As I write, the market is rising on early signs of hope that the coronavirus pandemic may have peaked. Of course, it’s too soon to be certain. And even if the outbreak has peaked, we don’t yet know how severe or long-lasting the damage will be to the global economy.
Against such an uncertain backdrop, I think it makes sense to focus on survivability when picking stocks. By this I mean stable revenue, strong balance sheets and decent cash generation.
In this vein, I’ve already added British American Tobacco to the portfolio. This stock isn’t universally popular, as the comments on my recent piece highlighted. But I’m pretty sure it will survive COVID-19 relatively unscathed. Brokers also appear confident:
This week, the SIF stock screen has highlighted another stock which I think should score highly as a survivor. FTSE 100 defence giant BAE Systems (LON: BA) will raise ethical flags for some investors. But it’s beaten the market comfortably so far this year, falling by just 12% versus a 25%+ drop for the FTSE 100.
I rate BAE as a reliable long-term performer and I’m attracted to the diversity of its business, which encompasses, shipbuilding, aircraft, land-based equipment and electronics and cybersecurity systems.
Recent newsflow reassures me
In a recent update, BAE management says that Q1 trading was largely unaffected by coronavirus and that several new contract wins were secured during the period. Admittedly, the firm is now seeing “more significant disruptions”. But I’m hopeful that the long-term nature of the firm’s contracts and their government funding should mean the long-term outlook is largely unaffected.
I’m also encouraged by two other recent pieces of news from BAE.
Acquisitions: In January, the company announced the acquisition of a military GPS business from US firm Collins Aerospace for $1,925m. This technology is said to be in use on 280 different platforms, with more than 1.5m devices shipped. There was also a smaller electronics deal.
As far as I can see, both of the acquired businesses should be a good fit for BAE’s Electronic Systems division and should support longer-term growth in this important area.
Pension deficit: The group’s pension deficit reached £4.5bn at the end of 2019. But BAE has now agreed a new deficit reduction deal. Payments…
