With revenue hitting £28.3bn and rising to £33bn in 2026, the momentum’s still there operationally. It has a near-unrivalled position across submarines, combat aircraft, electronic warfare and cyber security. It’s a genuinely exceptional business.

The snag, as ever, is the price. BAE now trades on 24 times forward earnings. The analyst consensus target sits just 10% above the current price. This doesn’t make BAE a bad investment — but it does mean investors are paying a full price for a well-known story.

Long-term defence contracts are a really strong place to be. However, there’s definitely some risk attached to the valuation.

Under-the-radar alternative

This next one’s a very different kind of company. It’s small, American, and almost entirely off the radar for UK investors. Innovative Aerosystems (NASDAQ:ISSC) makes advanced avionic systems for commercial, business, and military aircraft. This includes the F-16 digital flight control computer and a new customisable cockpit platform called the Liberty Flight Deck.

Formerly called Innovative Solutions and Support, there’s a lot going for it. The operating margin of 29.4% is market leading and the balance sheet is rock solid. However, it’s trading at 26.7 times forward earnings.

But here’s the real thesis: management’s set a long-term target of $250m in revenue with EBITDA margins of 25%-30%. Current revenue is around $90m.

If they get anywhere close to that, the stock looks extraordinarily cheap by those future standards. Only three brokers cover it, which is arguably the point: analysts haven’t caught up yet.

That doesn’t mean there isn’t risk though. A pull-forward of F-16 revenue from 2026 into 2025 means near-term numbers may look soft. It’s also a small company and very volatile.

Nonetheless, if it can hit those targets, we’re looking at a stock that’s trading around 7-8 times forward earnings (it’s just a few years away).

Often overlooked

Most investors won’t have heard of Innovative Aerosystems, but they will know Airbus. It’s a quality company and one half of the only viable global duopoly in commercial aviation. Boeing‘s well-documented troubles have contributed to give Airbus a backlog that stretches years into the future and pricing power it hasn’t enjoyed in decades.

What’s interesting is that despite this structural advantage, the stock’s been derated meaningfully. On 2027 numbers, it trades on 18 times earnings, falling to under 15 times by 2028. The balance sheet also carries net cash of over €12bn. The 2.1% dividend yield is also worth watching.

The main risk is operational rather than strategic. Airbus has struggled persistently to ramp up production rates to match its order book, with supply chain bottlenecks a stubborn constraint.

Nonetheless, like ISSC, it’s well worth considering from a valuation perspective. I also like BAE, but the richer valuation suggests investors should think carefully about the entry price.

The post I like BAE shares, but they aren’t cheap! Here are 2 potentially-better-value alternatives appeared first on The Twelfth Magpie.

Innovative Aerosystems (NASDAQ:ISSC) — previously known as Innovative Solutions and Support — has seen its share price rocket in recent months. But despite a 100% gain over the last quarter, my analysis of the company’s new IA Next strategy suggests the market is still significantly behind the curve.

Firstly, what does it do?

Well, the company manufactures advanced flight deck avionics. This includes autothrottles and integrated cockpits for commercial and military aircraft. For a more detailed explanation, you can also check out the company’s website.

The metrics really matter

As an investor who prioritises growth-oriented investments backed by hard data, I’m rarely swayed by story stocks or invest on a hunch. Thankfully, the numbers here are compelling.

In its latest fiscal results, Innovative Aerosystems reported a 45% year-on-year revenue jump to $84.3m. But more importantly, the company has unveiled a 2029 target of $250m in revenue with adjusted EBITDA margins of 25%-30%.

To put that in perspective, management is planning to nearly triple the size of the business in just four years.

Usually, such aggressive scaling comes at the cost of profitability. But, by tripling their manufacturing capacity in Pennsylvania and bringing production in-house, ISSC is actually protecting its margins.

So, let’s take a closer look at this 2029 target. At the higher end of the margin guidance, Innovative Aerosystems would deliver adjusted EBITDA around $75m. That’s up from $23.8m over the past 12 months.

