LONDON — I’ve been popping stocks into my shopping basket in recent weeks, and it’s time I took one or two to the checkout. Here are five stocks I’ve found tempting; should I buy any of them?
Rolls-Royce Holding PLC (LON:RR)
Rolls-Royce Holding PLC (LON:RR) is a smooth-running share price machine, up 50% over one year, 200% over five years, and 2,000% over 10 years. As you might expect from the name, you pay a premium price, at nearly 21 times earnings. But you should brace yourself for the odd bump and jolt, with a Serious Fraud Office investigation into malpractice in China and Indonesia. Defense spending is under pressure, as governments pare budgets. Civil aircraft engine sales are cyclical, and could stall in further economic turbulence. There’s good news, as well, with predicted modest growth in underlying revenue, and good growth in underlying profit. RR is also celebrating a stream of new orders. Earnings per share (EPS) growth will roughly halve from the stonking 22% seen in 2012, but remains healthy. Shame that it only yields 1.6%. Rolls-Royce Holding PLC (LON:RR) still looks like a buy to me, but I will wait for share price weakness. (I might have to be patient.)
ARM Holdings plc (ADR) (NASDAQ:ARMH) is another 20-bagger over 10 years. It’s also up 870% over five years, and 100% over one year, and … need I go on? This smartphone and tablet chip pioneer keeps beating analyst expectations, which is why it’s trading on a whopping 66.6 times earnings, a beast of a P/E ratio. At some point, this has to stop. But who would bet against it? I did, selling three years ago, and have cried myself to sleep ever since. Management has high hopes for its next generation ARMv8, Mali, and big.LITTLE technology, which generate higher royalties. Mighty EPS growth of 37% this year and 24% next also hold out plenty of eastern England promise. Competition is fierce, especially from Intel, chief executive Warren East is stepping down after 19 years, and it ain’t cheap. Should you buy? Can you risk not buying it?