1 FTSE 100 giant to consider for a Stocks and Shares ISA
A report on Sky News this week got me thinking about whether a particular FTSE 100 stock would be worthy of consideration for a Stocks and Shares ISA. One of the channelâs reporters went inside a Ukrainian drone factory. At the start of the country’s war with Russia, it was producing 100 a month. Astonishingly, this has now increased to 100,000. And itâs not enough.
A changing landscape
One of the people working at the factory claimed that drones will soon replace humans on the battlefield. If this were to happen, I think the potential for the industry’s huge. In 2023-2024, the UK government spent £14.5bn — 27% of the countryâs defence budget — on people. If some of this was diverted to equipment (including drones) then BAE Systems (LSE:BA.) could be a big winner. Itâs already the largest supplier to the Ministry of Defence. More importantly, fewer lives might be lost.
The drones being made in Ukraine were relatively small. They looked a bit like the ones you could buy in a specialist shop or online. However, Russia recently released a video showing its own version of the technology. These were much bigger and looked like smaller versions of Americaâs B-2 bomber.
As BAE Systems explained in its 2024 annual report, large defence systems can quickly be overwhelmed by what is known in the industry as uncrewed air system (UAS) attacks. Thatâs why itâs modified its TRIDON anti-aircraft defence system to cope with the increased threat. But the group also manufactures drones. In 2024, the company completed a number of acquisitions which strengthened its UAS and counter-UAS capabilities.
However, BAE Systems is about more than drones. It also manufactures and sells fighter jets, land combat vehicles and submarines. As of 30 June, it had an order backlog of £75.4bn, equivalent to roughly three times its annual sales.
What do brokers think?
Analysts are expecting the group to report earnings per share (EPS) of 75p in 2025. This means the stock trades on 23.3 times forward earnings. Although not cheap, the âexpertsâ appear to think that the groupâs shares offer good value at the moment. The consensus is that they’re currently (29 August) 19% undervalued. The most optimistic reckons they’re worth 43% more.
By 2027 — if the forecasts are accurate — EPS will have increased by 36.5% compared to 2024.
However, income investors are likely to be disappointed with the stockâs present dividend yield of 1.9% — the average for the FTSE 100 is 3.4%. But this is likely to be overlooked if its recent share price rally continues. The group’s now the UK’s 11th most valuable listed company.
Making money out of global conflicts is controversial. But a recent YouGov survey found that 60% of those with a view wanted defence spending to be increased. It appears as though the majority believe itâs the primary duty of government to protect its people.
I think itâs clear that the group’s operating in a sector thatâs growing and, whether we like it or not, is likely to continue doing so. NATO members have pledged to increase core defence spending to 3.5% of Gross Domestic Product by 2035.
Acknowledging that not everyone would be comfortable investing in the sector, I believe BAE Systems is a stock to consider.
The post 1 FTSE 100 giant to consider for a Stocks and Shares ISA appeared first on The Motley Fool UK.
Should you invest £1,000 in BAE Systems right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?
More reading
- £20k invested in BAE shares 5 years ago is now worth…
- Should I buy more BAE Systems shares while they’re down 11%?
- What next for Babcock and BAE Systems shares?
- Here are the latest share price forecasts for Rolls-Royce, BAE Systems and Babcock International
- Should I buy more BAE Systemsâ shares on the dip after apparently good H1 results?
James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems and YouGov Plc. 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.