Where might we find fair value?

Companies in the industrials sector currently trade with a forward enterprise-value-to-EBITDA ratio around 12.8 times. Defence stocks typically trade a little higher, but let’s apply this forward ratio to Innovative Aerosystems.

Excluding the modest debt on the balance sheet, the company could be trading around $52.70 based on the upper end of these targets and the current forward multiple. Yes, this isn’t a perfect calculation, but it does give an idea of where the stock could be going.

And this $52.70 figure is 173% above the current share price.

Inorganic growth

The business is pursuing both organic growth — coming from what’s already inside the company — and inorganic growth — takeovers. With a fresh $100m credit facility and a leverage ratio of just 0.9 times, ISSC has the capacity to acquire smaller avionics firms at attractive prices.

Of course, there are risks. Integration of new acquisitions can be messy, and the aerospace sector is famously cyclical. However, with the company now manufacturing 100% of its products in its own facility, it has the operating leverage to turn every new dollar of revenue into impressive gains for shareholders.

So, do I think it’s worth considering? Absolutely.

The post Up 100% in 3 months, this US stock may be undervalued by around 173% appeared first on The Twelfth Magpie.

The aerospace group sits at the heart of global aviation supply chains, supplying highly engineered components that aircraft simply cannot fly without. Through GKN Aerospace, Melrose is a Tier 1, sole-source supplier to every major civil and defence aircraft manufacturer — a position that takes decades to build and is almost impossible to dislodge.

This matters because aerospace is one of the most protected industrial markets in the world. This means it has a sizeable economic moat and strong pricing power.

What’s more, programmes last for decades, certification barriers are immense, and around 70% of Melrose’s revenues come from contracts where it is the exclusive supplier.

The company has exposure to roughly 90% of active commercial and military engines globally, giving it exceptional visibility on future revenues.

It’s also important to note that Melrose is not just dependent on new aircraft builds. Its aftermarket business — covering maintenance, repair and overhaul — provides high-margin, recurring income that holds up even in downturns.

In 2024, aftermarket revenues jumped 32%, supported by recovering flight hours and resilient defence demand.

Despite this quality, the valuation remains modest, especially compared to peers.

The shares trade on about 15.1 times forward earnings, with a price-to-earnings-to-growth (PEG) ratio of 0.8, well below aerospace peers. Management is targeting annual earnings growth above 20% through 2029.

For content, here’s how it compares to peers.

These imply the stock is undervalued to its peers by two-to-three times.

Of course risk remains. Debt of roughly £1.67bn and supply-chain disruption is been a theme over the past decade. Nonetheless, it’s definitely worth considering.

A very small US peer

Small companies often go under the radar. And that can be a good thing. In November I identified Innovative Aerospace (NASDAQ:ISSC) as one to consider. I bought it and it doubled in value. It was a nice early Christmas present.

There’s a little bit of profit-taking going on now, and I’m not sure that’s necessarily the right thing to do. The company’s long-term target involves reaching $250m in annual revenue with an EBITDA margin of 25%-30%.

That infers top-end EBITDA of $75m and at the current price that’s a forward enterprise value-to-EBITDA ratio of 4.5. The sector average is 12.4 times. This suggests that Innovative Aerospace is still considerably undervalued despite the share price doubling over the past six weeks.

The caveat, of course, is that this is the long-term target. Not next year.

The risks? Well, there could be some lumpiness with regards to the acquisition from Honeywell. That doesn’t appear to be the case at the moment but time will tell.

Still, definitely worth considering.

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So, if an investor had to own just one US stock, what would it be? What is the perfect US stock? Well, I thought I’d put the question to ChatGPT.

There’s no truly perfect US stock, but the closest ones combine durable advantages, long growth runways, strong cash flow, clean balance sheets and reasonable valuations. Microsoft, Visa, and Costco often come closest. The “perfect” choice ultimately depends on whether growth, stability, or income matters most to you.

