One of Warren Buffetts famous investing sayings is be fearful when others are greedy and greedy only when others are fearful or, in other words, sell when others are buying and buy when theyre selling.
But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.
So, in this series of articles, were going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.
High-flyer brought low
Until the start of this yearRolls-Royce Holdings (LSE: RR) was a high-flying, blue-chip investment aworld-classcompany, operating in the lucrative aerospace and defence markets. Hittinga high of almost 1,300p in early January this year, its share price had increased by a stellar 290% in the five year since the start of 2009.
Buton 13 February there came a finalresults statement for 2013,in which Rolls-Royce forecast flat revenue and profit for the year ahead, and its share price plunged almost 14% in a day. After recovering slightly, theshare price thendrifted slowly down another 9% overthe next 8 months.
Then the company issued guidance warning on 17 October, in which it slashed its revenue forecasts for 2014 and 2015, saying that in the last few months economic conditions have deteriorated and Russian trade sanctions have tightened, leading a number of customers to delay or cancel orders,and its share price plummeted another 12% in a day.
Now, after bouncing and falling back again,Roll-Royces share pricenow stands nearly 40% down on the year so far.
Well placed for take off
But maybe the dramatic slump in share price presents an opportunity to buy into a company thats still world-class and that still has market-leading products and services. Although its obviouslybeing badly buffeted by the turbulent world economy at the moment, it remains very well placed to return to growth when the aerospace market strengthens again.
Perhaps thats what persuaded enough people to propel Rolls-Royce into the number three slot in our latest Top Ten Buys list*.
Indeed, in its guidance statement of 17 October, Rolls-Roycesaid:
In the medium term, our business remains well positioned in growth markets. In Civil Aerospace, the market will strengthen, driven by increasing demand for travel in the emerging economies, and the need to replace older aircraft with new fuel efficient models.
and also:
The medium term prospects for our Land & Sea division (previously called Marine & Industrial Power Systems or MIPS) remain attractive and are supported by the investment that will be required in power, transport and infrastructure to support population growth and increasing affluence. We are confident in the future growth of revenue and profit in this division but the timing, given its shorter cycle, is difficult to predict.
The companys Trent engines which includes theTrent XWB,the worlds most efficient large aero engine, and the newest Trent 7000 dominate the civillarge engine market and there is no obvious reason why that wont continue in the medium to long term.
And Rolls-Royce also has its money-spinning TotalCare service, which coverskey aspects of engine management and maintenance, and can also be tailored to a customers specific needs. More than 90% of ordersforTrentseries engines include a contract for TotalCare and the high level of demand has lead to Rolls-Royce opening dedicated service centres, including a 50m facility at Heathrow thatslarger than the football pitch at Wembley.
Rolls-Royces share price may stay grounded for a while yet, until the cyclical headwinds of the civil aerospace market die down, but itcould take off nicely in the medium to long term, making it something of a bargain at its currentlybeleaguered level.
Of course, no matter what other people were doing last week, only you can decide if Rolls-Royce really is a buy now.
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Jon Wallis has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
* based on aggregate data fromThe Motley Fool ShareDealing Service.
Jon Wallis has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
* based on aggregate data fromThe Motley Fool ShareDealing Service.
