A falling stock market can be a great opportunity for investors. As prices come down, there can be chances to buy shares at some very attractive prices.

I’m on the lookout for stocks to buy in a volatile market. But there’s one potential pitfall I’m extremely keen to avoid, if at all possible.

Anchoring

Essentially, anchoring is the process of getting fixated on a specific stock at a specific price without paying attention to the underlying business. It’s easy to do and hard to avoid. 

Anchoring is usually associated with stocks going up. For example, the fact Rolls-Royce shares were trading at £5.88 at the start of the year makes it hard to consider buying them at £8.

But this is a mistake. Whether or not the Rolls-Royce share price is a bargain today comes down to the underlying business, not where the stock was three months ago. 

Avoiding anchoring is hard, but that doesn’t make it right. And it’s just as easy (but no better) to get fixated on a high price in a falling market as it is with a low one when stocks are rising.

An example

One stock I own in my portfolio is DCC (LSE:DCC). Shares in the FTSE 100 conglomerate are down around 5% from where they were when I started buying them a few months ago. 

My view of the business however, hasn’t changed. I still see it as a firm with the potential to generate a big return for shareholders by divesting its healthcare and technology divisions.

Streamlining the company to focus on its energy unit reduces the diversified nature of its operations. And I still see this as just as much of a risk with the stock as ever.

Nonetheless, my view of the stock at today’s prices is still more positive than it was when I first started buying. Despite this, it’s not top of my list of shares to buy at the moment.

Opportunities

I’ve been using the falling stock market to start buying shares in WH Smith (LSE:SMWH). The stock’s fallen almost 8% this year, but it’s the underlying business that’s caught my attention.

The firm has announced plans to sell its high-street stores and focus on its travel business. I see this as a very good move that the current share price doesn’t properly account for.

Shops in airports, train stations, and hospitals have some advantages over high street retail. There’s limited competition and customers can’t go online to find things at lower prices.

In a recession, travel demand could fall, hitting earnings. But while this is a serious risk, I think WH Smith’s travel division is worth the share price even without the high street stores.

Foolish takeaway

A falling stock market can be a great chance to add to existing investments at lower prices. But getting fixated on shares previously bought at higher prices can be a big mistake.

In my case, that means looking past DCC, which I bought at a higher price. Instead of just bringing my average down without thinking, I’m on the lookout for new opportunities.

Until recently, I didn’t own shares in WH Smith. But a combination of the stock falling and a change of strategy has forced it to the top of my buying list.

A year ago I thought Rolls-Royce Holdings (LSE: RR.) shares were looking a bit toppy. But in the 12 months since, they’d still have boosted a £10,000 investment to around £18,400.

Over the past five years the Rolls-Royce share price has skyrocketed by nearly 530%. And that could have turned £10,000 into about £63,000 today.

I’ve been watching broker forecasts and price targets with some scepticism. It seemed to me as if they just lift their targets at random every few months, even with no news about how things are going at the company. But they’ve been right so far.

The right valuation?

I can understand how forecasts for revenue, earnings per share (EPS) and all the other fundamentals come about. But how that translates to share prices depends on one unknown. What’s an appropriate price-to-earnings (P/E) valuation for a stock? That’s not an easy question to answer.

At the moment, we’re looking at a forecast P/E of 32 for the year ending December 2025. After the way the share price has soared, is that high? Compared to a current FTSE 100 P/E of about 18, it looks that way. And that index value (which varies depending on who we ask) is above its three-year average of 15.

Comparing with UK sector rivals is tricky because there are so few of them. BAE Systems has a forecast P/E of 23. And compared to that, the Rolls-Royce valuation looks a bit steep. And as forecasts suggest almost the same percentage growth in EPS between 2025 and 2027 for the two, there’s no growth premium here for Rolls.

Global business

The aero engine business is truly worldwide. So maybe the trick is to compare Rolls with international competitors. A look at forecasts for GE Aerospace shows a forward P/E of 35. RTX, the aerospace giant that owns Pratt & Whitney, is on a multiple of 27. They make the Rolls P/E of 32 perhaps look about right.

What about a rational valuation based on expected cash flow? My colleague at The Motley Fool Simon Watkins reckons a discounted cash flow analysis puts Rolls-Royce shares at around 35% undervalued. Of course, forecasts change, often fairly rapidly.

My main conclusion is that it’s far harder to work out a fair valuation for a growth stock like Rolls-Royce than for most others, like mature dividend stocks for example. And it’s that uncertainty that shifts me more towards the latter.

