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Two FTSE 100 Index The stocks that are on my buy list are BAE Systems (LSE: BA.) and National Network (LSE: NG.).
I can't buy all the stocks I'd like, but setting aside money each month allows me to invest regularly. I hope to buy some of these stocks soon.
Giant of defense
BAE Systems is one of the largest defence companies in the world. Business has been doing well due to increasing geopolitical volatility. However, I must make it clear that I am an advocate of peace and hope that all conflicts will soon come to a swift and peaceful resolution. Moreover, defence spending involves much more than weapons, and cybersecurity is a clear example.
The shares have risen 28% in a 12-month period, from 1,010 pence at this time last year to current levels of 1,298 pence.
According to research by Statista, defence spending is currently at an all-time high. This is good news for BAE, which could translate into increased profits and shareholder value. The company's extensive presence, strong relationships with major governments around the world and track record put it in a good position.
As defence spending continues to hit a global record of $2.4 trillion last year, BAE's own order book has reached around £60bn, which could help revenues remain stable for some time.
From a fundamental standpoint, a 2.4% dividend yield is attractive and could grow. However, dividends are never guaranteed. Also, the stock trades on a price-to-earnings ratio of around 22. It's not the cheapest and perhaps some growth has been priced in, which is a risk I'll be watching closely. Declining business momentum could hurt this. However, to paraphrase Warren Buffett, it's okay to associate a fair price with a wonderful company.
Despite my optimistic stance, another risk I would not lose sight of is the constant risk of product failures or malfunctions. This is true for any product-based business. However, due to the critical nature of BAE's products, any problems could prove costly and damage investor confidence.
Keeping the lights on
In my view, the owner and operator of the UK's electricity transmission system is arguably the most defensive stock on the market, as regardless of the economic outlook, everyone needs power.
National Grid shares have risen 14% over a 12-month period, from 890p at this time last year to current levels of 1,021p.
They would have gone up further, but a dividend cut a couple of months ago caused the price to fall. However, it is now climbing back towards pre-crash levels.
This brings me directly to the risks involved with National Grid. It was previously considered a good dividend stock, but the cut was made to pay for future investments in the grid. This could happen again. Furthermore, further spending will also be needed for future green initiatives. The other problem is that the government could step in to curb the payouts as well.
Overall, a 6% dividend yield remains attractive to help build wealth. Moreover, the stock price correction has seen the stock trade at a price-to-earnings ratio of just 10, which is an attractive entry point.
