Confidence across global stock markets continues to swing like a pendulum. The FTSE 100 and FTSE 250 recently rose to significant new levels as hopes over the economic recovery perked up. But UK share prices have sunk sharply on Tuesday as fears over possible interest rate hikes have spiked.
I’ll be looking for great bargains to buy if a full-blown stock market crash happens again. History shows us that those who buy UK shares in the aftermath of a crash can make colossal returns in the years following. This is how hundreds (if not thousands) of Stocks and Shares ISA investors became millionaires during the 2010s. They bought in the depths of the 2008/2009 financial crisis and watched the value of their stocks balloon as economic conditions recovered, corporate earnings bounced back and investor confidence returned.
Why I’d buy UK shares for my ISA
Now I’m not going to say I’ll make millions by buying after stock market crashes like I did in 2020. Most investors like myself can’t invest the sort of sums needed to get a seat at the millionaire’s table. Besides, the business of stock investing isn’t a walk in the park. It requires a lot of hard work and sometimes some good fortune.
However, by buying after stock market crashes I do have the chance to supercharge my eventual investment returns. Studies show that the average long-term share picker enjoys an average annual return of 8% to 10%. Buying after crashes and riding the rebound can boost one’s chances of hitting the top end (or even exceeding) those levels.
It’s why I’m looking to buy again following Tuesday’s share price falls. Here’s one that’s on my ISA radar:
A FTSE 100 share I’d buy today
I think BAE Systems (LSE: BA) is of the best UK shares I could buy following today’s drop. I thought the FTSE 100 company looked cheap even prior to today. But this most recent price drop means the defence giant trades on a forward price-to-earnings (P/E) ratio of 12 times.
It’s worth mentioning that demand for defence shares from funds is dropping, however. Institutional interest is dropping as funds try to meet the environmental, social, and governance (or ESG) requirements laid down by their investors. This casts a shadow over BAE Systems’s share price looking ahead.
That being said, I still expect the company — one of the world’s biggest arms suppliers — to rise in value over the long term. Global arms spending continues to grow as the West responds to perceived state and terrorist threats, and rising wealth levels in emerging markets sees them spend increasing amounts to boost their militaries.
Indeed, latest data from the Stockholm International Peace Research Institute showed total defence expenditure rise again in 2020. It increased 2.6% from 2019 levels to a shade below $2trn. The fragile geopolitical landscape means that the current arms race looks set to run and run. And so BAE Systems can expect robust demand for its defence products to reign.
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.