So what’s it worth?

The average price target among City analysts right now is pretty much bang on the 790p share price as I write. That would turn a £10,000 investment into, well, approximately £10,000. It seems wildly at odds with 70% of brokers rating Rolls-Royce a Buy.

Still, the high end of the target range, at 1,150p, would lift £10,000 above £14,500. But there’s a very bearish prediction out there too, at just 240p. That would see our £10,000 slashed to only £3,040.

I’m more confused than I was a year ago. But with the overall bullish stance, I still think growth investors should consider Rolls-Royce shares today.

With seemingly dozens of passive income ideas floating around in 2025, one of my favourite methods is to own dividend shares.

This strategy has a long history and isn’t just a new fad. Dividend shares are typically from companies that have sufficient cash flows and consistent profits. As such, they tend to be more mature and established.

Earning passive income from shares

Let’s crunch some numbers to see how an investor could earn £1,357 in monthly passive income. That means they’ll need to generate a £16,284 annual income.

To do that they’ll need a sizeable pot. The amount to invest depends on the average dividend yield of the portfolio.

Right now, the FTSE 100 offers a yield of around 3.5%. But many dividend shares offer 6%-8%. Some even offer over 10%, but these might involve more risk or could be unsustainable.

Here’s the investment required at different yields:

Dividend yield	Calculation	Total required
4%	£16,284 / 0.04	£407,100
6%	£16,284 / 0.06	£271,400
8%	£16,284 / 0.08	£203,550

The person could go for a balanced approach and target a 6% dividend yield. According to my calculations, that means they’ll need a pot worth £271,400.

Realistic goals

Realistically, building such an amount won’t be possible with one single £10,000 investment. Instead, they’ll need to make regular and consistent contributions to grow it over time.

On average, I think it’s realistic to achieve a 9% return per year. In this scenario, this would likely be from a 6% dividend yield and 3% of share price growth.

After 10 years, I expect the pot to be worth over £150,000. But that’s still off target by over £120,000. Somewhat surprisingly, this should only take another four to five years. And that’s due to the wonders of compounding.

Choosing the best dividend shares

This strategy focuses on blue-chip shares. These companies are large, well-established, and financially solid.

In the UK, many of these are found in the FTSE 100. One Footsie dividend share the investor could consider right now is insurance business Aviva (LSE:AV.).  

It currently offers a 6.4% dividend yield, and has been distributing dividend payments to shareholders for decades.

One of the things I like about insurance companies like Aviva is that they’re built on predictable cash flows. They collect premiums upfront from policy holders, and pay out any claims later. The difference between the two is typically invested.

A resilient business

2024 was a strong year for Aviva. It reported a 20% rise in operating profit, with insurance sales climbing 12%. It shifted towards more capital-light growth and raised its dividend.

In its most recent update, it also cited clear trading momentum, strong growth, and untapped potential ahead. This all sounds encouraging to me.

Despite being a relatively resilient business, there are risks to be aware of. For instance, claims related to floods, storms, and wildfires are rising. This can negatively impact underwriting profits.

It’s also important to diversify investments to spread risk and avoid putting all the eggs in one basket.

The investor could also consider adding National Grid and Schroders for this passive income strategy. Both offer a dividend yield of around 6% and meet the requirements outlined earlier.

Nvidia (NASDAQ:NVDA) stock is up 361% over three years. That means a £10,000 investment made then would now be worth around £46,500. That’s accounting for a small depreciation in the pound over the time — it’s important to factor in currency fluctuations when a stock is denominated in another currency, in this case, dollars.

A broader view

Many investors will be familiar with Nvidia’s rise, but others may be new to the stock. So, why has it surged? Nvidia’s meteoric rise has been driven by its dominance in the artificial intelligence (AI) chip market.

The company makes graphics processing units (GPUs). Originally designed for gaming, these GPUs have become essential for AI and machine learning. They’re responsible for powering everything from data centres to autonomous vehicles. Nvidia’s GPUs excel at parallel processing, making them ideal for handling the massive amounts of data required for training AI models.

The surge in demand for AI capabilities, exemplified by the launch of ChatGPT and other large language models, has accelerated Nvidia’s growth. The company’s market value has soared, reaching $3.4trn in June 2024, making it, for a period, the largest company by market value.

