A share in my portfolio suddenly surged 41% higher on 24 December, delivering some nice festive gains in the process. It was Windward (LSE: WNWD), a small-cap that I originally bought in January 2024 when it was a wee nipper of a penny stock. I’ll sell it now though and replace it with a falling FTSE 100 stock.
What happened
Windward is an Israel-based software firm. Its AI-powered platform provides real-time insights on vessels, aiding data-driven decisions in risk management, compliance, supply chains, and maritime intelligence.
Over the past three years, the company has more than doubled its annual recurring revenue and more than tripled its global customer base. I’m not surprised it’s been snapped up.
On 24 December, it agreed to be acquired by Octopus UK Bidco, a subsidiary of FTV Capital’s investment fund. Under the terms, shareholders will receive 215p per share, valuing the company at approximately £216m, a 47% premium on Windward’s closing price of 146p on 23 December.
The share price is currently at 207p, slightly below that. But I’m not going to wait about for the extra few pence. I’m up 86% on my three separate purchases across 2024. I’ll take that.
Then again, it’s always sad to see a promising small company disappear from my portfolio. As Brad Bernstein, managing partner at the acquiring fund, remarked: “Windward has built a best-in-class maritime AI-based analytics platform spanning use cases across risk, compliance, trading and the supply chain.”
The stock in question
So how do I plan to reinvest the windfall from Windward? Well, there are half a dozen shares that I’ve been wanting to add to on a dip and one is BAE Systems (LSE: BA.)
Shares of the defence giant are down 18% since mid-November. I think that constitutes a dip.
There are three key reasons why I plan to buy more shares. First, the valuation looks attractive, with the stock trading at a forward-looking price-to-earnings multiple of 15.2. That’s the lowest this ratio has been for some time.
Second, the forward dividend yield has crept up to 3.1%. While no dividends are guaranteed, I’m reassured that BAE is a Dividend Aristocrat, with over 25 years of increases under its belt.
In 2025, analysts have a near-10% dividend rise pencilled in. And due to its record order backlog of £74bn, I expect BAE to afford rising dividends for many more years.
Next, we have a noticeable price target disparity. The average 12-month price target from City brokers is now 1,492p, which is 30% higher than the current level. It might never reach that price, but this suggests to me that BAE’s far from overvalued.
Recently, Deutsche Bank reaffirmed its Buy rating on the stock. It said: “We see 2025 as another good year for order intake at BAE Systems, with both Foreign Military Sales and Eurofighter orders set to contribute to the company’s performance.”
Trump wildcard
The company sells arms to governments in the UK, North America, Europe, Middle East, and Asia Pacific. But the US is a key market, and investors appear concerned that Donald Trump’s efficiency drive could result in lower military spending. This is a risk.
Longer term though, I think the company remains perfectly positioned to capitalise on higher NATO spending and rising defence budgets worldwide.
