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The FTSE 100 has had a great start to the year, rising nearly 5% to reach a record level. So it’s hardly surprising to see a few Footsie shares also pushing skywards into uncharted territory.
Here are two that have started 2025 the way they ended 2024 — going up!
On a roll again
First is Rolls-Royce (LSE: RR), which gained over 90% last year and closed at a record 611p earlier this month. It’s pulled back slightly to 592p, as I write, but that’s still higher than where it started the year (568p).
Beyond the recovery in international travel, the company continues to benefit from elevated defence spending. Last week, Rolls bagged its biggest ever deal, a £9bn contract with the Ministry of Defence to make nuclear submarine reactors for the Royal Navy.
There’s also growing excitement about its small modular reactors (SMR) business. Last year, it won a landmark contract to help deploy these mini-nuclear reactors in the Czech Republic. It may land a contract to do the same in the UK too — the long-delayed decision is expected in the spring.
With nations wanting to decarbonise energy systems, and more data centres needed to support power-hungry AI systems, the global SMR market could be huge.
However, it’s also one that is a few years away (2030s). In the meantime, the firm faces supply chain challenges and sky-high expectations from investors. It remains to be seen whether the share price will surge for a third year in a row.
Longer term, however, I’m bullish on this blue-chip. The global fleet of long-haul aircraft is expected to expand significantly in the coming decades, particularly in Asia. The growth opportunities should be plentiful for the FTSE 100 engine maker.
That said, with the stock trading a high price-to-earnings (P/E) ratio of 32 for 2024, I’m not keen on adding to my holding at the moment.
Scaling up rapidly
Next is InterContinental Hotels Group (LSE: IHG). The share price is up 130% over the past five years, leaving it near its all-time high at just under 10,800p.
Like Rolls-Royce, InterContinental is another global company, with a growing hotel presence across Europe, Asia, and the Americas. Its capital-light franchising model is enabling it to scale quickly, especially in high-demand markets across Asia, where it is leveraging local partners’ resources and market knowledge.
This is a stock I’ve wanted to buy for some time now, but the seemingly high valuation has put me off. Right now, the P/E ratio for 2024 is around 30.
Arguably, that valuation fails to account for the risks of a potential trade war and rising inflation that might be triggered by Donald Trump’s proposed tariffs. That could hit disposable income and therefore demand for travel and hotels.
Again though, I’m optimistic about this stock moving forward. There’s a big pushback on short-term rentals on Airbnb in many major cities, which should ultimately play into the firm’s hands.
The company owns a diverse portfolio of hotel brands, including the luxury InterContinental Hotels & Resorts, the mid-range Holiday Inn, and boutique Kimpton. I see it as one of the highest-quality businesses in the FTSE 100 and expect it to carry on doing very well.
As soon as there’s a significant dip, I plan to invest.