Uncertainty spreads

Nvidia’s stock has fallen sharply. It’s currently down around 25% from its highs. Several factors are responsible for this. One is the emergence of Chinese startup DeepSeek. Its cost-effective AI model has raised concerns about Nvidia’s market dominance.

DeepSeek’s innovative approach challenges the necessity of high-end chips, potentially reshaping the AI landscape and impacting Nvidia’s future demand. That’s the bear case anyway. Some analysts are saying DeepSeek has helped democratise AI and will increase demand for it.

Geopolitical tensions, particularly President Trump’s renewed tariff talks, have introduced uncertainty around costs and supply chains, affecting tech companies like Nvidia. Ongoing export restrictions to key markets such as China, Singapore, and Vietnam have further dampened growth prospects.

What’s more, Nvidia’s rich forward valuation — in relative terms — makes it susceptible to sharp corrections, as even strong earnings may fail to meet lofty expectations. Some investors worry about potential oversupply in the AI chip market as competitors ramp up production. Broader economic concerns, including inflation and interest rate uncertainties, have led to increased market volatility.

Additionally, after Nvidia’s meteoric rise, some investors — including institutional investors — may be cashing in on gains, contributing to downward pressure. These factors combined have led to increased uncertainty and volatility in Nvidia’s stock, despite its continued leadership in the AI chip space.

Improving valuation and long-term dominance

Nvidia’s stock appears relatively attractive with a price-to-earnings-to-growth (PEG) ratio of 0.8. This suggests it is cheap when factoring analysts’ growth forecasts. Of course, forecasts can change.

Looking ahead, arguably beyond the forecasting period, Nvidia is poised to potentially dominate the robotics industry. The company’s integrated ecosystem, including its Omniverse platform, advanced GPUs, and AI foundation models, positions it well to lead in this emerging sector. With the AI robotics market expected to grow significantly, Nvidia’s technological edge could translate into substantial future growth.

Personally, I’m holding tight with my current position. I’ve never been tempted to sell, but I could possibly be tempted to buy more as developments unfold.

Most people invest in a Stocks and Shares ISA with the goal of eventually generating a second income — whether in retirement or earlier. The idea is to grow a portfolio that can help support a desired lifestyle, either through dividend income or strategic withdrawals (or both). 

According to the Office for National Statistics, the average post-tax annual earnings are just over £27,000 in the UK. Since we don’t know what that figure will be in future, I’m going to use £32,000 for simplicity’s sake.

Here’s how this sum might be achieved through investing in the stock market.

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.

Lofty yield

The average dividend yield for FTSE 100 stocks right now is roughly 3.5%. Based on this yield, an investor would need £858,000 in an ISA to generate £30k a year in tax-free dividends. That’s unlikely for most people.

However, there are plenty of UK shares yielding significantly higher than the average. One I’ve been considering and think others should too is M&G (LSE:MNG), the asset management firm whose shares come with a juicy 9.4% yield.

The stock has drifted sideways for the last couple of years as higher interest rates have led investors to prefer cash and other products over M&G’s funds. Last year, it experienced £1.9bn in net outflows from open business, a reversal from the £1.7bn inflows in 2023.

However, assets under management (AUM) actually increased 1% to £346bn, due to positive market moves offsetting outflows. And lower costs helped drive a 5% year-on-year increase in adjusted operating profit before tax (£837m).

The risk here is that uncertainty around tariffs could spark further market turmoil and hurt investor sentiment. This volatility might lead to clients pulling cash from M&G’s funds, impacting AUM and profitability.

Yet the company is demonstrating resilience in a tough market, which is important to see from an income perspective. Management expects annual underlying operating profit growth of 5% or more on average over the three years to the end of 2027. 

In its 2024 results, the firm said: “Given our confidence in the outlook for the business, we are moving to a progressive dividend policy, starting with a 2% increase in the 2024 total dividend per share”.

Moving to a progressive dividend policy is obviously encouraging. For 2026, City analysts forecast 3% dividend growth, bringing the payout to 21.2p per share. That translates into a mouth-watering forward yield of 9.7%

Getting to £30k (and beyond)

Of course, it’s important to remember that dividends aren’t guaranteed, making diversification crucial. But through stocks like M&G, it’s possible to build up a sizeable portfolio over time.

In fact, a £642,000 portfolio is achievable by investing £800 a month for 21 years. This assumes a 10% annualised return (which may not happen), including dividends reinvested along the way to fuel the compounding process.

Investors would then be generating just over £32,000 in annual passive income, assuming the ISA yielded 5%. If the portfolio yield was 7%, the yearly second income would be almost £45,000.

