wind to my Stocks and Shares ISA ahead of the deadline. It ticks the box of being a renewable energy stock, an area that I think will grow for many years to come. It also has a commitment to increase the dividend in line with RPI inflation, so this should help provide a buffer if inflation keeps moving higher. As a risk, the share price is currently trading at a premium compared to the actual net asset value of the business, which could mean it’s overvalued for now. That means I may consider buying on any pre-deadline dips.

Jon Smith and The Motley Fool UK have 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.

Inflation has reared its ugly head in recent months and this can have both bad and good effects on stocks. In theory, miners should do well as inflation soars. As asset manager, Pimco, pointed out: “Because commodity prices usually rise when inflation is accelerating, investing in commodities may provide portfolios with a hedge against inflation.” With that in mind, could these mining companies, which also happen to be penny stocks, be positioned to benefit? And could they add growth, as well as income to an investment portfolio?

A high-growth penny stock miner

Miner Jubilee Metals (LSE: JLP) could well benefit significantly from a rise in commodities, especially from increased demand for copper as a result of an electric car boom. Electric cars use huge amounts of copper so there will be ongoing demand for this commodity. Jubilee has ambitions to process 25,000 tonnes of copper units per annum.

The biggest risk with this share is that its mines are in countries that face more political and social instability than many others. The mines are mostly in Southern African countries, including Zambia and South Africa.

But the miner has a number of treatment plants and operations so isn’t reliant on any one location, unlike some other listed miners. It also processes a number of different commodities so isn’t fully dependent on the price of any single commodity, which I think is positive for the investment case.

Overall with a P/E of just nine, the shares represent decent value given rapid revenue growth in recent years. But it should be borne in mind that it doesn’t pay a dividend.  

If I didn’t already own Sylvania Platinum, I’d be tempted to add Jubilee Metals to my own investment portfolio. I think it looks like a high growth miner with good operations and a lot of potential. With a share price of 16p, Jubilee is a penny stock I really like.

Panning for gold

Pan African Resources (LSE: PAF), the South African gold miner, released very positive results on 16 February. The results showed gold production was up in the first half, along with a rise in cash and profit after tax, while production costs declined. All in all a very pretty picture.

Again, like Jubilee, Pan African is at the mercy of South African politics, which may put some investors off buying it. It’s also clearly reliant on the gold price, which can fluctuate, so revenue and profits aren’t the most consistent. The share price has never tended to show any sustained growth.

All that aside, there are reasons to think that Pan African is a very decent growth and income share. Operating profit went from £15m in 2018 to £112m in 2021. The dividend yield is 4.2%, which is very good. When this is combined with a P/E of seven, giving it a very cheap valuation, there’s a lot to like, so I’m considering buying shares in this gold miner. Inflation might give the share price another boost.

Andy Ross owns shares in Sylvania Platinum. 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.

I think Nvidia (NASDAQ: NVDA) is one of the best growth shares to buy and hold today. Recently, the Nvidia share price has been rather volatile. A failed acquisition, and general stock market weakness, has dragged down the shares in 2022.

I think the long-term view looks strong though. Let’s take a closer look.

A review of the results

Nvidia released its fourth-quarter earnings for the year ending 31 January (FY22) yesterday. Quarterly revenue came in at $7.6bn and above estimates for $7.4bn, which was a growth rate of 52% over the same period last year.

Earnings per share also increased to $1.32, which was above analysts’ estimates for $1.22. This meant earnings grew at an even higher rate of 70% compared to the fourth quarter in FY21.

I was impressed with these results as a current Nvidia shareholder. To my mind, it shows the business has excellent momentum heading into the coming year.

Key growth drivers

Nvidia is the leader in graphics processing unit (GPU) design. Indeed, the company designed and sold the world’s first GPU back in 1999. Today, GPUs are used in most electronic devices for parallel computing purposes. For example, modern video gaming requires high-end versions, along with cloud-based computing, and advanced artificial intelligence (AI) applications.

Looking ahead, and I think all of these sectors will grow significantly in the coming years. Within AI, Nvidia’s chips are already crucial components in self-driving cars. Also, the video game market is expected to grow to $269bn by 2025.

I view Nvidia as an excellent ‘picks and shovels’ approach to these emerging and growing markets as it supplies the vital computational power to each industry. So even if only one market grows significantly, Nvidia should benefit.

Should I buy at this Nvidia share price?

There are still risks to consider before I top up my investment. For one, Nvidia has recently failed in its bid to acquire Arm from Softbank. Arm is the British-based designer of central processing units (CPUs), and Nvidia considered it an excellent diversifier to its GPU business. As such, it’ll be a set back for the company’s plans to disrupt the CPU side of the data centre market. It will also lose the initial $2bn it paid to Softbank when the deal was initially announced. The whole process has been a bit of a blow to the company.

One final consideration is the valuation. As it stands, Nvidia shares trade on a lofty forward price-to-earnings multiple of 51. This is certainly high, and a valuation like this requires significant growth in the years ahead. Although earnings and revenue grew significantly in FY22, growth forecasts are around the 20% mark for FY23. However, I think Nvidia has a good chance of beating these forecasts.

Taking everything into account, I view Nvidia as one of the best growth stocks to buy and hold in my portfolio today. It remains the leader in the GPU market, and I think the company will beat its growth forecasts in the year ahead. As such, the share price should keep rising, so I’d add to my position today.

Dan Appleby owns shares of Nvidia. 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.