Gold’s recent charge to record highs suggests that this remains the ultimate safe-haven asset. An argument can be made that buying bullion-producing stocks is a great play on this theme too. I myself have tipped some big-dividend-paying mining plays as top buys in the current climate.
That said, don’t underestimate the defence sector’s popularity for flight-to-safety investors in troubled times. Take BAE Systems (LSE: BA) for instance. This firm’s share price has risen 25% over the past year and just hit 18-month peaks above 645p.
Brexit uncertainty has played a large part in driving investor interest in this time, and with tough trade talks about to begin between London and Brussels after January 31, the worries that drove safe-haven flows into the FTSE 100 firm in 2019 could continue to power it through 2020 (and beyond).
But BAE Systems isn’t just a solid lifeboat in tough geopolitical and macroeconomic times like these. Its role as a major supplier to the US and UK militaries gives it the sort of long-term earnings visibility that allows it to keep growing dividends each and every year too. And fresh news on the contract front has again highlighted the indispensable nature of its products to Western armed forces.
BAE Systems may be best known for its ships, planes and submarines, but the pace at which its Electronic Systems division is winning business is grabbing the headlines right now. It has just sealed a $450m contract with the US Department of Defense to provide digital upgrades to warning receivers on the F-15 plane platform, for instance. Indeed, its order backlog here is so robust that new facilities in the States have had to be built.
And what’s more, recent mammoth acquisition activity has boosted the unit’s profits opportunities, and particularly so across the Pond. The planned merger of Raytheon and United Technologies Corporation means that the opportunity to buy Collins Aerospace’s Military global positioning system (GPS) business has arisen, one for which BAE Systems has forked out a cool $1.93bn.
It has also paid a not-inconsiderable $275m to snap up Raytheon’s Airborne Tactical Radios business, it said. According to BAE Systems, the acquisitions will be “highly complementary to our US-based Electronic Systems business” as well as “immediately earnings and cash accretive.”
A top buy
Its record of impressive long-term earnings growth has been built in large part upon such solid acquisitions, which have made it the market leader in a number of key areas. So news of this gigantic acquisition gives its shareholders plenty to celebrate.
In the more immediate future, City analysts expect a steady earnings rise in 2020. A 4% annual increase is currently tipped. And this leads to predictions of another hike in the yearly dividend and thus a chunky 3.7% yield.
BAE Systems trades on a forward P/E ratio of 13.5 times. This is far too cheap, in my opinion, given its exceptional earnings outlook. I believe this is one Footsie favourite investors should consider snapping up today.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.