Invest £1,000 a month for 25 years at the same rate of return, the figure would be £1.23m. And the passive income figures would be £61,500 and £86,000 for 5% and 7% yields, respectively.

This goes to show how investing relatively modest sums of money over time can lead to a sizeable second income.

Greggs (LSE:GRG) shares have experienced a significant downturn, with the stock plummeting 34% over the past two years. This decline reflects the challenging market conditions and subdued consumer confidence that have impacted the bakery chain’s performance.

As such, £10,000 invested in the shares two years ago would now be worth around £6,600. Even including a modest dividend, this is a substantial loss for investors.

Off the boil

The company’s recent performance has been lacklustre, with sales growth slowing considerably at the start of the 2025 financial year. Like-for-like sales in company-managed shops increased by a mere 1.7% year-on-year in the first nine weeks of 2025, with Greggs citing “challenging” weather conditions in January as a contributing factor.

While Greggs did manage to surpass the £2bn sales mark in 2024, with total sales up 11.3% to £2.01bn, the fourth quarter of 2024 saw a marked slowdown in like-for-like sales growth to 2.5%. This deceleration was attributed to weaker consumer confidence and reduced high street footfall.

According to chief executive Roisin Currie, macroeconomic challenges are an issue for the company, noting that many customers continue to worry about their financial situation. However, I’d suggest that there’s evidence that the cost-of-living crisis actually shifted customers attentions away from more expensive food-to-go, like Pret, and towards Greggs.

Despite these challenges, Greggs continues to expand its store network, opening a record 226 new shops in 2024. However, the company’s ability to maintain its growth trajectory in the face of economic pressures remains uncertain. While Greggs’ value-for-money proposition may provide some resilience, the current market conditions suggest a cautious outlook for the stock in the near term.

Still a bit dear

Greggs stock is much cheaper today on a forward price-to-earnings (P/E) basis. The stock currently trades around 13.5 times forward earnings. This is considerably down from the 25 times earnings last year.

But this isn’t a clear sign that the stock’s undervalued. While forecasting data is limited, analysts are pointing to earnings per share (EPS) growth around 5%. In turn, this would lead to a price-to-earnings-to-growth (PEG) ratio above two. Even adjusted for dividends, the data I’m seeing points to a vastly over-valued stock.

Typically, I wouldn’t need to look beyond this data. But it’s also important to note that Greggs has a modest net debt position and it doesn’t own the stores it operates — so these can’t go down as assets.

I’d also add that Greggs may struggle to find additional physical space to grow in the UK beyond the medium term. It’s already well represented on our high streets and increasingly so at transport hubs.

What’s more, there’s a slow trend towards healthier eating, and Greggs simply doesn’t fit into that narrative. In fact, I recently saw someone suggesting that a tuna baguette was a healthy option in Greggs… but 63g of white bread probably isn’t good for anyone.

So it goes without saying that I won’t be buying Greggs shares.

The Alternative Investment Market (or AIM for short) index of shares is designed primarily to help small and growing companies to raise capital. While the total number of listings has fallen recently, investors still have almost 670 shares here to choose from today.

This number can be daunting for those looking to start their investing journey. With this in mind, I’ve selected three top AIM shares I think could look good in a starter portfolio.

Buying AIM shares might deliver market-beating returns. Be aware, however, that it might also be riskier than purchasing large- or mid-cap stocks on the FTSE 100 or FTSE 250 indexes. So investors should carry out thorough research when considering which stocks to buy.

The growth and dividend stock

Springfield Properties (LSE:SPR) is tipped to enjoy an 80% rise in annual earnings this financial year (to May 2025). This reflects recent improvements in the housing market and the builder’s successful efforts to raise margins.

Cost-cutting, land sales, and the end of low-margin legacy contracts meant gross margins rose 300 basis points higher during the first half, to 17.7%.

It’s important to remember that some of these are one-off factors. Furthermore, the homes market recovery could falter if economic conditions worsen, and/or interest rates stay around current levels.

But I still believe Springfield Properties remains an attractive stock to consider, and especially looking at its long-term prospects. Demand for its product could rise strongly as the UK population grows. Government efforts to build 1.5m new homes in the five years to 2029 should also boost the company.

I also like the look of the Scottish housebuilder as a dividend stock. Steps to mend the balance sheet mean cash rewards here are tipped to grow strongly over the next two years.

