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Forget about Rolls-Royce promotions! Instead, I would buy these stocks with blue chips

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Rolls-Royce (LSE: RR) the shares are in a bleak state. After the company failed to recover from recent travel bans, the company struggled to reach a pre-pandemic peak. And his restructuring efforts to counter losses, albeit promising, will take time to become profitable.

With the worst pandemic seemingly over, investors expected Rolls-Royce shares to recover soon. The short jumps in July and October 2021 were encouraging signs of the time. But the economic revenue from the pandemic seems to have squeezed the company out of favor.

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Despite earning £ 513 million last year and securing new deals, the engineering firm spends a lot on research and development. New defense and energy projects are an operation that requires large sums of money, which will take years to develop.

This, combined with the loss of some key employees, including CEO Warren East, is a sign that the recovery may be worked out.

However, I singled out an exciting one FTSE 100 An engineering firm with a strong emphasis on defense, which, in my opinion, now looks like a much better long-term option. Analysts expect governments to raise their already sky-high defense budgets in response to the war in Ukraine. And I think the best stocks in the industry could be promising choices for my portfolio.

British defense giant

BAE Systems (LSE: BA) is the largest defense contractor in Europe and one of the leading R&D companies in the sector. The company is the seventh largest defense contractor in the world with partnerships with the governments of the United States, the United Kingdom, Germany and Australia. In defense BAE Systems has taken positions in the air, sea, ground and cyber fields.

У trade update released today, the company has highlighted several key deals. These include a contract to operate the U.S. Navy’s C5ISR systems and an 11-year contract to support the Royal Navy’s Hawk UK fleet.

The company could also benefit greatly from the new US $ 773 billion defense spending budget. The country accounts for 46% of BAE sales, and the new budget could further increase future revenues. Given the tensions in the region, BAE expects defense spending in Europe to also increase.

The group’s forecast for 2022 remains positive. The Board estimates total sales growth at 2% -4% and earnings per share growth at 4% -6%. Free cash flow in 2022 should exceed £ 1 billion. This could help boost its dividend yield by 3.32%.

And it was this financial stability that led BAE to stay ahead of Rolls-Royce in the market. Over the past 12 months, Rolls-Royce shares have fallen 17.7% and BAE shares have risen 51%. And BAE shares look much cheaper at a price-to-earnings ratio (P / E) of 13 times compared to a P / E ratio of RR 57.

A few worries and my verdict

Amid rising tensions, the UK government is closely monitoring the country’s defense industry. Application to a British firm Megit based in the USA Parker Hanifin came under close scrutiny by the government on national security issues. And because BAE cooperates with government agencies around the world, rising tensions could trigger trade sanctions that will affect BAE’s revenue.

However, the company has a huge order book and is working on key defense technologies of the future. The Board is confident of achieving growth while maintaining dividends. And I think BAE stocks are a much better long-term option for my portfolio than Rolls-Royce stocks.

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