UK Defence Stocks to Watch

Roberto Rivero

As long as countries need armed forces, intelligence agencies and law enforcement, governments will fund them, meaning that many top defence companies can often rely on a fairly consistent stream of revenue from government contracts.

The London Stock Exchange is home to a number of defence companies which provide a range of products and services - including weaponry, intelligence, risk assessment and cybersecurity. So, what are some of the top UK defence stocks to watch in 2024?

Why Invest in Defence Stocks?

As noted in the introduction, many of the top defence stocks generate fairly reliable revenue from government contracts, although income tends to surge in wartime or when the threat of war is heightened.

Since the end of the Cold War in 1990, defence spending around the world has fallen as international tensions have eased. However, this trend appears to have been reversed in recent months.

The Russian invasion of Ukraine has sparked a revaluation of defence capabilities around the world, with the UK one of several countries looking to increase spending over the coming years.

Defence stocks are likely to benefit from this potential increase in global defence budgets and, indeed, the share prices of many defence stocks rose in 2022 as governments pledged more money to their armed forces.

UK Defence Stocks to Watch

So, what are some of the top UK defence stocks to watch?

BAE Systems

BAE Systems is an arms, security and aerospace company which is the largest defence contractor in Europe and one of the largest worldwide.

Despite a downward trend in global defence budgets, BAE Systems has managed to continue generating reliable revenue and profits for a number of years. However, anticipation that the events of the last year will result in increased military spending in the future has led BAE’s share price to soar.

In its half-year report, BAE highlights that they are positioned strongly to benefit from increased defence spending in many of their key markets. In Europe, Germany have announced they will increase defence expenditure, and news that Sweden and Finland are trying to join the NATO alliance could lead to increased spending from both.

Furthermore, the recently announced AUKUS partnership should benefit BAE, who are the largest defence provider in the UK and Australia.

In 2022, BAE Systems share price rose 56%, making it the FTSE 100’s top performer for the year. However, whether or not BAE will be able to match this kind of growth in the future, or if the potential increase in defence budgets justify this steep rise, is not yet clear.

Nevertheless, BAE’s dividend policy is probably more of a draw for investors than its growth prospects. The company has hiked its dividend payouts every year since 2004 and, even after the stock’s excellent performance last year, it still boasts a dividend yield of 3%.

Rolls-Royce Holdings

Although the name is perhaps more closely associated with the brand of luxury cars, Rolls-Royce Holdings is a multinational aerospace and defence company.

At one point the company was also responsible for the automobiles of the same name; however, after entering liquidation, Rolls-Royce was nationalised by the UK government in 1971 who spun off the automobile division, allowing the parent company to concentrate on jet engine manufacturing. In 1987, Rolls-Royce returned to the stock market.

Still specialising in jet engines, Rolls-Royce has a civil aerospace division and a defence division – which produces aero engines for military transport and patrol aircraft. The latter was responsible for 30% of the company’s total revenue in 2021.

The UK and US are the company’s largest defence markets. In 2021, Rolls-Royce won a contract worth $2.6 billion to become the new provider of power for the US fleet of B-52 aircraft, as well as confirming it would continue to be the sole supplier of propulsion systems for the UK’s next generation of nuclear-powered submarines.

In 2022, the company won a further two contracts worth more than $3.6 billion to service engines for US Navy and Marine Corps aircraft.

Depicted: Admirals MetaTrader 5Rolls-Royce Holdings Weekly Chart. Date Range: 7 August 2016 – 7 February 2023. Date Captured: 7 February 2023. Past performance is not a reliable indicator of future results.

The long-term price chart for Rolls-Royce does not make easy viewing for shareholders, who have endured a thoroughly unsatisfying five years. After closing at a four year high in 2018, the Rolls-Royce share price fell 91% by the end of 2022.

However, at the time of writing, the share price has been performing well. In the four month period ended 31 January 2023, the stock gained 52%.

The pandemic was not kind to Rolls-Royce. Its civil aerospace division, which contributed 40% of total revenue in 2021, struggled as international travel ground to a halt. However, the division is showing signs of recovery and should continue to benefit from the ongoing rebound in travel, with engine flying hours expected to return to pre-pandemic levels in 2024.

How to Invest in Defence Stocks

With an Invest.MT5 account from Admirals you can buy shares in both of the UK defence stocks examined in this article, as well as shares from more than 4,500 other companies from around the world.

Once you’ve registered and been approved for an Invest.MT5 account, follow these steps in order to start investing:

  1. Log in to the Dashboard
  2. Find your account details in the Dashboard and click Invest to open the MetaTrader WebTrader
  3. Search for the stock you wish to purchase in the Market Watch and drag the symbol into the chart space to open a price chart
  4. Click New Order at the top of the screen to open an order window, where you can enter the number of shares you want to buy before hitting ‘Buy’ to send your order to the market
Depicted: Admirals MetaTrader WebTrader – BAE Systems Daily Chart – New Order. Date Captured: 8 February 2023. Past performance is not a reliable indicator of future results.

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INFORMATION ABOUT ANALYTICAL MATERIALS: 

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals investment firms operating under the Admirals trademark (hereinafter “Admirals”) Before making any investment decisions please pay close attention to the following: 

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  • The Analysis is prepared by an independent analyst Roberto Rivero, Freelance Contributor (hereinafter "Author") based on personal estimations.
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