As a consequence, a dividend yield of 1.6% for this year leaps to 2.7% and then 4.3% for financial 2026 and 2027, respectively.

The value share

Base metals miner Central Asia Metals (LSE:CAML) provides super value based on predicted earnings and anticipated dividends.

For 2025, the company trades on a price-to-earnings (P/E) ratio of 8.1 times. Meanwhile, its corresponding dividend yield is 9.4%.

To put that into perspective, the average yield on FTSE 100 shares is way back at 3.5%.

Central Asia Metals produces copper from the Kounrad mine in Kazakhstan, along with lead and zinc at the Sasa complex in North Macedonia. As a consequence, its share price has soared recently as industrial metal prices (and especially copper values) have exploded.

Base metals are tipped by some analysts to keep rising, too. It’s important, though, to remember that commodity prices are notoriously volatile. Fresh fears over changing US trade policy, for instance, could pull metal values sharply lower again and whack miners’ revenues columns.

Yet from a long-term perspective, I think Central Asia Metals remains an attractive stock to consider. It’s my belief that copper, lead, and zinc demand will rise strongly on a range of phenomena, such as increasing investment in artificial intelligence (AI), the growing green economy, and rising infrastructure and housing spending across the globe.

The FTSE 100 is a great place for new investors to consider getting started on their investing journey. It’s crammed to the rafters with rock-solid companies that enjoy market-leading positions and robust balance sheets.

Yet with scores of blue-chip businesses to choose from, knowing which stocks to buy and which ones to avoid can be a tough task at first. So let’s take a look at some Footsie shares that might work well in a starter portfolio.

As well as providing diversification through different industries and geographies, this particular portfolio also provides a mix of growth, passive income, and value. It’s a blend that provides exposure to multiple investment opportunities, reduces the risk investors take on, and can deliver a stable return across the economic cycle.

The growth share

Tabletop gaming specialist Games Workshop (LSE:GAW) has experienced stunning growth in recent decades. It has subsequently gone from having a market cap of £140m at the start of the century to being a £4.6bn bruiser today (and enjoying elevation to the FTSE 100 in December).

There are doubts as to whether the Warhammer maker can continue its stunning ascent, and especially as rival games manufacturers ramp up the competition.

But I’m confident Games Workshop has significant scope to keep growing profits. Its strong record of product innovation continues, as demonstrated by the fact new releases (like those of its new Warhammer: The Old World system launched last year) consistently sell out within hours.

The company’s also increasing the licencing of its intellectual property to boost consumer interest and to generate mammoth revenues in its own right. The blockbuster TV and film content deal recently signed with Amazon is an especially exciting development here.

The value stock

For investors seeking all-round value, there’s few better to consider than Standard Chartered (LSE:STAN) in my book.

The bank’s forward price-to-earnings (P/E) ratio of 8.1 times falls below the FTSE 100 average of 12.2 times. Meanwhile, its price-to-book (P/B) ratio is below 1, at 0.8. This means it trades at a discount to the value of its assets.

Okay, Standard Chartered’s large Chinese footprint leaves it exposed to current economic turbulence there. But I believe its broad exposure to Asia and Africa also provides excellent longer-term investment potential, driven by a blend of surging population levels in these places and rapidly rising disposable incomes.

Halma (LSE:HLMA) doesn’t have the largest dividend share out there. For 2025 it stands at 1%, far below the FTSE 100 average of 3.5%.

But this isn’t a share to be taken lightly on the passive income front. The business — which manufactures safety and hazard detection equipment — has raised the annual payout by at least 5% for a stunning 45 years on the trot. This has enabled investors to outpace inflation over the decades.

This record is underpinned by Halma’s exceptional cash generation and its ability to post record profit after record profit. For the outgoing financial year (ending March 2025), the company’s tipped to record a 22nd consecutive year of rising profits.

Growing trade wars pose a threat to future profitability. But on balance, I still think it’s a top income share to consider.

Aston Martin Lagonda (LSE:AML) shares have remained stuck in reverse over the last year. The FTSE 250 carmaker now deals at 70.2p per share, a whopping 59.5% lower than it was 12 months ago.

Someone who bought £10,000 worth of shares would have seen the value of their investment tumble to £4,046. They wouldn’t even have received any dividends to help soften the blow, either.

Aston Martin’s share price sits significantly below the 661.9p it was at five years ago. But past performance is not always a reliable guide to the future, and investing in the luxury carmaker today could yield sterling returns if it recovers.

