If I’d invested £5k in red hot BAE Systems shares 5 years ago here’s what I’d have today

BAE Systems shares have smashed the FTSE 100 for years and Harvey Jones is keen to buy more as they should continue to outperform.

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Investing in a FTSE 100 speedster stock like BAE Systems (LSE: BA.) can play havoc with the nerves.

My big worry is that their market-beating form will stop the moment I click the Buy button, leaving me sitting on a loss. As a rule, I feel safer buying stocks that are out of favour on the assumption that this will reduce the chances of overpaying for past performance.

So it was a big deal for me to buy BAE Systems on 3 March, and again on 8 May, as shares in the defence manufacturer had been going great guns for years. Happily, they didn’t crash and burn on contact with my portfolio. In fact, I’m up 5.44%. My stake isn’t rocketing to the moon, but at least it’s pointing the right way.

Big FTSE 100 winner

Now I’m wondering whether the momentum can continue and if I should buy the stock for the third time this year. The BAE Systems share price is up 45.77% over one year and a mighty 207.93% over five years. If I’d invested £5,000 back then, I’d have £15,396 today. Or closer to £16,000 including reinvested dividends. Clearly, it’s a shame I didn’t buy, but that’s history. What about today?

Trading at 22.1 times earnings, BAE Systems shares are pricier than the FTSE 100’s average valuation of 13 times. That’s hardly surprising. This isn’t an average stock.

The forecast yield for 2024 is 2.33%, which is one of the lowest in my portfolio, but again, not surprising given the rapid share price growth. BAE Systems is forecast to yield 2.54% in 2025, which shows progression.

By contrast, the world is regressing into a more warlike state by the day. Bad for humanity, good for BAE Systems. Before Russia invaded Ukraine, there was a growing trend for ESG-focused funds to exclude weapons manufacturers from their portfolios. That position is harder to justify today (although many still do).

More firepower in there

While we sadly need to spend more on guns and ammo, cash-strapped Western governments will struggle to foot the bill. Also, we don’t know what Donald Trump will do if he wins the US election, and what the fallout will be. 

Trump may cut exports to Ukraine, push for an unfavourable peace, or even pull the plug on NATO. All of those could hit weapons sales and take down the BAE Systems share price. Unless European countries step up and boost their own arms spend, that is. I’m not convinced they will.

Another potential ‘risk’ is that the longed-for global peace breaks out. But in the hugely unlikely event that happens, I’d be too busy celebrating everything else in my portfolio rocketing to worry about BAE Systems.

It says a lot about the state of the world that now that I finally bought the shares and I have zero intention of selling them. I’d like to buy more, when I have the cash. I can’t imagine they’ll grow another 200% in the next five years. However, given the nature of the human beast, I want long-term exposure to the defence sector and don’t see any point in waiting. Even at today’s price.

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.

Harvey Jones has positions in BAE Systems. The Motley Fool UK has recommended BAE Systems. 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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