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Hargreaves Lansdown investors are buying Rolls-Royce shares. Should you buy too?

Kirsteen Mackay
·3-min read
Businessman standing in front of screen
Businessman standing in front of screen

Rolls-Royce Holdings (LSE:RR) saw its share price shoot up over 25% yesterday on news of a pilot programme being brought in at Heathrow that collates traveller Covid-19 results. And the excitement continues today as it rose a further 28% at the opening bell.

This follows on from a surge in share buying witnessed by broker Hargreaves Lansdown (LSE:HL), listing Rolls-Royce shares as its second most purchased stock last week. It bases this on the number of deals placed by its clients on the Hargreaves Lansdown platform. A gradually rising oil price may also have boosted sentiment around the downtrodden stock.

Is Rolls-Royce a good investment?

Reopening borders and getting travel moving again is key to boosting ailing economies. It’s early days, but there’s hope a digital health ‘passport’ will help restore confidence in air travel. Volunteer travellers are trialling the passport, called ‘CommonPass’, by taking a Covid-19 test at a certified lab and uploading their results to the app along with answers to a health questionnaire. This is welcome news for Rolls-Royce as it desperately needs flights to resume, so it can start earning again. Its principal source of revenue comes from air miles flown on the engines it sells. This explains why the pandemic has had such a detrimental effect on its business. Unexpectedly, the Rolls-Royce share price is now enjoying a record weekly performance, up over 107% since Monday.

Is now a good time to invest in Rolls-Royce? It’s hard to say. I think it’s deeply ingrained into British industry, loved by the government and filled with a level of expertise and prestige that’s hard to find elsewhere. For these reasons, I don’t think it will go bust. However, the economy is still in a bad way, Covid-19 cases are rising rapidly, Brexit remains a thorny issue and the price of oil is uncertain. This makes me think the Rolls-Royce share price will face further volatility, and I’m not sure this is the best time to buy.

Hargreaves Lansdown benefits from a Covid economy

As an alternative FTSE 100 investment, I think Hargreaves Lansdown itself looks good. It has a price-to-earnings ratio of 23, its dividend yield is 3.5% and earnings per share are 66p.

It seems that Hargreaves Lansdown is benefiting from several unexpected avenues boosting its sign-ups this year. According to the Financial Times, there was a significant rise in 25 to 34-year-olds opening ISA and SIPP accounts during March and April. In the US, the lack of sporting events was reported to have brought sports gamblers to investing platforms. This may well have been the case in the UK too. Then National Savings & Investments cut interest rates and announced it would be slashing the prize-winning potential on its most favoured of retail products, the Premium Bond. Since then, Hargreaves Lansdown has witnessed a rise in new customers. This could well be some disgruntled Premium Bond holders looking for a more lucrative place to invest their cash.

Investing in shares via a broker such as Hargreaves Lansdown is a great way to take control of your financial future. Long-term investors can make an average annual return of 8%-10% through buying and holding quality shares for 10 years or more. That’s a major improvement on interest rate returns on traditional bank accounts. I think long-term investing is wise and shares in Hargreaves Lansdown look a good buy.

The post Hargreaves Lansdown investors are buying Rolls-Royce shares. Should you buy too? appeared first on The Motley Fool UK.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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 2020