Will Rolls-Royce shares be the best FTSE 100 investment in 2023?

Rolls-Royce shares have more than doubled this year so far. Could the aerospace and defence giant be the best-performing FTSE 100 stock in 2023?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

2023 concept with upwards-facing arrows overlaid on a hand with one finger raised, pointing up

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As we enter the final months of the year, it’s worth reflecting on the tremendous growth in Rolls-Royce (LSE:RR.) shares in 2023. The iconic British company was one of the pandemic’s biggest losers. But, it has delivered a sustained stock market turnaround this year.

Spurred by a recovery in the company’s Civil Aerospace division and ongoing strength in Defence, the Rolls-Royce share price has increased 122% since January — and 223% over 12 months. This stellar performance begs the question: will Rolls-Royce be the best-performing FTSE 100 stock in 2023?

Let’s see how the stock compares against other high-performing shares in the UK’s leading index.

Should you invest £1,000 in 3i Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if 3i Group Plc made the list?

See the 6 stocks

The top FTSE 100 performers

The top five best-performing FTSE 100 shares this year to date (YTD) include companies spanning a variety of sectors. Rolls-Royce leads the pack. It’s followed by retailer Marks and Spencer, which was recently re-admitted to the index after a four-year hiatus in the FTSE 250.

To complete the quintet, energy giant Centrica, specialist manufacturing investor Melrose Industries, and private equity firm 3i Group have all delivered stellar returns for shareholders too.

FTSE 100 stockYTD Performance
Rolls-Royce+122%
Marks and Spencer+87%
Centrica+69%
Melrose Industries+65%
3i+55%
FTSE 100 index+1%

With three months left of trading in 2023, Rolls-Royce has built a commanding lead over other FTSE 100 shares in terms of its performance since January.

Granted, that can change quickly in the volatile world of stock market investing. Nonetheless, it’s fair to say, the business is a strong contender in the race to become this year’s top Footsie stock.

It’s also worth mentioning that Marks and Spencer plans on re-introducing its dividend in November. As such, M&S will join the other three companies in rewarding investors with passive income. Rolls-Royce is the only stock in the bunch that won’t pay a dividend this year.

Where next for Rolls-Royce shares?

Taking a look at Rolls-Royce’s half-year results, there are plenty of causes for optimism. Underlying operating profit skyrocketed from £125m to £673m. Plus, group revenue advanced from £5.3bn to £7bn, propelled by increases across all divisions.

The outlook for the company’s largest unit — Civil Aerospace — has improved considerably from the gloomy days of the pandemic. Engine flying hours have recovered to 83% of 2019 levels as pent-up demand for international travel supports the airline industry.

Nonetheless, this number still hasn’t made a full rebound to its pre-Covid levels. Long-term shareholders can attest to this. The Rolls-Royce share price is down 33% on a five-year basis despite this year’s remarkable rally.

Created with Highcharts 11.4.3Rolls-Royce Plc PriceZoom1M3M6MYTD1Y5Y10YALL1 Oct 20181 Oct 2023Zoom ▾Jan '19Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '232019201920202020202120212022202220232023www.fool.co.uk

Reducing net debt and achieving an investment-grade rating have been identified as key goals by the board. Progress on these metrics has been solid so far. Prospective investors should monitor further developments closely to ensure the momentum continues.

Overall, it’s worth bearing in mind that few engine manufactures can rival Rolls-Royce’s market position and unique expertise — either in civil or military settings. These high barriers to entry give the company some key advantages.

I own Rolls-Royce shares and I’ll continue to hold them. I believe there’s a good chance the company could be the top-performing FTSE 100 stock this year. However, potential investors should factor in notable downside risks at today’s share price.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Carman has positions in Rolls-Royce Holdings Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Here’s how a 40-year-old could start investing £100 per week to retire early

If a 40-year-old decides to start investing today, here's how they could potentially turn £100 a week into over £500k…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

The FTSE 100 is up 60% in 5 years. Here’s why — and a big lesson!

The flagship FTSE 100 index has put in a very strong performance over five years. There's a specific reason for…

Read more »

Investing Articles

How much do investors need in an ISA to earn a £2,500 monthly passive income?

Charlie Carman explores how investors could strive for £30k in tax-free passive income each year from a dividend stock portfolio.

Read more »

Investing Articles

How much would a 45-year-old need to invest in an ISA to earn a £1k monthly passive income at 65?

Harvey Jones looks at how much an investor would need to put away every month to build a steady passive…

Read more »

Investing Articles

3 things to do ahead of the new 2025-26 ISA year

It's time for us all to put on our investing boots and get to work on developing our plans for…

Read more »

Older couple walking in park
Investing Articles

Is £150,000 enough to generate £1,000 a month in passive income?

Stephen Wright takes a look at three UK stocks with dividend yields above 8% that passive income investors might be…

Read more »

Investing Articles

Aim to earn a £50k second income in retirement by investing just this much each month

Even with a small monthly investment, it’s possible to earn a £50k second income with a successful investment strategy and…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Down 22% in a month! Is this my chance to buy shares in this FTSE 100 outperformer?

Shares in InterContinental Hotels Group have outperformed the FTSE 100 over the long term. So is a chance to buy…

Read more »