The Motley Fool

Time To Buy Rolls-Royce Holding PLC And BAE Systems plc?

Rolls-RoyceOur two big aerospace engineers, Rolls-Royce (LSE: RR) (NASDAQOTH: RYCEY.US) and BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) are seriously looking undervalued these days.

Cuts in defence spending during the recession hurt both companies, but their share prices have behaved differently. Both took a tumble in the dark year of 2009, and BAE’s remained depressed. Since 2012, the BAE price has been recovering a little, but over five years it’s still quite a bit behind the FTSE with a gain of only around 20% — the index has risen by 55% over the same timescale.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Rolls has been strong

Rolls-Royce, on the other hand, quickly headed back upwards and over five years has trebled in price while the FTSE has achieved only that 55% – but the past two years have not been good. With its 2013 results announcement, Rolls told us that “In 2014, we expect a pause in our revenue and profit growth” — and that was the first time in a decade that the firm has not expected to grow its revenues.

The price slumped, and at 1,070p today it’s down 10% over 12 months — and that’s even after a 6% rise this morning!

Buyback!

What caused today’s spike? It’s the news that Rolls-Royce is set to embark on a share buyback programme. The company has completed the sale of its energy gas turbine and compressor business to Siemens, and now has a spare £1bn in cash sitting around. Chief executive John Rishton told us that “As no material acquisitions are planned, and reflecting the strength of our balance sheet, we will return the proceeds of the Energy sale to our shareholders“.

The return of cash is to happen via a share buyback rather than any kind of special dividend, and that suggests that Rolls-Royce considers its shares to be good value right now.

On a pure P/E basis, the shares look pretty averagely-valued — they’re on a forward multiple of 15 for this year, dropping to 14 for 2015 as earnings growth forecasts return. But with a great record of long-term earnings rises, Rolls has traditionally enjoyed a higher P/E than average, for good reasons.

How’s BAE looking?

BAE doesn’t have the same rock-solid earnings record as Rolls, and we have a couple of flat years forecast — but the shares are on a forward P/E of only 10.5. Dividends look set to yield close to 5% this year and next, and should be around twice-covered. And going by BAE’s most recent update, it should be able to ride out the era of lowered defence spending just fine, and looks in good shape for a continuing recovery from recession.

Both companies look like good value to me.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Alan does not own any shares in BAE Systems or Rolls-Royce.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.