Is the BAE share price about to take off?

The BAE share price could be a safe harbour in stormy waters, says Rupert Hargreaves, who would buy the stock for his portfolio today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When it comes to FTSE 100 stocks, I think the BAE (LSE: BA) share price stands out for its incredibly unique qualities. 

The global defence contractor is a one-of-a-kind in the UK market. It is the country’s largest defence company, and it has a global footprint with operations spanning as far as Australia. The company also has several other unique qualities that could help it outperform in an uncertain economic environment. 

BAE share price advantages

The defence industry is far more defensive than other sectors. Its primary customer tends to be the government, which has deep pockets and can sign multi-year contracts. Governments are the only real customers these companies can sign deals with in most situations. 

Unfortunately, this sector is also highly regulated. This means corporations like BAE do not have much flexibility in finding customers and signing international agreements. They have to follow many rules and regulations, and breaking these can result in severe financial penalties. 

Despite this challenge, the group’s defensive nature suggests the BAE share price could outperform the market as economic uncertainty builds.

According to the company’s latest update, its order backlog for the next few years stands at over £40bn, which locks in around two years of revenue for the group. The organisation is always looking for new opportunities, suggesting this backlog will only continue to expand in the years ahead.

BAE also has an advantage when it comes to technology. The company has developed some of the most advanced tech globally for the defence industry. This gives it a solid competitive advantage. 

Uncertainty grows

These advantages are just some of the reasons why I think the BAE share price could take off over the next few years. Governments worldwide are ramping up military spending, and one of the primary beneficiaries of this spending will be defence contractors. 

As one of the largest defence contractors in the world, with its portfolio of unique technologies, I think BAE will almost certainly benefit from this increased spending. The company is already returning significant amounts of cash to investors.

It has been repurchasing shares, and the stock currently offers a dividend yield of 4%. Considering the outlook for the organisation, I think it is likely management will continue to increase the dividend payout and other shareholder returns in the years ahead. 

Of course, dividend growth is far from guaranteed. If BAE finds itself on the wrong side of regulators and politicians, the company’s outlook could change overnight. This is something I will be keeping an eye on as we advance. 

Nevertheless, as the outlook for the global economy and geopolitical environment becomes more uncertain, I believe BAE can provide a safe harbour in stormy waters.

Considering its defensive nature and current dividend yield, I would buy the stock for my portfolio today. I cannot guarantee that the shares are about to take off. But I think there is a good chance they could outperform as uncertainty builds.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves 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.

More on Investing Articles

Bearded man writing on notepad in front of computer
Investing Articles

Could a 2025 penny share takeover boom herald big profits for investors?

When penny share owners get caught up in a takeover battle, what might happen? Christopher Ruane looks at some potential…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value shares for investors to consider buying in 2025

Some value shares blew the roof off during 2024, so here are three promising candidates for investors to consider next…

Read more »

Investing Articles

Can this takeover news give Aviva shares the boost we’ve been waiting for?

Aviva shares barely move as news of the agreed takeover of Direct Line emerges. Shareholders might not see it as…

Read more »

Investing Articles

2 cheap FTSE 250 growth shares to consider in 2025!

These FTSE 250 shares have excellent long-term investment potential, says Royston Wild. Here's why he thinks they might also be…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Has the 2024 Scottish Mortgage share price rise gone under the radar?

The Scottish Mortgage share price rise has meant a good year for the trust so far, but not as good…

Read more »

Investing Articles

Will the easyJet share price hit £10 in 2025?

easyJet has been trading well with rising earnings, which reflects in the elevated share price, but there may be more…

Read more »

Investing Articles

2 FTSE shares I won’t touch with a bargepole in 2025

The FTSE 100 and the FTSE 250 have some quality stocks. But there are others that Stephen Wright thinks he…

Read more »

Dividend Shares

How investing £15 a day could yield £3.4k in annual passive income

Jon Smith flags up how by accumulating regular modest amounts and investing in dividend shares, an investor can build passive…

Read more »