Shares in BAE (LSE: BA) (NASDAQOTH: BAESY.US) have made a superb start to 2015, with the defence company seeing its valuation soar by 14%. This compares very favourably to the FTSE 100‘s rise of 5% year-to-date, with the defence sector gaining a lift due to the market being of the opinion that the worst of the challenging trading conditions caused by defence cuts is now behind it. As such, the future performance of stocks such as BAE is likely to improve significantly.
Despite its recent share price rise, BAE still offers very appealing income prospects. For example, it yields an impressive 3.9% and, with interest rates set to move lower, its mix of long term growth potential and a great yield could prove to be a potent one. As such, BAE seems to be worth buying and seems likely to continue to beat the FTSE 100.
Despite being in the midst of a challenging period, with its bottom line in decline, GKN (LSE: GKN) remains a very appealing industrial play. That’s because it offers an enticing mix of diversification, with its two main divisions focusing on the automotive and aerospace markets. And, with defence budgets unlikely to be slashed too much further (as mentioned), and the civil aviation and automotive sectors picking up pace, now could be a good time to buy a slice of GKN.
Certainly, its bottom line is forecast to show improved performance next year. That’s because GKN’s earnings are expected to rise by 9% in 2016 and, with the company’s shares trading on a price to earnings (P/E) ratio of just 13.1, it could see its rating move upwards over the medium to long term.
Even though Rolls-Royce (LSE: RR) (NASDAQOTH: RYCEY.US) is enduring a difficult period at the present time, it still offers the potential to beat the FTSE 100 over the medium to long term. That’s because it has an excellent track record of bottom line growth that bodes extremely well for its longer term future. For example, in the last four years it has been able to increase its bottom line at an average rate of 14.5% per annum, which is around twice the growth rate of the wider index.
And, with Rolls-Royce likely to see investor sentiment rise as the global economy continues to improve, now could be a great time to buy a slice of it – especially since profit growth is forecast to return as soon as 2016.
Peter Stephens owns shares of BAE Systems. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.