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Premium content from Motley Fool Share Advisor in the UK
Our monthly Ice Best Buys Now is designed to highlight three of our team’s favorite and hottest buys from our growing list of income-based Ice recommendations to support Fools build their portfolios.
“Best Shopping Now” – Pick No. 1:
BAE Systems (LSE: BA.)
- Geopolitical conflicts in Ukraine and the Middle East have prompted NATO members to fulfill their commitments to invest 2% of their GDP in their own defense, and BAE Systems is expected to benefit from long-term increases in defense spending in Europe over the next few years.
- Defense manufacturers primarily serve government customers, ensuring consistent sales and stable revenues. Contract provisions that take into account cost increases provide these companies with protection against inflation. This resilience to rising prices has played a significant role in the industry’s outstanding performance compared to the overall stock market over the long term.
- The UK currently spends 2.25% of its GDP on defense, and this is expected to rise to 2.5% by 2025 after Parliament approved an additional £5 billion for the armed forces.
- In the first half of 2024, combined revenues from the UK and Europe accounted for 40% of BAE’s total revenues, up from 33% in 2022. Analysts expect the combined defense budgets of European NATO members to augment by 25%, amounting to about $400 billion annually .
- Under the AUKUS partnership, the UK will co-design and build eight next-generation nuclear-powered (but not nuclear-armed) submarines with Australia. BAE Systems, with expertise in submarine design and construction, could play a significant role in providing support or technical assistance.
“Best Shopping Now” – Pick #2:
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