Despite interest rates rising, I’m certainly not leaving my money in savings accounts. Instead, I’m looking at the FTSE. In fact, there are several stocks I’m particularly interested in right now, including GSK (LSE:GSK) and Rolls-Royce (LSE:RR).
Although these FTSE 100 giants are going through rough patches, I’m backing these firms to succeed In the long run. And I think both these firms could soar, or maybe even double in value in the long term. Here’s why.
Rolls-Royce
Rolls-Royce stock has fallen further in recent weeks amid concerns about an economic downturn around the world. However, I think there are some fairly positive core indicators for this British engineering firm that trades for 81p.
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Civil aviation — the company’s largest business segment — is approaching pre-pandemic levels, particularly in Europe and North America. And this is positive as Rolls earns money through flying hours and not just the sale of its engines.
Meanwhile, the firm noted a strong order book in defence and record order intake in power systems. The defence business will likely continue its strong growth amid an increase in global sector spending.
Debt is the biggest issue facing this firm. The sale of ITP Aero should see the total balance decline by around 20%, but there is still a lot of debt that needs servicing. The business had net debt of £5.1bn as of June.
Share price forecasts vary considerably, with some suggesting it could fall to 60p if there is another major external shock, while others see it reaching as high as 147p.
I’m certainly on the bullish side. Rolls-Royce can be hugely profitable, and I can see the share price pushing upwards if guidance is met and when the dividend is restored. I already own Rolls-Royce shares but would buy more today.
GSK
GSK stock has plummeted in recent weeks after investor concerns were heightened by forthcoming lawsuits in the US. There are around 3,000 plaintiffs contending that the heartburn drug Zantac was responsible for the development of cancer. GSK says there is no scientific backing for the claims and the first legal case has been dismissed.
There are obviously concerns that the pharma giant may have to pay out billions to the plaintiffs. But, even if this is the case, I don’t see it being enough to cripple the firm. The thing is, we’ve known about the legal cases for years, but the share price only responded to it earlier in August.
Beyond this, prospects were looking up for GSK. It recently split with consumer goods arm Haleon, earning GSK some £7bn and allowing it to shift a sizeable proportion of its debt. The demerger created a new, leaner and richer GSK, poised to invest in developing its vaccine and drugs portfolio in an ever-growing market.
Right now, GSK currently has a price-to-earnings (P/E) ratio of 12. The industry average is around 26, so it’s clear the firm is trading at a considerable discount right now.
From a valuation perspective, I think there’s a clear argument that if GSK wins its legal cases, the share price could be far in excess of where it is now. Even if it doesn’t, I still think the stock looks cheap at the current 10-year low. I already own GSK stock but would buy more.
