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The FTSE 100 has been on a strong run of late, yet some individual shares still look capable of much larger moves. In particular, there are two big-name Footsie stocks that, in my view, have the potential to surge this year. But will they?
Leader in the defence sector
BAE Systems (LSE: BA.) has already enjoyed a big re-rating as defence spending has risen across Europe and NATO.
The shares are up 8.4% in 2026 and sitting at 1,901p as I write on 12 February, giving a market cap of £57bn. That implies a trailing price-to-earnings (P/E) ratio of about 29 and a dividend yield around 1.8%. The price has climbed strongly in recent years as governments step up long-term defence commitments.
A 50% gain from here would need strong earnings growth and for the market to keep paying a premium for ‘security’ assets. With question marks over global growth and rising defence budgets, that does not seem impossible.
BAE already has a record order book and multi-year programmes in areas such as combat aircraft and naval systems, which could support further profit growth if budgets keep rising.
If profits grow faster than expected and the valuation stretches a little further, the combination of earnings growth, dividends and a higher P/E multiple could, in theory, deliver very strong returns.
The risk is that a lot of good news is already priced in. If defence spending slows, major contracts are delayed, or investors decide the current valuation is too rich, BAE shares could move sideways, or fall, instead of climbing higher. Investing in controversial areas like defence also will not suit every investor.
Is Barclays undervalued?
Barclays (LSE: BARC) is a very different FTSE 100 story. The shares have rebounded sharply from the banking jitters of recent years and are trading at 479p at the time of writing, up 56% in the last 12 months.
Even after that recovery, Barclays still looks modestly valued with a trailing P/E ratio of 11.3, a price-to-book (P/B) ratio near 0.9 and a dividend yield around 1.8%. That P/B ratio is notably cheaper than peers such as HSBC, NatWest and Lloyds.
The case for a potential 50% gain rests on three pillars. One is management delivering stronger returns on equity, helped by cost cuts and reshaping the investment bank.
Investors would also need to be willing to pay a higher multiple if profitability improves and interest rates ease gently. Then there’s the ongoing share buybacks that could reduce the share count and lift earnings per share.
However, banks remain sensitive to the health of the economy, regulation and credit losses. A weaker UK backdrop, rising bad debts or fresh regulatory issues could all cap the share price. There’s also the risk that the bank’s strategy doesn’t pay off and a lower relative value reflects higher risk.
Key takeaways
Both BAE Systems and Barclays are well-known Footsie companies that have enjoyed strong recent growth. With that said, I think the likelihood of further 50% increases is low as it currently stands.
While I think they’re both good operators in their sectors, I think investors should consider watching and waiting until valuations come down further.
