FTSE 100 defence giant BAE Systems (LSE:BA) has endured a disappointing 2020 so far. The BAE share price is down around 12% year-to-date.
But when the world is reeling from a pandemic, the economic fallout and geopolitical concerns around the globe, I find it surprising that such a prominent defence company is not thriving. The British multinational defence and aerospace company is the largest defence contractor in Europe. It manufactures armoured vehicles, drones, ships and aircraft and has prominent customers across the globe. Taking a step back to look at the bigger picture, I think BAE Systems will continue to win contracts and grow in the medium-to-longer term. This cements my view that it is a good defensive stock to own in a Stocks and Shares ISA.
While some may have concerns that the mounting global debt could cause governments to slash their defence budgets, I think ongoing international security issues will keep defence budgets intact for the foreseeable future.
Strong financials and healthy order book
BAE has a price-to-earnings ratio (P/E) of 11 and earnings per share are 46p. The board suspended its dividend (with a 4.6% yield) earlier in the Covid-19 outbreak, but plans to reconsider it once the financial outlook is clearer.
I think a P/E of 11 is low for a company with this level of stability, which makes me think investors undervalue it. I imagine many investors will pile back in to this stock once the dividend is reinstated, so it could be sensible to get in early before a surge of buyers pushes the BAE share price back up again.
The firm has a targeted free cash flow generation of £3.5bn to £3.8bn for 2020 to 2022.
Whether during a rally or a market crash, I would buy BAE shares for my long-term investment portfolio.
Wine share price surges
Another stock worth considering is Naked Wines (LSE:WINE). The naked wines share price has surged since the March stock market crash. And while the BAE share price has stumbled along, the WINE share price is up over 67% year-to-date.
Today’s positive results explain this, with news that its revenue soared 81% during the first two months of its financial year ending 2021. This further boosted the Naked Wines share price, which is up another 5% this morning.
WINE has a market cap of £282m. Full-year results for 2020 show continuing operations were slightly ahead of expectations. Revenue of £203m was up 14% year-on-year. Total profit for the period is £8.2m and the balance sheet remains strong with net cash of £55m. Like many companies operating in the current economic uncertainty, WINE opted not to provide full financial guidance until the outlook is clearer. But it said it expects fixed costs of £28m to £30m for the financial year 2021.
While I think the BAE share price is in bargain territory, Naked Wines’ share price could be overvalued at its current level. It has a P/E of 25, which is quite high, although it makes some sense as its online sales have surged during the lockdown, this may not be sustainable once people resume drinking in bars, pubs and restaurants. I would buy BAE shares at any time, but I would wait for a dip on the back of stock market volatility to buy shares in WINE.
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Kirsteen 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.