Rolls-Royce (LSE: RR) manufactures engines for commercial and military aircraft, and designs and constructs power systems. The outbreak of the pandemic in March 2020 had a catastrophic impact on the Rolls-Royce share price. While there have been intermittent rebounds, the shares have fallen to new lows, recording a price of 64.8p in November 2020. Rolls-Royce stock faced an existential threat when most aircraft were grounded, because the company is paid based on flying hour contracts by airlines using Rolls-Royce engines.

In response, management acted with a great deal of urgency. One priority was to cut 7,000 roles from the workforce to mitigate the inevitable and significant 2020 loss. The company also began selling subsidiaries, including Bergen Engines, ITP Aero and Air Tanker Holdings. In addition, the civil nuclear business segment was sold and these sales all contributed towards a £2bn target in 2021. Nonetheless, Rolls-Royce recorded a £1.6bn loss for 2020 that was largely due to reduced flying hours globally and this was a difficult figure for shareholders to swallow. Indeed, this loss and the sale of a number of subsidiaries could easily have given me good reason to sell or short Rolls-Royce stock. During 2020, however, I felt that buying Rolls-Royce stock was appropriate for accumulating at low levels for the long term.

For much of the first half of 2021, the Rolls-Royce share price lingered around the 100p mark and occasionally broke 10% either side of this level. In October 2021, however, the price flew to 150p on a general feeling that the pandemic was coming under greater control and international travel was returning to pre-pandemic norms. These gains were negated by the emergence of the Omicron variant and the share price retraced nearly 100% of these recent gains. This downward move was on lower volume and this tells me that the general downtrend is running out of steam. I interpret all these recent price movements as being bullish in nature and this is the first reason why I will be continuing to stock up on Rolls-Royce shares.

Recent news about the company supports my view. In September 2021, the United States Air Force awarded a contract to Rolls-Royce to provide the B-52 engine replacement programme, an important decision which will last for the next thirty years. Furthermore, the power systems segment of the business has been bolstered by the decision to move into nuclear power. In particular, the construction of several small modular reactors to produce energy on a very low carbon basis will enable a smooth transition over the long term from fossil to renewable fuels. This was supported recently by Qatari investment into the low carbon nuclear power business in December 2021.

The Rolls-Royce share price has been volatile in recent times, but I have good reasons to be optimistic. I will most certainly be buying up more Rolls-Royce stock!    

Andrew Woods owns shares in Rolls-Royce. 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.

Safe growth stocks are those that encourage and support a growing industry. So even though much is still uncertain in the UK, we are fortunate as investors to be living in a time when we can predict, with some reliability, the future of renewable energy.

COP26 has bolstered what some are calling a revolution, emphasising the need for cutting down on traditional power sources in favour of electrification and wind power. Many billions have been invested into developing renewables, and because many countries are keen to lead it, investment from governments is significant. BP and other oil companies have shown their intention to invest serious money, and I believe 2022 will see much more money from them.

How will I take advantage of this energy revolution?

The new technology needs resources, in great quantities, in order to grow. In short, it needs lithium, copper, and rare earths. China has in many ways beaten the west to the line in securing much of the supply around the world. So finding a good investment opportunity isn’t as easy as you think.

In regards to rare earth, there are alternatives not yet scooped up by the east. One particularly good play is Rainbow Rare Earths, which has the Phalaborwa Project in South Africa and the high-grade Gakara Project in Burundi, East Africa. Rainbow’s strategy is to become a globally significant producer of rare earth metals. It also has advanced processing technology enabling extraction with relative ease. It also has the USA as significant investors. At just 16p, the shares are cheap as chips.

For lithium, my choice is Zinnwald Lithium, which now has a 100% ownership of a 30-year lithium project in Germany, close to the European car manufacturers who will be using its high-grade product to in their electric batteries. At a current share price of just 16p, this also has a big scope for growth.

My copper choice is Rambler Metals and Mining, which has a 100%-owned copper-gold mine in Canada. It is fully funded and producing at a significant capacity. They have some debt to pay off but the production far outweighs the overhang. The gold is a bonus. At the current price of just 32p this is also far below what it should be.

