With signs pointing to a potential bull market on the horizon, I’ve been strategically adding FTSE 100 stocks to my Stocks and Shares ISA—and Rolls-Royce (LSE: RR.) is one of my top picks.
The UK stock market appears undervalued compared to global peers, and as uncertainty looms over US markets, I believe British equities—particularly aerospace and defence stocks—could be primed for growth. Here’s why I’m backing Rolls-Royce for long-term gains.
Why the UK Stock Market Could Outperform
Recent turbulence in the US economy has investors questioning whether a recession is looming. JP Morgan estimates a 60% chance of a downturn in 2025, driven by erratic policies, trade tensions, and a weakening dollar.
Historically, when the US stumbles, global markets feel the ripple effects. But this time, the FTSE 100 has shown resilience, declining less than the S&P 500 amid recent volatility. If investors shift capital away from overvalued US stocks, UK shares—particularly in strong sectors like defence and aerospace—could benefit.
Rolls-Royce: A Growth Stock with Momentum
Rolls-Royce isn’t just an engineering icon—it’s a growth story. Analysts expect earnings to surge over the next three years:
2025 EPS forecast: 23.56p
2026 EPS forecast: 27.72p
2027 EPS forecast: 30.96p (a 50% jump from 2024)
At 36.9x earnings, the stock isn’t cheap—but its premium valuation reflects strong momentum. The company recently upgraded its 2028 profit targets to £3.6bn-£3.9bn (up from £2.5bn in 2025), driven by:
✔ Increased defence spending (governments boosting military budgets)
✔ Rising engine flying hours (post-pandemic travel recovery)
✔ Small modular reactors (SMRs) (a future game-changer in nuclear energy)
Broker Sentiment: Overwhelmingly Bullish
Of 17 analysts covering Rolls-Royce:
12 rate it a Buy
4 are Neutral
Only 1 recommends Selling
This confidence suggests further upside potential.
Key Risks to Consider
No investment is without risks, and Rolls-Royce has two major challenges:
Aviation Dependency – The pandemic proved how vulnerable the company is to travel disruptions. Another crisis could hurt earnings.
High Valuation – If growth slows, the stock could face a sharp correction.
My Verdict: A Strong ISA Pick for Growth Investors
Despite the risks, I believe Rolls-Royce is well-positioned to capitalise on defence spending, aviation recovery, and emerging energy tech. That’s why I’ve been topping up my Stocks and Shares ISA with more shares—especially after its recent 8% dip from 52-week highs.
Should You Invest?
If you’re looking for high-growth UK stocks, Rolls-Royce could be a smart addition to your ISA or long-term portfolio. However, always diversify and assess your risk tolerance.
Want more top stock ideas? The Motley Fool’s experts have identified 6 standout stocks for 2025—could Rolls-Royce be one of them? [Find out here].
