BAE Systems

BAE Systems recent share price fall down towards its long term support level of 300p has presented a good buying opportunity for those investors not holding the stock. Much of the fall has been down to the pension scheme, which is in a large deficit. However, the “snapshot” measure required under IAS19 accounting standards exaggerates the volatility of what is a very, very long-term liability.

BAE Systems is currently trading on a December 2009 earnings multiple of 8.4x, a derisory discount to its peers.

With double-digit earnings growth, a dividend yield of 4.6% (covered 2.6 times) and good visibility of earnings, we feel the market is mispricing BAEs prospects.

For example, recent renewed commitment to the F35 Joint-Strike Fighter programme (half of which is built at BAE’s plant in Lancashire) could prove to be the most lucrative plane that BAE has helped to build.