So should investors consider buying Aston Martin shares today?

Tough times

It’s easy on one hand to see the company’s incredible appeal. Its products are the epitome of style, speed. sophistication, and let’s face it, sex appeal.

Aston Martin’s association with James Bond since the mid-1960s — and the brand’s involvement in the dynamic world of Formula One — haven’t done it any harm, either.

But while its label and products are highly desirable, the same certainly can’t be said for the company itself, at least in my view. So what’s the problem?

The issue is that Aston Martin is fighting fires on a number of fronts. Last year, pre-tax losses rose by 21% to £289.1m, partly due to a 9% drop in wholesale volumes. Sales declined on the back of supply chain disruptions and tough conditions in China, troubles that still persist.

As a result, net debt — which was already pretty concerning at 007’s favourite carmaker — shot up sharply. At the end of 2024, Aston had net debt of £1.2bn, up 43% year on year. The spectre of fresh rights issues and debt issuances still looms large.

Tariff talk

As if Aston Martin didn’t have enough problems, on Thursday (27 March), US President Trump drew global carmakers further into his escalating trade battle.

From 2 April, the US will slap a 25% tariff on all imported cars, putting a hefty premium on already-expensive marques like Aston.

On the plus side, delays to previously announced tariffs from the US may suggest this thumping import tax isn’t a done deal. In addition, UK chancellor Rachel Reeves has said the government is “in intense negotiations” with Washington to avoid any car tariffs.

But just the mere threat of trade tariffs is enough to chill my bones. Last year, sales to the Americas — dominated by demand from US customers — accounted for 40% of group revenues, making it by far the company’s single largest market.

With all of its manufacturing located in the UK, Aston Martin would be especially vulnerable to any ‘Trump Tariffs.’

What next?

It’s hoped that a string of new car launches (including the recently revamped Vanquish and the upcoming Valhalla) will revive the company’s fortunes. But the highly competitive nature of the car market means success is by no means guaranteed.

And Aston Martin’s recovery is made even more difficult given challenging economic conditions in key markets. On balance, this is a FTSE 250 share I think investors should consider steering well clear of.

Over the past several years, one of the more notable opportunity costs in my portfolio has been selling my shares in Rolls-Royce (LSE: RR) when the price still had a long way to run, in the right direction.

Of course, no-one knew then just how impressive a performance shares in the aeronautical engineer would put in.

In fact, over the past several years, the performance of the Rolls-Royce share price has been little short of phenomenal. Over the past five years, it has moved up by 517%.

So, should I add the share back into my portfolio today? Here are three factors I could see helping to boost the share price.

Strong investor momentum

A gain of 517% happens sometimes for a small growth stock. But for a large, mature company in a mature industry, it is highly unusual.

Clearly, investors have liked the investment case for Rolls and a recent upgrade to its commercial targets has not hurt at all.

I think that sort of enthusiasm could mean plenty of buyers in the stock market and help keep the Rolls-Royce share price moving up.

As an investor, however, I like to invest in businesses because I think they are undervalued relative to their commercial prospects, not because I expect other people to be buying in. So, although I think investor momentum could potentially help push up the Rolls-Royce share price, that does not encourage me to invest.

Solid customer demand

After some very tough years, customer demand in the civil aviation sector bounced back and helped Rolls perform well over the past several years.

I think that could continue, potentially meaning that demand stays elevated both for the sale of new engines and the servicing of existing ones.

That said, several US airlines have recently reported a softening in domestic customer demand. If that trend turns out to be a wider one, it could be bad for demand.

Rolls is not just about civil aviation, though, important as it is for the firm. It also has a large defence business. As European governments continue to ratchet up spending on defence, I think that could be good news for the firm’s revenues and profits in the defence sector.

More efficient business

But there is only so far the business can grow in any given year.

That helps what is known as the top line: how much money the business achieves in sales. What also matters, though, is what is called the bottom line. That is basically the company’s profits.

The Rolls-Royce share price has risen partly because the company has set itself aggressive goals for improving its bottom line business through an efficiency drive.

If that works, earnings could rise, potentially justifying a higher valuation.

Not for me right now

Still, the business already trades for 26 times earnings.

That looks expensive to me based on current performance. I fear that it does not offer me sufficient margin of error if the company encounters some unexpected turbulence.

We saw during the pandemic how civil aviation demand can suddenly drop dramatically for reasons beyond Rolls’ control. I see that as an ongoing risk and so have no plans to invest.