Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best stocks to buy while prices are still affordable.

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As the FTSE 100 draws ever closer to a new all-time high, I’m considering three promising stocks to buy. All three have received a buy rating from major broker UBS in the past month or so, and I think they all have long-term growth potential.

The stock that just won’t stop

Rolls-Royce Holdings (LSE:RR.) shares are up almost 200% in the past year and show no signs of slowing down. They’ve climbed a further 6% since I last wrote about them just over a week ago. Based on future cash flows, analysts estimate the shares to be undervalued by at least 50%.

However, the company’s liabilities outweigh its assets, leaving it with a £3.6bn shortfall. This is a significant risk that potential shareholders would need to take into consideration. Also, Rolls-Royce has suspended dividend payments until its financial situation improves.

Why do I think it’s a good buy?

The Royal Navy aims to deploy a fleet of new Dreadnought Class nuclear submarines by 2030, which could keep the company in demand for years to come. Rolls-Royce supplies the Nuclear Steam Raising Plants (NSRP) and other parts used to power the subs. 

They’re the best-performing shares in my portfolio currently and if I had the money, I’d buy more today.

The bank that bounced back

Popular high street bank NatWest Group (LSE:NWG) had a tough time during 2023. The share price fell 41% from a high of 308p in January to 182p in October. It has since recovered to 262p and I think it looks poised to keep climbing. Its price-to-earnings (P/E) ratio has reduced from 8.1 last March to 5.4 today, indicating the shares may be undervalued.  

However, its recent Q4 earnings report revealed a 12% year on year decline in pre-tax operating profit (although that’s better than some analysts expected). And like much of the UK banking sector, NatWest is at risk of loan defaults if the economy falls into a recession.

Why do I think it’s a good buy?

The main benefit of NatWest Group is the 7% dividend yield. With a 35% payout ratio, it’s well-covered by earnings and has recently begun paying out consistently. For this reason, I’ve added it to my list for the next buying round.

Defending the nation

With a share price of £13.53, BAE Systems (LSE:BA.) is up 37% in the past year. Much of the growth could be attributed to increased government defence spending prompted by the ongoing conflict in Ukraine. Sadly, negotiations have thus far failed to secure a peaceful resolution. 

Naturally, if a peace deal is reached, the share price could fall as defence budgets are cut. I’m happy with the returns my shares have delivered so far and I plan to keep holding them, but an end to the war would be a preferable outcome. Furthermore, despite no direct involvement, BAE has been criticised for supplying parts for fighter jets involved in the Palestinian conflict.

Why do I think it’s a good buy?

Its profits extend beyond just current conflicts. The UK is on a mission to improve its defence capabilities, with PM Rishi Sunak recently pledging a £200m investment and declaring it a “national endeavour”. As one of the largest defence and aerospace contractors in Europe, I think BAE could benefit from this initiative for years to come.

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.

Mark Hartley has positions in BAE Systems and Rolls-Royce Plc. The Motley Fool UK has recommended BAE Systems and Rolls-Royce 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.

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