Rolls-Royce share price is recovering. Is it a good buy today?
- Rolls-Royce share price has made some gains recently.
- The company will benefit from the UK defence spending under Truss.
- These gains could be limited in the coming weeks as this enthusiasm fades.
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Rolls-Royce (LON: RR) share price has bounced back in the past few days as investors cheer the recent win by Lizz Truss. The stock jumped from the year-to-date low of 69.60p to 79.53, which was a 14% increase.
More defence spending in the UK
Rolls-Royce Holdings is a leading manufacturing company that focuses on industries like civil aviation, defence, energy, and space. In defence, the company builds products for the aviation marine, and land sectors.
Therefore, Rolls-Royce stock price has rebounded following the victory of Lizz Truss to be the British prime minister. Her plan involves boosting military spending, which will benefit leading companies in the sector. Other companies set to benefit are BAE Systems and Meggitt.
According to the BBC, her spending will cost about 157 billion pounds in the coming years. This will be the biggest increase in this spending since the 1950s.
The company’s stock has also risen because of the falling commodity prices. In the past few weeks, key industrial metals like copper, lead, titanium, and aluminum have seen their prices decline sharply as fears of a recession worry investors.
If these prices continue falling, it could be a positive thing for Rolls-Royce, which spends millions of pounds every year buying metals.
Still, the biggest challenge for the company is that the aviation sector, which generates over half of its revenue is going through challenges. In the UK, British Airways has announced that it will cancel over 10,000 flights during winter. Other companies like Delta, Emirates, and Etihad are also canceling flights.
Therefore, this will have an impact on Rolls-Royce business because the company makes most of its money in long-term service contracts. These contracts are tracked in the number of flight hours by a plane. This explains why the company’s recovery from the pandemic has been significantly slow.
Rolls-Royce share price forecast
The four-hour chart reveals that the Rolls-Royce stock price has been in an overall bearish trend in the past few months. Early this month, it managed to crash below the important support level at 77.72p, which was the lower side of the descending triangle pattern.
This trend changed this week as the stock moved back above the resistance point after Truss was confirmed as the prime minister. Still, the company faces numerous challenges and I suspect that it will resume the bearish trend in the coming weeks. If this happens, it will likely retest the support at 60p.