Don’t buy Rolls-Royce shares: Buy GE stock if you can

July 24, 2023 03:25 AM PDT | By Invezz

Don’t buy Rolls-Royce shares: Buy GE stock if you can — Image source: Invezz

Rolls-Royce’s share price has an upside

I still believe that Rolls-Royce stock price has more upside as defence spending rise and the aviation sector recovers. Most airlines that have published their results like United Airlines, Delta, Ryanair, and EasyJet have published strong numbers. This is important since Rolls-Royce is a major player in the industry.

As I wrote a few months ago, I suspect that the Rolls-Royce share price could have a bullish breakout that could see it jump to over 200p. This bullish breakout could happen when the company publishes its financial results on Thursday next week.

Most analysts believe that the company’s revenue did well in the second quarter as the airline industry recovered. Further, its defence business is booming while its small nuclear reactors is taking shape.

Analysts have a mixed outlook of the Rolls-Royce share price. UBS believes that the stock will jump to 200p while Berenberg, Barclays, Shore Capital, JP Morgan, and Royal Bank of Canada (RBC) believe that it will drop.

GE stock is a better buy

GE vs Rolls-Royce stocks

While Rolls-Royce is a good investment, I believe that General Electric is a better buy. For one, GE stock price has momentum, having jumped by over 107% in the past 12 months. It has risen by over 66% this year. (Read more here).

There are several reasons why GE is a better investment than Rolls-Royce. First, GE is implementing a major turnaround. It has already taken GE Healthcare public in one of the biggest spin-offs this year.

The company is now in the process of spinning off its energy business. As a result, the remaining company will be lean, focusing on the aviation industry. I believe that leaner entities are better investments than conglomerates. In a note, an analyst told WSJ:

“The story’s getting simpler, it’s getting cleaner, and the market that we’re left with is a good market that’s recovering well.”

Second, GE’s aviation business has more advantages than Rolls-Royce. Unlike RR, GE manufactures both narrow and wide-body aircraft. Narrow-body aircraft are doing much better, as highlighted by recent orders by Indian and Saudi Arabian airlines.

GE’s wide-body engines are also in high demand. For example, it will be the sole supplier of its engines to Boeing 777X.

Third, General Electric pays dividends while Rolls-Royce has suspended its payout. GE has a small dividend yield of about 0.26% and a healthy payout ratio of just 12%. Also, GE is a bit undervalued with a PE multiple of 15 compared to S&P 500’s multiple of 23.

Therefore, buying GE shares seems like a better deal than Rolls-Royce. Fortunately, it is possible for people in the UK to buy GE shares through companies like Hargreaves Lansdown and Interactive Investor.

The post Don’t buy Rolls-Royce shares: Buy GE stock if you can appeared first on Invezz.

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