Here's what's driving BAE Systems shares and FTSE 100 oil stocks higher today
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As I write today (October 2), it is a blue-chip FTSE 100 The index rose 0.24%. However, some Footsie stocks are doing better than this. For example, the defense giant's shares BAE Systems (LSE: BA.) jumped 2.5%. This means the stock is up about 6% in the first two days of October.
Elsewhere, A shell again BP increased at the same rate today. However, unlike BAE, which has gained 17% year to date, these two oil stocks are still down double digits in 2024.
The price of black gold has increased
The reason for today's outbreak is that the conflict between Israel and Hamas is now tragically erupting into a regional conflict. Iran launched missiles at Israel last night, and Israeli forces and Iran-backed Hezbollah are now reportedly fighting on the ground inside Lebanon.
This dramatic increase has unsettled oil markets, raising concerns that the escalating conflict could disrupt the Middle East's vital supply of oil to world markets. As a result, this has increased the price of oil and related stocks.
Higher oil prices would obviously be beneficial to the top and bottom lines of Shell and BP.
It's a very dangerous country
When wars escalate and political tensions intensify, this also tends to increase prices for defense contractors. With a market capitalization of £39bn, BAE Systems is among Europe's largest defense stocks.
Beyond the Middle East, there is also an ongoing war in Ukraine, while US-China relations are at their lowest level in decades. Despite all this, countries around the world have been strengthening their defenses.
We can see the impact this has had – and without it having had – on BAE's revenues and profits.
| A year | 2022 | 2023 | 2024 (prediction) | 2025 (forecast) |
|---|---|---|---|---|
| Net income | £21.25bn | £23.07bn | £28.22bn | £30.47bn |
| It's all profit | £1.59bn | £1.85bn | £2.04bn | £2.28bn |
The company has a wide range of offerings, with products ranging from submarines to submersibles. It operates worldwide, in the air, at sea, in space, and in cyberspace, making it a key player in many areas of defense.
In the first half, its order backlog rose to a massive £74.1bn, from £69.8bn a year earlier. The company raised its payout by 11% last year and the dividend yield currently stands at 2.4%.
Looking ahead, one risk for BAE could be delays in product development due to a lack of skilled workers. Also, production disruptions in any of its key products (eg, fighter jets or submarines) could prove costly to repair and impact earnings.
Defense in my portfolio
I bought BAE Systems shares a few years ago at a very low price. The increasingly fragmented world we live in and rising military costs were the main reasons.
However, another motivation for me was that I wanted defensive stocks like this to hedge my portfolio against any volatility in the country.
As Charu Chanana, Head of FX Strategy at Saxo Bank, recently pointed out: “In an era where geopolitical shocks are a constant threat, positioning your portfolio for resilience isn't just smart – it's essential..”
While I like whizzy tech stocks in my portfolio, stocks like BAE prove their value in uncertain times like today.
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