Global stock markets rallied earlier in the week as the world economy showed early signs of emerging from lockdown restrictions. However, on Friday, the FTSE 100 pulled back as tensions between the US and China escalated. The volatility plaguing the stock market shows no sign of easing up. This makes it a difficult task to determine the best UK shares to buy today.
That said, I believe this quality FTSE 100 company has the potential to thrive regardless of market conditions or wider macroeconomic uncertainty. For this reason, I reckon it’s one of the best UK shares that investors could buy now.
Defence by name, defensive by nature
British multinational defence and aerospace titan BAE Systems (LSE: BAE) is one of only a few firms to come out of the first quarter unscathed. Amid the chaos caused by Covid-19, the company’s stable earnings classify the stock as a defensive play.
As the largest defence contractor in Europe, BAE manufactures various aircraft, ships, armoured vehicles, and drones. This includes the popular F-35 combat aircraft used by air forces around the world. The defence giant has leading market positions in the US, UK, Saudi Arabia, and Australia as well as established positions in numerous other international markets.
BAE is in a strong position thanks to its healthy order book and numerous long-term government contracts. In fact, the group has just announced that it has been awarded a £350m contract with the UK’s Ministry of Defence as the preferred supplier for a major new framework.
Looking ahead
Exciting developments stemming from BAE’s cyber and intelligence business could be a key driver of future growth. The group is already a leading supplier of these capabilities to government agencies around the world and is expanding its services to commercial customers.
My only concern arises from any reprioritisation of spending that may occur as a result of the damage caused by Covid-19. With national debts across the world soaring, defence expenditure could be earmarked for a reduction.
That said, I think current geopolitical uncertainty only reinforces the idea that defence spending will remain an integral part of state budgets for the foreseeable future. If anything, the unfolding pandemic has exposed and exacerbated the rising tensions between the likes of the US and China.
Best UK share to buy today?
The group’s share price is down by around 24% since mid-February. The shares now trading at a price-to-earnings ratio of 11. In my view, BAE shares look oversold and thus, significantly undervalued. Analysts at Deutsche Bank expect any impact to earnings to recover swiftly in 2021. A such, the company looks like a true bargain.
A bulky yield of 4.5% sweetens the deal, though it’s worth noting that the company has deferred its final dividend for now.
With a healthy balance sheet, consistent earnings, and resilient demand for its products, BAE looks like the ultimate long-term safe-haven stock in my eyes. As such, I consider it one of the best UK shares to buy now and hold for the long term.
