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.