These are growth companies that are in my opinion undervalued. However, they are small caps and have all the usual risks which come with that. But of course, what the last two years have show us is that we cannot predict what’s around the corner: 2022 might be no better than 2021 delaying the energy revolution further. But I believe it is inevitable, if not now then soon.

Alex Crisp owns shares in Rambler Metals and Mining. 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.

There was an element of predictability to this year’s stock market performance. The most sought-after stocks during the pandemic saw a waning of investor interest. These included FTSE 100 miners, whose prospects did not look quite as bright as they did in 2020 as the Chinese government decided to taper its fiscal stimulus. 

Glencore is a surprise gainer

As a result, stocks like Anglo American, Evraz and Rio Tinto have all come-off from the highs seen earlier in the year. But one mining stock has defied this trend. I am talking about the Swiss multi-commodity miner and marketer Glencore (LSE: GLEN). Unlike the others, it touched multi-year highs in 2021 and is still trading close to those levels. It is now at almost 60% above its pre-pandemic highs, completely breaking away in performance from the the rest of the mining pack. 

To me, this is surprising in the best possible way. I had bought Glencore stock a while ago, and for months its stock price performance was somewhat underwhelming. But since the last year or so, it has shown an impressive performance, more than doubling from its early November 2020 levels. And this is when its dividend yield is nowhere in comparison to the rest. Evraz and Rio Tinto have the highest yields among FTSE 100 stocks today, both comfortably in double-digits. By contrast, Glencore’s yield is a small 1.2%. This is way lower than even the average FTSE 100 yield of 3.5%. 

What makes the FTSE 100 stock tick?

So what is making the stock tick? And more importantly, can it continue to rise further?

Its results for the first half of 2021 are encouraging. The company swung back into net profits after reporting a loss for the same half-year in 2020. It showed a 32% increase in revenue as well. I am not sure if it can continue to improve upon this performance though. It has mentioned support from the fiscal stimuli and economic recovery that sent commodity prices soaring in its last results statement, in helping its financial performance. But since then, the stimuli is on the path to being withdrawn. And industrial metal price forecasts have been reduced for 2022. Moreover, economic recovery looks relatively uncertain now that Covid-19 could send us back into lockdown again.

At the same time, the Glencore share price is pretty damn steep in relative terms. It has a price-to-earnings ratio of around 34 times, which is significantly higher than that for other FTSE 100 miners, which are trading at sub-10 times multiples. 

What I’d do now

If recovery picks up again and the pandemic recedes, I reckon there is still some upside to the stock. But I am not convinced if this is the best stock to buy at this point in the cycle. In fact, I think I am prepared to sell my current holdings of the stock now. At best, I could hold it until the first quarter of 2022, just to see how things develop. But maybe not even that. 

Manika Premsingh owns Glencore. 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.

Penny shares appeal to many investors because they can represent a bargain addition to one’s portfolio. That isn’t always the case, though, and a lot of shares that may look cheap in fact simply keep on falling. So, when considering penny shares to add to my portfolio, I take time to assess their prospects and how well they meet my personal risk tolerance.

One share I have been considering buying that is now cheaper than it has been is such a penny share. Here I explain what attracts me to it – and some concerns I have.

Penny share on sale

The share in question is Assura (LSE: AGR). The company is a landlord, with a focus on healthcare tenants. So, it owns a portfolio of properties and rents them out to be used as doctors’ surgeries, ambulance centres and for similar uses. As well as a large existing portfolio, the company actively adds new sites as well as sometimes selling some older ones. Over time, it has been growing its estate.

This makes for healthy profits. Assura reported £108m in post-tax earnings last year. The company has grown its dividend annually in recent years. Dividends are never guaranteed, but with its resilient business performance I reckon Assura could keep increasing its payout. The current yield is 4.0%, which I find attractive.

Assura share price movement

One of the things that has been putting me off buying Assura for my portfolio is its long-term share price history. Over the past year, the shares were down 7% when I wrote this article earlier today. Over five years, they have put on 23%. Taken along with the dividend income, that would have offered me a decent return but not a great one. Growth shares in other sectors such as JD Sports and Kainos would have given me far fatter returns in the equivalent period.

