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It’s been a wild week for shares in defence firms like BAE Systems (LSE: BA.). In the first few days of January, we’re already seeing one-day swings that could go down as the biggest that will occur during 2026.
Military contractors can be very sensitive to geopolitical events. That’s why the latest events in Venezuela have had a pretty big impact on a few prominent FTSE 100 household names.
Big jump
A week ago, the BAE Systems share price sat at 1,699p. As of today (7 January), the share price is 1,926p.
That’s a 13% gain in the space of (just over) seven days. Investors have netted what would be considered a decent return for the year in the space of a single week. A £10,000 stake in the firm would now be worth £11,336. And that could just be the start.
While it’s been an interesting week, it’s worth pointing out that this is an absurdly short timeframe. The Foolish investing ethos is to buy stocks, not for weeks or even years, but for decades. As Warren Buffett puts it: “My favourite holding period is forever.”
Buying and selling every few days is near enough to gambling – and a recipe to get eaten alive by broker fees. Whereas holding quality stocks for long periods is a time-tested method of building wealth.
And before getting to any merits BAE Systems shares themselves might have, I’ll mention the ethical component to investing in defence stocks. These are companies that make weapons. While most would likely agree that having a strong military is a necessary part of the world we live in, it’s understandable that some investors may not wish to throw their money into such ‘sin stocks’.
Real moves
With all that out the way, where might the BAE Systems share price move to in the years ahead? I think there’s plenty of room left to climb, but much will depend on government spending.
While people are understandably nervous even though the markets may jump at the sight of helicopters flying over Caracas, the real moves are being made in government budgets. Countries around the world, especially those in NATO, are bumping up defence spending to the tune of tens of billions.
As Europe’s largest defence contractor and provider of a wide range of state-of-the-art planes, boats and drones, BAE Systems could continue bringing in big orders like last autumn’s £8bn deal to supply Türkiye with eight fighter jets. The increased military spending is one reason why BAE Systems has an order backlog of £80bn now.
There are no guarantees here. For example, an end to the awful hostilities around the world might put the brakes on this process. Overall though, I’d say this is a stock to consider.
