Investors have a fight on their hands as the stock market plunges again. At times like these, your portfolio needs all the back-up it can get. So how about these two reliable old soldiers?
BAE Systems
This years stock market blitz hasnt spared the defence sector andBAE Systems (LSE: BA) has seen 6.5% blownoff its share price in the last month alone. Investors wont be too worried by that.Trouble is BAEsbusiness, and the companyhas shown its fortitude by withstandingUS and UK defence budgetcuts in the wake of the financial crisis, and the scaling down ofdeployments in Afghanistan and Iraq.
Geopolitics areswinging back in its favour asthe US and UK ramp uptheir defence spending again,although Deutsche Bank haswarned BAEs margins could be hit by the Ministry of Defences lowest-price-winsprocurement reforms. This may be offset by the fact that itsother major customer, Saudi Arabia, is pursuinga more aggressive foreign policy, with interventions in Yemen and talk of sending ground troops toSyria aspart of thewider regional struggle against Iran. Saudi largessemay be hit by the falling oil price, but weaponsspending is a priority.
Portfolio security
BAE Systems is wisely evolving beyond its traditional specialist areas such as aircraft carriers, tanks and fighter jets intonew areas of conflict such as cyber security, which shouldpromise more stable revenue streams. Itsshare priceis up a punchy45% over five years, against a 5.5% drop forthe FTSE 100 as a whole, and earnings per share are pointing the right way after recent slippage, with forecast growth of 5% this calendar year.
BAEs valuation of12.6 times earnings almost comes as a surprise with so many FTSE 100 companies trading on single-digit P/Es. The 4.3% yield is solid and nicelycovered 1.9 times. We live in an uncertain world, but the sad truth is that this plays to BAE Systems strengths.
National Grid
Energy transmitter and distributorNational Grid (LSE: NG)has been my favourite utility play for yonksand it has done nothing to disappoint inthat time. The FTSE 100 is down 16% over the past 12 months but NG has stood its ground, rising 5% over the same period. Thats exactly what you want when you invest in the utility sector. But I didnt expect this: over five years its starting to look like a pacy growth stock, up 75% in that time.
Robust growth prospects combined with the built-in security of a highly-regulated, natural monopoly, what more canyou ask for? OK, how about a juicy progressive yield? Right now you get 4.5%, covered 1.4 times, whichmanagement aims to grow by at least RPI inflation. Just the job in our low-interest-rate world. Imnot the only one to recognise National Grids defensive prowess, so be preparedfor its pricey valuation, currently 16.5 times earnings.
You cant expect National Grid to repeat its recent growth surge (its still a utility, after all) and EPS are only forecast to rise 1% this year. But Im sticking to my guns: this stock continues to offer rare long-term security in aworld of trouble.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