In a way I think this makes sense. Property companies such as Assura are often valued by investors broadly in line with their net asset value, which is basically what their assets such as properties are worth once liabilities are subtracted. Last month, the company reported that its basic net asset value per share was 58.5p. That compares to a share price of around 70p at the moment. So while Assura shares are trading at a premium to the company’s net asset value, it looks to me like there is some linkage. For example, I don’t think the Assura share price could move up 50% without a big increase in net asset value. By contrast, for many growth shares outside the property sector, that could happen.

My next move

While the company’s portfolio may increase in value over time, I expect that increase to be in line with the broader commercial property market. One risk is that surplus commercial property in some areas leads to lower rents. Assura also faces political risks, if public dissatisfaction at landlords profiting from vital health infrastructure hurts future rent reviews.

I have been thinking hard about buying Assura this month. But its dividend yield and share price appreciation potential strike me as good but not great. So for now I will not be adding it to my portfolio, although I will keep a close eye on the Assura share price in 2022.

Christopher Ruane owns shares in JD Sports. The Motley Fool UK has recommended Kainos. 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.

2021 has been an outstanding year for global investors, with asset prices soaring to new highs. On Tuesday afternoon, the US S&P 500 index just hit a peak of 4,807.02 points, surging by 28.7% over 12 months. Barring the meltdown of spring 2020, the past three years have been a one-way ride for US shares and global stock markets. But as prices relentlessly rise, so too do my worries about the next stock market crash. Here are five possible triggers for a collapse in 2022.

#1. Covid-19

My top worry is Covid-19, the coronavirus that has ravaged our world for two years. We have endured the original virus plus five main variants (Alpha, Beta, Gamma, Delta and Omicron). That leaves plenty of letters of the Greek alphabet to name future variants. I hope that this tiny, self-replicating, mutating agent will become less harmful over time, as did the common cold. Otherwise, we could be in for another tough year — and perhaps another stock market crash?

#2. Irrational exuberance

The ‘TINA’ theory says There Is No Alternative to buying stocks currently. After all, near-zero/ultra-low interest rates mean that cash and safe bonds offer meagre returns. Thus, one way to boost returns is to take full-on equity risk. However, I remember pundits spouting similar messages (“This time it’s different”) in 1999 and 2007. Those years were followed by two huge stock market crashes. Today, like Warren Buffett, I’m fearful when others are greedy. It’s only during the next collapse that I’ll be greedy when others are fearful.

#3. Highly rated tech stocks

Remarkably, over half of the S&P 500’s gain in the past year came from just five stocks. These are mega-cap tech giants Microsoft, Apple, Nvidia, Alphabet (Google) and Tesla. These superstar shares have lifted the US market to repeated records. But what happens when these tech titans fall from favour? Could the decline of, say, sky-high rated TSLA trigger a stock market crash? I worry that it might.

#4. Inflation and interest rates kill growth

Thanks to rapidly rising inflation, the US Federal Reserve is tapering its bond purchases and will raise interest rates in 2022. In the UK, the Bank of England this month raised its base rate for the first time in three years. Steadily rising interest rates should eventually curb inflation, but could choke off next year’s recovery. With economic growth already slowing on both sides of the Atlantic, could slowing earnings growth trigger a stock market crash? Maybe.

#5. Geopolitical risks

Right now, there are 27 armed conflicts going on around the world. But I worry that three major geopolitical risks might trigger global instability in 2022-23. First, the West has unfinished business with Iran regarding the latter’s nuclear programme. Second, the China-Taiwan situation might boil over into armed conflict. Third, the same might happen between Russia and Ukraine, as we saw in 2014. I don’t see the first issue as too worrying, but the other two genuinely terrify me.

Finally, long experience has taught me not to fear stock market crashes. I’ll just keep doing what I do: buying lowly rated, high-yielding cheap UK stocks for the long term. If the market falls, at least I get my dividends. This strategy has served me well through five major market meltdowns since 1987!

Cliffdarcy has no position in any of the shares mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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 Alphabet (A shares), Apple, and Microsoft. 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 don’t think I need to spend a fortune to build a winning UK shares portfolio. Here are three penny stocks I reckon could make me plenty of cash.

