A FTSE 100 share with long-term potential

BAE Systems (LSE:BA.)

We were going to cover the US firearm industry, specifically focusing on ammunition sales on the basis a gun is sold just once. But the fuel it requires is an ongoing industry.

Adopting the UK moral high ground fell apart when realising, as a guitarist, owning five of the instruments is very far from unusual. Chums with motorcycles also tend to buy different machines for different jobs. Who are we to judge others? So, instead, a look at a local warmonger makes sense!

Before trotting out quite a positive outlook for BAE Systems (BA.), we did spend quite a lot of time examining the US ammunition market as it’s actually fairly depressed. And even more time compiling a smarmy article with charts you will never see.

What surprised us was the reason for the slump in share prices, as Trump is apparently the bad guy.

During Obama’s reign, firearms enthusiasts lived in fear of regulation and, similar to UK motorists when faced with a threat of fuel shortages, stockpiled. The thinking, apparently, was this would protect them as any new law could not be retrospective.

When Mr Trump was elected, a change in mood ensued. Record profits amongst ammo makers are expected to decline and, thus, share prices relaxed substantially.

Our outlook against BAE actually places the share in a region where growth to a longer term 793p looks valid, perhaps even a longer term 933p.

There are a few criteria needing to be met before the next upward phase triggers but, to spoil the party, the share requires to slink below 358p – a pretty rubbish stop position.

Despite the underlying trend being pretty solidly upward, the share need only slip below 590p anytime soon to enter a phase toward 555p initially. Secondary, if such a point breaks, is at 480p, effectively matching the lows of 2016 and bonking against the uptrend since 2011.

However, we’re more interested in the blue line, currently at 640p, as closure above such a point ticks our first box for a coming phase to 793p. The second box is a bit more obvious, the share bettering the prior highs if 680p.

The funny thing with BAE comes from its historical approach to these blue downtrends as, once they’re bettered, the share generally will complete a proper movement cycle to our initial big picture target – in this case 793p.

As a result, should 793p make a guest appearance in the future, some volatility can again be expected until it feels ready to grow further.

In summary, it’s already presenting a nice long-term potential and we’d tend to view relaxation as opportunity rather than otherwise. Unless it breaks the uptrend since 2003, of course.

 

Alistair Strang has led high-profile and “top secret” software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know “how it worked” with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang, Shareprice, or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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