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Should I buy FTSE 100 shares BP or Rolls-Royce for my ISA in July?

·3-min read

I’m currently on the lookout for top FTSE 100 stocks to buy this July. Should I buy one, both, or neither of these British blue chip shares for my Stocks and Shares ISA?

Should I ride the oil price recovery with BP?

Oil prices have risen strongly over the course of June on signs of tightening supplies. They’re up more than five-and-a-half bucks from $70 per barrel at the start of the month. And they’ve just touched their most expensive since October 2018. Does this momentum provide a good reason to buy shares in BP (LSE: BP) this July?

Prices of the black stuff are rising as soaring demand drains fuel inventories. But I’m not convinced that oil will keep booming in a blow to profits at FTSE 100 firms BP and Royal Dutch Shell. It’s a matter of time before US shale producers plug their hardware back into the ground en masse to ride the economic recovery. OPEC+ producers will also be increasingly eager to end their supply curbs to make money from the rising commodity price.

I also worry about the future of Big Oil as demand for green energy takes off. BP has been making serious moves to bulk up its position in the renewables market more recently. And the Footsie firm has the clout to keep increasing its exposure here to deliver big long-term profits. But BP still has a mountain to climb to transition away from oil and make a splash with green energy. I’d rather buy pure-play renewable stocks to ride this theme.

A Rolls-Royce employee works on an engine
A Rolls-Royce employee works on an engine

Is Rolls-Royce a better FTSE 100 stock to buy?

I’m not tempted to invest in FTSE 100 engineer Rolls-Royce (LSE: RR) next month either. The Covid-19 crisis is far from over and this continues to cast a pall over UK airline stocks and the companies that help them take to the skies.

Rolls-Royce said in May that large engine flying hours were around 40% of pre-coronavirus levels during in the four months to April. This is basically unchanged since the end of 2020 as lawmakers keep travel barriers up despite mass vaccinations. This stagnation is especially troubling given the huge amounts of debt Rolls-Royce has on its books. Net debt stood at £3.6bn in December.

I think the engine builder might tap investors for more cash or accrue more debt just to survive. Now it’s true that a bright long-term outlook for the aviation sector could mean big profits for Rolls-Royce in the years ahead. Mordor Intelligence reckons the commercial aircraft market will grow from $85.3bn last year to $194.5bn in 2026, driven by soaring air traffic in Asia Pacific.

But in my opinion the near-term risks to Rolls-Royce far outweigh the possible rewards over a longer time horizon. This is why I won’t be buying the engineer or its FTSE 100 colleague BP.

The post Should I buy FTSE 100 shares BP or Rolls-Royce for my ISA in July? appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. 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.

Motley Fool UK 2021

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