Play my cards right

Card Factory faces a significant threat from online-only rivals like Moonpig and Funky Pigeon as e-commerce in its category takes off. But this penny stock is no slouch on this front and it’s invested heavily in its own internet proposition to exploit the online boom. Latest financials consequently showed sales at Cardfactory.co.uk and its Getting Personal customised greetings channel trading above pre-pandemic levels.

I’m tempted to buy Card Factory because of its ultra-defensive characteristics. We don’t stop celebrating special occasion like birthdays when economic conditions worsen, right? I also like Card Factory’s focus on the fast-growing value end of the retail market. This cheap UK share trades at 57p.

Strong all-round value

The online shopping phenomenon offers big opportunities for investors to make a buck. I myself have bought into Tritax Big Box REIT to capitalise on this, a business that rents out warehouses and distribution hubs. And I’m considering snapping up Raven Property Group (LSE: RAV) too. This UK share does the same thing, except its big box assets are located in Russia rather than in Britain.

The Russian e-commerce market is growing rapidly, and as a consequence, so is demand for buildings that help retailers meet orders. Pleasingly for the likes of Raven Property, digital retail is expected to continue growing rapidly. Boffins at Statista are predicting annual growth of 42%, 37% and 31% in 2021, 2022 and 2023 respectively, for example. But I’m aware that further economic sanctions if the Russia-Ukraine military crisis worsens could hit e-commerce growth in the near term and beyond.

Today Raven Property trades at 33p per share. This leaves it on a forward P/E ratio of below 4 times. Furthermore, at current prices this penny share carries a mighty 5.4% dividend yield. I think this sort of value is hard for me to ignore.

A penny stock for the EV boom

I also think profits at Zinnwald Lithium (LSE: ZNWD) could soar as demand for lithium steadily takes off. This particular UK share owns the gigantic Zinnwald lithium project in the heart of Germany’s carbuilding country. It’s therefore well placed to ride soaring demand for low-emissions vehicles that run on lithium batteries.

According to commodities analysts at Fastmarkets, “electric vehicle (EV) demand will continue to drive the lithium market forward”. They predict that electric car penetration will reach 15% by 2025 before marching to 35% by 2030. And they expect growing lithium demand “from applications such as energy storage systems, 5G devices, and Internet of Things infrastructure” too.

Of course Zinnwald Lithium may fail to take full advantage of these expanding markets if development of its German mine hits problems. But this is a risk I’d be willing to take. All things considered, I still think this penny stock has plenty to offer me. It trades at 14.6p right now.

Royston Wild owns Tritax Big Box REIT. The Motley Fool UK has recommended Card Factory and Tritax Big Box REIT. 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 its inflationary hedge benefits and growth in crypto trends such as NFTs, I believe a Bitcoin rally in 2022 is a strong possibility and to profit from it here are my best shares to buy now.

2021 has been a volatile yet successful year for cryptocurrencies with Bitcoin and Ethereum reaching new peaks of over $67,000 and almost $5,000 respectively in November.

Despite cryptocurrencies subsequently suffering from one of the largest market selloffs, I believe prices of these coins could recover and rise further in 2022. Ahead of this there are two stocks, Coinbase (NASDAQ:COIN) and Block (NYSE:SQ), which I will be investing in to get indirect exposure to crypto assets. Here, I assess which is a better investment.

Coinbase

As the largest cryptocurrency exchange, Coinbase has over 73 million users and offers exposure to over 120 different coins. This has made it one of the most attractive marketplaces for those wishing to broaden their crypto holding beyond mainstream Bitcoin and Ethereum, something current competitors are unable to match.

Despite shaky third-quarter earnings back in October, where the company missed its earnings and revenue estimates, I still see a lot of value to be gained from Coinbase as it benefits from first-player advantage and increasing numbers of newcomers to the crypto space thanks to trends such as NFTs.

With crypto being more widely used and accepted as a payment format, Coinbase shares could continue to rise as they expand into offering other services such as crypto wallets and different, new, tokens.  

However, as Coinbase currently generates nearly all its revenue from the buying and selling of crypto currency, the stock’s performance relies heavily on large coins like Bitcoin performing consistently strongly, which makes the stock somewhat volatile.

