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Invest in a FTSE 100 sprinter actions like BAE Systems (LSE: BA.) can wreak havoc on the nerves.
My big concern is that your market beating will stop the moment I click the Buy button, leaving me at a loss. As a general rule, I feel safer buying stocks that are out of favor, assuming this will reduce the chances of overpaying for past performance.
So it was a great deal for me to buy BAE Systems on March 3 and again on May 8, as the defense manufacturer's stock had been doing very well for years. Fortunately, they didn't crash and burn upon contact with my purse. In fact, I have risen 5.44%. My bet is not to fly to the moon, but at least point in the right direction.
FTSE 100 Big Winner
Now I'm wondering if the momentum can continue and if I should buy shares for the third time this year. The BAE Systems share price is up 45.77% in one year and an impressive 207.93% in five years. If you had invested £5,000 back then, you would have £15,396 today. Or closer to £16,000, including reinvested dividends. Clearly it's a shame not to have bought it, but that's history. What's up today?
Trading at 22.1 times earnings, BAE Systems shares are more expensive than the average FTSE 100 valuation of 13 times. That's not surprising. This is not your average stock.
The expected return for 2024 is 2.33%, one of the lowest in my portfolio, but again, not surprising given the rapid growth in the share price. BAE Systems is forecast to return 2.54% in 2025, showing progression.
On the contrary, the world is retreating every day towards a more bellicose state. Bad for humanity, good for BAE Systems. Before Russia invaded Ukraine, there was a growing trend among ESG-focused funds to exclude weapons manufacturers from their portfolios. That position is harder to justify today (although many still do it).
More firepower there
While we unfortunately need to spend more on weapons and ammunition, cash-strapped Western governments will struggle to foot the bill. Furthermore, we do not know what Donald Trump will do if he wins the US election and what the consequences will be.
Trump can cut exports to Ukraine, push for an unfavorable peace, or even pull the plug on NATO. All of this could hit arms sales and drive down BAE Systems' share price. Unless European countries step up and increase their own spending on weapons, that is. I'm not convinced they do.
Another potential 'risk' is that the long-awaited global peace breaks out. But in the hugely unlikely event that that happens, I'd be too busy celebrating everything else in my portfolio going through the roof to worry about BAE Systems.
It says a lot about the state of the world that now I've finally bought the stock and have no intention of selling it. I would like to buy more when I have the cash. I can't imagine them growing another 200% in the next five years. However, given the nature of the human beast, I want long-term exposure to the defense sector and see no point in waiting. Even at the current price.
