The BAE Systems share price soared 131%! But here’s what happened when I invested in March

Harvey Jones knew the BAE Systems share price would stop climbing the moment he added the stock to his portfolio. The big question is where it goes next.

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For years I watched the BAE Systems (LSE: BA) share price climb and climb, wondering whether I’d missed my chance to buy the FTSE 100 defence and aerospace manufacturer.

It’s a common problem with momentum stocks. I’m always worried I’ll buy just as the stock runs out of road. But I decided I’d waited long enough and dived in on 7 March at around £13 a share.

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Unbelievably it carried on climbing so I averaged up on 8 May at around £14 and inevitably that’s when the road ended. Sod’s law strikes again.

Can this FTSE 100 stock continue to fly?

I’m only down a few percentage points so I’ve got little to complain about. The shares were bound to idle after the strong run they’ve had. They’re up 17.94% over 12 months and 131% over five years.

Created with Highcharts 11.4.3BAE Systems PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

I prefer to buy stocks after they’ve fallen out of favour, when they’re cheap and look like a bargain. It’s rare for me to buy a stock trading at 20.44 times earnings, as BAE Systems does today.

I still think it’s a great long-term buy-and-hold though. Sadly, that’s for all the wrong reasons as the world gets more warlike. However, much of that is priced in, with Bank of America recently noting that European defence stocks were trading at a 47% premium relative to the index.

BAE Systems has a price-to-revenue ratio of 1.7, which suggests investors have to pay £1.70 for each £1 of sales. So it looks pricey by that measure too. But then, it usually does. Because it’s a great company.

On 1 August, it posted a 13% rise in sales to £13.4bn, but it wasn’t all good news. Order intake fell from £21.1bn to £15.1bn year on year. That’s still pretty good but a key reason markets love this stock is its huge order backlog, which gives great earnings visibility. Any sign of a slowdown is therefore a worry. The board still expects sales to rise between 12% and 14% this year, beating previous guidance.

No stock rises in a straight line forever. At some point, BAE Systems shares were likely to slow or even fall. But it’s strange to see this happen as war rages in Ukraine, China menaces and the Middle East gets uglier.

Brokers remain optimistic. The 15 analysts offering one-year share price forecasts have produced a medium price of £14.59. If correct, that’s up 13.5% from here. No guarantees though.

I’ll get lots of dividends and growth over time

BAE Systems has a modest trailing yield of 2.33%. However, it has a good record of increasing dividends. Let’s see what the chart says.


Chart by TradingView

As with any stock, there are risks. Peace could break out. Orders could drop as cash-strapped Western governments juggle priorities. Cheap drones are changing the nature of warfare, and big defence will have to adjust.

But human nature suggests to me that BAE Systems will be selling planes, tanks and ships for years to come. I’d be astonished if this didn’t prove one of the most successful stocks in my portfolio in the long run. The near-term is neither here nor there.

I don’t regret buying BAE Systems in March. Its shares rarely trade at a discount. The best time to buy them is whenever I have the cash. And that’s what I did.

Should you invest £1,000 in Aston Martin 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 Aston Martin made the list?

See the 6 stocks

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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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