Block

Another way to play the crypto rally is through digital payments platform Block, formerly known as Square. The company, founded by former Twitter CEO Jack Dorsey, is one of the largest accepting Bitcoin payments. 

In 2021 just over half of its revenues were generated from Bitcoin trading whilst 40% came from digital and seller fees. I think this diversification makes it a strong stock to own as it is less volatile and provides exposure to other growing trends, namely digital payments.

Block’s recent name change could also be a move to join the metaverse trend as it copies peers such as Facebook, which changed its name a few months ago to Meta. With the metaverse and Web 3 incorporating crypto and blockchain technology, I see possibility for Block to increase its Bitcoin holdings further from its current $200 million.

The verdict

I think both Coinbase and Block provide strong exposure to cryptocurrencies and, with a recent crypto selloff, I think both stocks are relatively cheap now so provide a good entry point.

However, whilst Coinbase provides greater exposure to crypto markets and has key advantages such as first-mover status, the stock is too volatile for me.

Instead, I see Block as the better buy out of the two. Its diversified portfolio and operation across the fintech ecosystem beyond just crypto as well as the move to the metaverse could open up key new pathways for the company in coming years.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Yasmin Rufo has no position in any of the shares mentioned. The Motley Fool UK has recommended Block, Inc. and Twitter. 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.

Is FTSE 100 property share Land Securities Group (LSE: LAND) too good for income investors like me to miss? It boasts a dividend yield of 4.6% for the financial year to March 2022. This reading moves to 5% for the following fiscal 12-month period too.

There are plenty of people who believe the property giant will recover strongly when the pandemic passes, supported by the company’s many self-help measures. These include building more homes to capitalise on the UK’s rock-solid housing market, and revamping its retail assets with a great focus on improving the customer experience.

But I’m not one of these glass-half-full people. Okay, those yields look mighty attractive. But it’s possible that the pandemic will last long into the future, a devastating scenario for both its office and retail portfolio.

Latest data from researcher Springboard showed store visits during the Boxing Day sales down a whopping 45% from pre-pandemic levels as consumers fretted over soaring Covid-19 infection rates.

Dicing with danger

This news is particularly worrying given the huge debts Landsec nurses. Adjusted net debt stood at an eye-watering £3.5bn as of September. However, my fears over the FTSE 100 firm stretch well beyond the immediate term.

I’m concerned what impact changing employee habits will mean for office space demand as flexible working takes off. The rapid growth of e-commerce also poses a massive danger to future profits.

Sure, Land Securities boasts huge dividend yields. It also offers great value in terms of predicted earnings (a forward price to earnings growth (PEG) ratio of 0.5 sits well inside bargain-basement territory of 1 and below). I think the risks of buying Landsec shares far outweigh the possible rewards.

A FTSE 100 dividend share I’d rather buy

As I say, Land Securities’ increased focus on the UK housing market is a step in the right direction. But, as an investor, wouldn’t I be better off exploiting this theme by buying a pure housebuilding share? I think so. It’s why I’m considering snapping up some Berkeley Group (LSE: BKG) stock today.

Some interesting news on regional homes demand caught my eye over Christmas. Property listings business Rightmove said that “in recent months we’ve seen higher demand to live near London, with buyer inquiries returning towards pre-pandemic levels.”

Flat demand in particular is spiking and this bodes particularly well for Berkeley. This particular housebuilder is focussed on building homes in the capital and the Southeast England.

My main concern for housebuilders is the rate at which building material costs are rising. The product shortages driving up costs also threatens to hit building rates too. However, it’s my opinion that the potential rewards for housebuilders (and their shareholders) as property prices boom more than offsets this risk.

Today, Berkeley boasts a big 6.6% dividend yield for this fiscal year (to March 2022). The dial remains elevated at 5% for financial 2023 too. This is a FTSE 100 share I’d happily buy today and hold for years to come. I expect homes demand to continue outpacing supply long into the future.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Landsec. 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.

Stock markets trade for another two days before the year ends while I write this article. And a lot can change in a few days. But since I am ready to take a break soon, it looked like a good time to revisit what I have said about the FTSE 100 index recently. 

