In October 2022, I looked at the Rolls-Royce (LSE: RR) share price and decided it was ready to rocket. I bought its shares for around 75p and today they’re at 456p, a rise of a staggering 520%.
Now I’ve got the same feeling about another stock that’s fallen on hard times, but could be set for a super-charged recovery too.
First though, Rolls-Royce. I didn’t get that trade completely right, sadly. I only put in a small sum and banked my profit after the stock climbed 200%, because I needed the cash. I really wish I’d hung onto it, obviously.
FTSE 100 recovery play
I bought it because I felt the shares had fallen too far, too long. After so many false dawns, investors refused to see its recovery potential.
I got lucky. CEO Tufan Erginbilgiç took the helm in January 2023, just a few months after I bought Rolls. I didn’t foresee the transformational effect he’d have.
I wouldn’t buy Rolls-Royce shares today. They’re still up 195% over 12 months but simple maths says it can’t maintain this growth rate, with the market-cap now £38.8bn. When the speculators move on, then I’ll move in.
I still want to inject a bit of high-speed growth into my portfolio though. So I’ve just bought online grocer Ocado Group (LSE: OCDO).
Like Rolls-Royce in 2022, it’s taken a beating. The Ocado share price peaked at 2,808p in February 2021. Today, it’s down 85% at 423p. This doesn’t necessarily mean I’m getting a bargain. There was a lot of froth in the share price before. Again, I think the doom and gloom’s been overdone.
Ocado’s done a pretty good job of increasing revenues, as my table shows.
| Year ending | 2019 | 2020 | 2021 | 2022 | 2023 |
| Revenue | £1.756bn | £2.331bn | £2.498bn | £2.517bn | £2.825bn |
| Pre-tax profits | -£214.5m | -£52.3m | -£176.9m | -£500.8m | -£403.2m |
Unfortunately, as the table also shows, so far it’s been unable to turn them into profits. Management’s poured funds into building its state-of-the-art robot warehouses, while borrowing costs have been rising.
It’s going to be volatile
Ocado shares are also at the mercy of investor sentiment. If markets feel confident about the economy, they bounce. If investors feel downbeat, they plunge.
The Ocado share price also overreacts to every piece of company news. Earlier this month, it plunged on a broker downgrade. On 16 July, it soared 18% on news that Ocado had slashed its interim six-month pre-tax loss from £289.5m to £154m. It’s still losing money, just not as quickly.
The shares jumped again on Monday when the board announced that US grocery giant Kroger had ordered more Ocado kit for its customer fulfilment centres. This followed a similar move by Japan’s AEON. However, the stock’s still down 37.69% over the last year.
And tomorrow? It could go anywhere, frankly. Ocado will remain incredibly volatile. But if my nerves hold, I might buy more on the inevitable dips.
With co-founder Tim Steiner at the helm, there’s no chance of a transformative new broom like Erginbilgiç. Yet with luck, Ocado won’t need one. If it ever makes a profit, the shares could take off. We’ll see. All I can really do now is cross my fingers. I’m strapped in. Whatever happens, this time I won’t be selling.
This post was originally published on Motley Fool
