The FTSE 100 has had a rough time lately, with several international companies eyeing a move to the US. As a result, I’m wary about allocating too much capital towards certain stocks.
But one I’m not the least bit worried about is BAE Systems (LSE:BA.). And for good reason.
I’ve held shares in the global defence giant for longer than most other stocks in my portfolio. Along with Unilever, Tesco, and GSK, it constitutes a core part of my long-term, defensive strategy. These stocks tend to weather economic downturns better than others.
The share price climbed steadily since 2021 but hit a wall in the second half of 2024. Yet despite a 10% drop in the past month, I’m still bullish.
And I’m not alone. Both Deutsche Bank and Berenberg put in a Buy rating for the stock earlier this month (December 2024). The average 12-month price target is now around £15, a 27% increase from today’s price.
But price appreciation is only one of the company’s value propositions. Here’s why I think it’s one of the best UK stocks to consider for 2025.
Stable growth and good value
BAE is a well-established company with a £32.6bn market cap, steady revenue and relatively low debt (£10bn).
It’s been paying consistent and increasing dividends for over 20 years. The yield is only 2.7%, but is expected to rise to around 3.3% by the end of 2026.
In its first-half 2024 results, revenue increased 14%. However, earnings fell slightly by 1.8% and profit margins decreased from 8.8% to 7.6%.
This was attributed to higher expenses, rising fuel costs, and supply chain disruptions. Overall, the results exceeded analysts expectations.
Expectations for 2025
Of course, the key event I’m waiting for is the full-year 2024 results, scheduled for 19 February 2025. With this year’s contract wins and higher defence spending globally, strong growth is expected.
Revenue is forecast to reach £28.11bn, up from £25.28bn last year. Earnings per share (EPS) is expected to climb from 63p per share to 67p.
But what I’m most anticipating is the company’s forward guidance. BAE has already hinted at continued investment in cutting-edge technologies, including autonomous systems and space defence. These are areas that could define the future of defence.
Any positive updates during the announcement would further bolster my confidence in its position going forward.
Risks and considerations
There are always a few potential risks to consider when looking for stocks to invest in. For BAE specifically, budget cuts along with the shifting geopolitical climate are key areas to watch.
Considering the highly complex and expensive nature of its operations, there is always the risk of cost overruns or delays. Such issues could result in profit warnings, leading to reputational damage and share price losses.
Final thoughts
For me, BAE Systems ticks all the right boxes as a long-term investment. With strong broker endorsements, a solid pipeline of contracts, and a commitment to innovation, it’s a stock I plan to keep buying for years to come.
That said, I’ll be paying close attention to the full-year results in February to gauge how best to balance my allocation in 2025.