Where the FTSE 100 index is at

A couple of months ago, I wrote an article titled “Why I think the FTSE 100 index could touch 7,500 before year-end”. Cut to now, and the index closed at 7,429 on 28 December, closing above 7,400 for the second consecutive day. It is the first time in 2021 that the index has touched these levels and for the first time since January 2020. In other words, it is quite possible that before we know it, the index could indeed have touched the level. This was possibly driven by good news that England will not go into lockdown before the start of 2022. 

If the momentum continues, we could see the index above 7,500 in today’s trading session itself. After all, it is a less than 1% increase, which is not something particularly out of the ordinary in a single day. And even if it does not happen in one day, it can happen over a period of two days. My basic point is that if investors continue to be bullish, the prediction would have all but come true.

What could go wrong 

That does not mean that things cannot go south from here. If the pandemic has taught me anything, it is that even a comfortable-looking situation can change in a flash. We just have to make the most of the investment opportunities we get irrespective of where we find ourselves in the stock market cycle. At the same time, it does give a fair indication of where the FTSE 100 index is heading. Even if there are fluctuations for the next few days, barring any dramatic news that rocks the markets, I think we are heading for even better times. 

What I’d do now

This means, that I can look forward to investing with optimism in 2022. The Omicron variant might still be keeping us in an uncertain place, but the blockages do not seem to be anything like what we have seen in the last two years. FTSE 100 companies have reported more good results than bad, and many are also positive in their outlook. Dividends have been on the rise, with the average FTSE 100 dividend yield at 3.5%. And even though the recovery is slow, it is happening. 

There are plenty of FTSE 100 stocks that are likely to do quite well based on these developments across sectors like oil, banks, e-commerce among others. This means that there are plenty of choices for me in the next year. I am looking forward to it. 

Manika Premsingh 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.

Aircraft engineer Rolls-Royce (LSE: RR) has faced another challenging year. There has been some very cheering news too, such as a recent return to positive free cash flow. But here I want to zoom in on a couple of risks I see to the Rolls-Royce share price in 2022. I then explain why I would consider buying the shares for my portfolio even with those risks.

Risk 1: weakening aviation demand

A key risk to the business continues to be weakened demand for commercial aviation. Heading into 2022, I believe there is a chance that this could get worse.

This isn’t just about whether or not pandemic developments lead to new travel restrictions. Crucially, it is also about consumer confidence. Even if there are not new restrictions, many people will decide that the uncertainty involved in booking air travel is not worth it. So, in the next few years, it is possible that aviation demand will stay weak or perhaps even get weaker. I expect this to vary by market. In the US, for example, aviation has seen a strong rebound. But in Europe the picture is more mixed, while passenger aviation demand in Asia continues to be very low.

That matters to Rolls-Royce not only because of what it might mean for engine sales. Crucially, fewer flying hours also translates to less servicing needs for the company’s installed base of engines. That could hurt both revenues and earnings.

Risk 2: negative cash flows

One of the reasons for improved investor sentiment on the Rolls-Royce share price in the past year has been the company’s anticipated return to positive cash flow. It reckoned it would achieve this in its second half and indeed has now reported that it is again free cash flow positive. That is good news because it reduces liquidity concerns. If the engine maker has cash coming in the door rather than going out of it, it will hopefully not need to raise more money by diluting existing shareholders, as happened last year.

But a downturn in expected demand for aviation could tip Rolls-Royce back into negative free cash flows. That could hurt the company’s liquidity, increasing the risk of another dilutive rights issue in the future.

Why I remain bullish on the Rolls-Royce share price

I see both these risks as substantial. They could certainly weigh on the Rolls-Royce share price next year.

However, I think that they are largely factored into the price already. There are a number of reasons to be bullish about Rolls-Royce’s prospects, in my view. For example, it has a sizeable defence business, which has proven to be resilient. Other divisions, such as the company’s power business, could also see growing demand in coming years regardless of the outlook for aviation demand.

The company’s return to positive free cash flow lately suggests its financial discipline over the past 18 months is paying rewards. That could also mean that the outlook for profit margins in future could be stronger than it was historically.

There are definitely risks to the Rolls-Royce share price. But they wouldn’t stop me considering adding the company 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.