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3 Majestic FTSE 100 Stocks: BAE Systems plc, Roll-Royce Holding PLC & Royal Mail PLC

To mark the day that Queen Elisabeth II becomes Britain’s longest-reigning monarchy I thought it would be appropriate to look at three majestic stocks for patriotic investors with a similar long-term pedigree. Could they be long to reign over your portfolio?

Defensive Investment

BAE Systems (LSE: BA) has been protecting the realm and making investors richer for years, but it has been on the defensive lately, down 17% over the last six months. That makes now a tempting entry point, with the stock trading at a modest 11.68 times earnings and yielding just under 5%.

Defence spending has been knocked by post-crisis austerity, although Russia, China and the Middle East have done their bit to encourage the West to keep its defences up. The world is still warlike but in a different way. Future conflicts are likely to be fought as much online as in the real world, through cyber attacks rather than jet fighter assaults and tank battles, but BAE is adapting and investing strongly in technology.

Saudi Arabia has been slow to confirm its order for Typhoon jets, although demand from that source should remain strong given its plans to play a stronger political and military role in the region. BAE also has a healthy order £37bn order backlog  and the US defence market is reviving. Although I wouldn’t like to hold the stock if anti-royalist and anti-military Jeremy Corbyn became Prime Minister.

Smooth Operator

Roll-Royce Holding (LSE: RR) has been on a bumpy road lately. It is down 36% over the last two years following five profit warnings in just 18 months. The falling oil price has hit demand from key markets and its £1bn share buyback looked like a needless indulgence and was halted halfway through. Rolls-Royce has been slow to shift customers to new product lines, while demand for private jet engines has disappointed.

A forecast 17% drop in earnings per share both this year and next suggests it will take time to put Rolls-Royce back on an even steer. New chief executive Warren East is working hard to turn things around and is buoyed by a massive £74bn order book, the equivalent of five years of sales, plus a strong aftermarket business as well. As Credit Suisse has just pointed out, at 11 times earnings much of the bad news is priced in.

Royal Rewards

The excitement surrounding the flotation of Royal Mail Group (LSE: RMG) has long since calmed leaving this stock to look like the steady, long-term dividend play it was always supposed to be. After falling 10% over the past three months, it is starting to look sensibly priced at less than 11 times earnings. It delivers a right royal yield as well, currently 4.43%, covered two times.

A forecast 22% drop in earnings per share next year is a concern, as is the underperformance of its UK parcels business, which was supposed to offset the long-term decline of UK letters. The collapse of City Link and suspension of Whistl’s delivery services were good news for Royal Mail in one respect, removing rivals and demonstrating how hard it will be for regulators to boost competition in this sector, but they also underline the pressures the group is operating under. The cash is flowing in, however, which should help sustain happy and glorious dividend growth for years to come.

 

There are plenty more great British companies out there.

Our latest wealth creation report top FTSE 100 stocks that could help you retire in comfort picks out some of the best income and growth prospects available in the UK today.

The Motley Fool's 5 Shares To Retire On boast dominant market positions and global exposure to some of the fastest regions of the world.

To find out the identity of these five top companies simply click here now.

Harvey Jones has no position in any shares mentioned. 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.