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3 Bargain Blue-Chips? BAE Systems plc, Rolls-Royce Holding PLC And Meggitt plc

Engineering company Meggitt (LSE: MGGT) has released a mixed update today. While trading remains in-line with its previous guidance, it now expects the current weakness to continue into 2016. This follows a profit warning in October that sent the company’s shares spiralling downwards, although they’re flat so far today.

The major reason for Meggitt’s continued challenges is a very weak energy market that is set to pull down the better performance of its other divisions. In fact, while Meggitt anticipates its civil and military units to post positive growth next year, overall growth including all divisions will be in the low single digits. And, while cost-cutting and the potential for efficiencies could help to offset the sales weakness it’s currently seeing, Meggitt appears to be in the middle of a very uncertain period.

So here’s the good news. This presents an opportunity to buy a high quality company at a discounted price. Just look – Meggitt now trades on a price to earnings (P/E) ratio of only 12.8. This indicates that its shares are well worth buying now and, with the company upbeat about its ability to deliver organic growth ahead of the markets in which it operates, it could prove to be a sound investment.

Growth ahead

Similarly, BAE Systems (LSE: BA) also offers excellent value for money. It, of course, is also struggling to overcome a challenging marketplace, with BAE set to deliver a 1% fall in its bottom line this year. As with Meggitt, though, it remains a very high quality company that now trades on a P/E ratio of just 13.7. Looking ahead to next year, it’s expected to return to growth with a rise in net profit of 5% being pencilled in by the market.

As well as a low valuation, BAE also offers vast dividend growth potential. For example, its current level of shareholder payouts are covered 1.8 times by profit and this indicates that even if profit growth is rather sluggish, it could still increase dividends at a rapid rate. This could help support its share price during a difficult period – especially with interest rates forecast to remain low over the coming years. And, with BAE yielding 4.1%, it offers excellent income potential right now.

Wait and see?

Meanwhile, Rolls-Royce Holding (LSE: RR) is also finding trading particularly difficult at the moment and looking ahead, further profit warnings could be on the cards following its recent downgrade to guidance. This could further pressure the company’s shares, especially with Rolls-Royce already expected to deliver a net profit fall of 20% in the current year and a further 43% next year.

Although the share price has dropped by 30% since the turn of the year, the market does not yet appear to have fully priced in the disappointing outlook for the business. Rolls-Royce trades on a forward P/E ratio of 20.5 (which uses next year’s 43% lower earnings figure). This indicates that its share price could come under pressure and, while its new management team has excellent credentials and Rolls-Royce remains a top quality business, prudent investors may wish to wait for a lower share price before piling in.

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Peter Stephens owns shares of BAE Systems and Meggitt. 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.