1.7 Reasons To Buy BAE Systems plc, Senior plc, Meggitt plc And Cobham plc

Royston Wild explains why BAE Systems plc (LON: BA), Senior plc (LON: SNR), Meggitt plc (LON: MGGT) and Cobham plc (LON: COB) are solid growth candidates.

| 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.

To extend Benjamin Franklin’s immortal words, nothing can be said to be certain except death, taxes, and war. In this vein it comes as no surprise that The International Institute for Strategic Studies (IISS) announced this week that worldwide defence spending rose 1.7% in 2014, the first annual rise since 2010.

IISS notes that “insecurity, violence and the use of military force are all increasing,” adding that “the ‘arc of instability’ is widening, and military crises do not seem to end, but rather multiply.” It went on to say that some non-combat-related missions, from co-ordinating pandemic response through to providing disaster relief, also require the widescale deployment of armed forces in often complex situations.

This recent ramping up in arms buying is being driven by surging demand from Asia, the Middle East and Africa, IISS noted, and is a reflection of growing instability in these regions, from the march of Islamic militants Islamic State across Syria and Iraq, through to growing threat of Boko Haram in Nigeria.

News of increasing market demand will come as music to the ears of BAE Systems (LSE: BA), which is already enjoying terrific order levels from such geographies — around a third of all new orders during January–August came from non-Western clients. Not surprisingly the company is pulling out all the stops to latch onto these promising new territories, from restructuring its businesses in Saudi Arabia last year, through to setting up a base in India.

Western spend set to rise?

Of course, a backcloth of suffocating budgetary pressures means that defence expenditure from US and European nations has taken a huge hit in recent years. Pentagon spending now accounts for 38% of the global total, down from 47% just four years ago, IISS comments, even though its total outlay of $581bn last year dwarfed second-placed China, which spent just $129.4bn.

Still, the governments of the West remain key players in the combatting and resolution of many of the world’s military crises, and with the sheer number and scale of these conflicts on the rise the US and Europe are likely to have to lift spending again to maintain the long-term effectiveness of their armies in a changing world.

In particular, IISS points to a challenge to the post-Cold War impasse since the Ukraine crisis broke last year, a situation that will require NATO to plug gaps in its military capability.

Revenues primed for take off

On top of this, the IISS report also underlines the vast importance of military aerospace programmes across the globe, which will lead to rejoicing at plane builders such as Cobham (LSE: COB), Senior (LSE: SNR), Meggitt (LSE: MGGT), and of course BAE Systems.

The IISS notes that

air power remains a strategic asset with the US and Russia continuing next-generation bomber projects,” adding that “the US is examining future concepts of combat aircraft to succeed the current fifth-generation programmes, while the US, Russia, China and others are [also] considering the optimum mix of manned and unmanned aircraft that will constitute future force structures.”

Given all of these supportive factors, I believe that the world’s weapon builders can expect revenues to step higher once again, after many years of top-line pressure.

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.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how much I’d have if I’d bought 1,000 shares in this FTSE 100 defence stock 5 years ago

I could have made a pretty penny investing in this leading FTSE 100 defence stock. Now I’m looking at a…

Read more »

Investing Articles

1 potential millionaire-maker UK stock I’d like to buy for the long haul

For long-term investors, here’s 1 UK stock to consider buying right now with the potential to help power a growth…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

These cheap UK shares look way too good to ignore right now

With the UK stock market reaching new highs recently, this Fool plans to grab these two remaining cheap shares before…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

This unloved UK stock could rise 120%, according to a City broker

Some City analysts reckon a once-popular UK stock can recover from its massive recent decline and go on to more…

Read more »

Investing Articles

These FTSE dividend shares all offer 6%+ yields!

Paul Summers highlights three FTSE dividend shares that offer big yields. But is the passive income stream sufficient to offset…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Is Legal & General Group one of the FTSE 100’s greatest value shares?

Legal & General shares boast low P/E ratios and massive dividend yields. Could they be one of the London stock…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

I’m looking for the best FTSE 100 value stocks to buy now. Have I found them?

Barclays, NatWest, and Imperial Brands shares are recovering strongly. But these FTSE 100 stocks still trade on rock-bottom earnings multiples.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Where on earth will Nio stock be in 1 year?

Nio stock has demonstrated extraordinary volatility over the past 12 months, but where will it be in a year's time?…

Read more »