No President, No Problem!
So here we are. After weeks upon weeks of pomp and ceremony, we still don’t have a conclusive winner of the season finale of America - Winner Takes All (It’s rumoured that Rock ‘The Dwayne’ Johnson will feature in season 2!).
OK, hands up, I think that joke was done to death in the last Trump presidential campaign. But life’s about recycling and re-purposing these days - so here I am with the same old tired jokes. You’re welcome.
It’s been 7 hours and 15 days since you took my vote away (thank you Sinead O’Conor for that one, see I’m all about the recycling and re-purposing!).
But seriously, by the time you read this, it might well have been 15 days before we get a decisive winner!
As investors, we must move on with our lives. There will be share prices going up and down, so instead of sitting on the side-lines I thought it best to seek out a bargain stock - away from the noise of the US markets.
Cheap and cheerful, not cheap and nasty – That’s what the man told me when I bought my first bike with my own money at 17 years old. I’ve taken that same approach for what I’m about to bring to your attention.
*Precursor
For the purpose of this write up, I’m not offering financial advice. However, throughout my stockbroking career, I’ve been a sucker for value stocks. Cheap and cheerful, not cheap and nasty – there’s a big difference (trust me, I used to be a 2nd hand car dealer...). And with great aplomb, over the next 350 words I’ll bring to your attention a company trading at a criminally low valuation, which isn’t swamped in debt and shouldn’t be too harshly affected by the season finale of America.
For the purpose of avoiding all the noise of Trump vs Biden LIVE ON PPV, I’ll be sticking with a UK stock. So, without further ado, welcome BAE Systems;
BAE Systems
Trading at a meagre X9 times their projected earnings, I had to have a gander (I’m here kicking tires of a Eurofighter Typhoon for you guys, I hope you appreciate it!). My first port of call is to look at the analyst ratings and gauge if the low forward P/E is unwarranted, and shockingly the average price target is 605p (a whole 40% higher than the current share price).
You have my attention.
But why is it trading at such a discount? Analysts at JPMorgan have attributed it the possibility of governments spending less of defence and also… I hate to say it, but the Biden affect. Joe Biden seeks to spend less on US defence spending. Biden or not, US defence spending isn’t exactly tight, regardless of their leader. America isn’t their only customer, too.
Their CAGR (compound annual growth rate) is only 3.48%. But to trade at only X9 forward earnings, I’d expect to see a company swamped in debt, struggling for sales or have serious boardroom issues at hand – But none of these stand to be true. Their Current Ratio is above 1 which means they can pay their short-term debt, revenue growth for 2020 (estimate) is projected at 10% and to top it off they’re knocking out a dividend yield of 5.2%.
If you’re concerned about the dividend cover, then don’t. It’s covered nearly twice over.
Defence sector is out of vogue and thus BAE is trading at a discount, and hopefully we don’t go into WW3. But I can’t ignore the value at hand and with such an impressive dividend yield, notable revenue growth, BAE systems shouldn’t be overlooked.
It’s worth noting too, that the BAE Chairman himself has been buying up shares of his own employer at 480p which is a very credible vote of confidence.
Now, before you go splurging your life savings into BAE Systems, I want to re-iterate share prices can go DOWN as well as up. Investing in shares is risky and maybe, just maybe, we all get along politically and defence spending dies a death.
If you’ve enjoyed this article and would like to start your investing journey, please get in touch on newaccounts@mittomarkets.com