This response isn’t overly surprising. These are some of the strongest, most consistently executed businesses in the US market, combining durable competitive advantages with dependable cash generation and long-term growth potential.

Personally, however, I’d highlight the importance of reasonable or attractive valuations. Palantir, for example, is an amazing company, but it trades at valuations that I simply can’t justify.

Other stocks that may meet ChatGPT’s criteria are Alphabet — the Google-parent company — and Nvidia.

Where am I looking?

Alphabet and Nvidia are already core parts of my portfolio. And Microsoft has been on my watchlist forever. I’ve simply never found an entry point that meets my own criteria for ‘good value’.

Honestly, I’m not convinced there’s a lot of good value in mega-cap stocks at this moment. Even after the recent pullback, the market remains very hot. Nonetheless, I continue to monitor/consider buying more of stocks like Uber, Duolingo, and Pinterest.

A defence stock to consider

Defence stocks are also core, long-term performers in the US market. However, many of the big names continue to look pretty expensive. For example, RTX Corporation is trading at 28 times forward earnings with a price-to-earnings-to-growth (PEG) ratio of 2.7. It’s also quite heavily indebted.

With that in mind, I quite like Innovative Aerosystems (NASDAQ:ISSC). The company’s valuation is my first point of interest. The stock trades at just 13 times forward earrings — down from around 26 times earlier in the year. The PEG ratio is just 0.3, representing a 83% discount to the sector average.

This is a clear sign of an undervaluation, and the average share price target confirms that — it’s 86% above the current price. The balance sheet is also strong, with limited debt.

The F-16 programme is a major growth engine for Innovative Aerosystems. It stems from acquiring a licence for Honeywell’s F-16 avionics lines, giving the company long-term IP, recurring support revenue, and strong order flow. Short-term margin pressure exists, but the programme underpins scale, credibility, and future military profitability.

Risks? Well, there are certainly some transient issues relating to integrations costs and margin compression. Sales growth could be choppy in the near term too after the company noted some orders were pulled forward in Q3.

Nonetheless, I think the stock looks really attractive. It’s worth considering.

The post I asked ChatGPT to give me the perfect US stock! Here’s what it said… appeared first on The Twelfth Magpie.

Moreover, while my relative outperformance is good to see, I need to think about what’s going to happen next. With the stock market getting really hot in places, I’ve actually sold some of my most successful investments, including long-held positions in AppLovin and Celestica (still in my daughter’s portfolio and up 1,500% and 1,000% respectively), and shorter trades like Rocket Lab and TTM Technologies.

So, where am I investing next? Well, the stocks on my watchlist now are a little different to the tech-oriented multibaggers I usually aim for.

Yü Group

Yü Group (LSE:YU) is a UK-based business energy and utility supplier to SMEs and corporates. It offers electricity, gas, and water services.

While you’d normally hear energy and think resilient utilities company, Yü is an interesting one because its share price surged 10 times between mid-2022 and early 2024. It’s been more stable since. The driver was rapid expansion of meter points and higher average contracted revenue per meter.

With the share price flattening over the past year, it appears that the value proposition is once again improving. It trades at 7.5 times forward earnings, with that figure falling to 7.1 times in 2026. It’s also got an attractive dividend proposition, with the yield sitting at 4.5% and rising to 4.8% in 2026.

What’s more, the company is currently sitting on a net cash position of £109m. That’s hugely significant for a company with a market cap of just £266m. On a net-cash adjusted basis, it’s trading at just 4.5 times net income for the coming year.

However, there are still risks. This includes exposure to bad debt in the SME space and energy price volatility. Nonetheless, it’s high on my watchlist and worth considering.

Innovative Aerosystems

Innovative Aerosystems (NASDAQ:ISSC), formerly Innovative Solutions & Support, develops flight displays and avionics systems for commercial and military programmes.

Recent performance has been transformed by the acquisition of Honeywell’s F-16 product line, which helped more than double quarterly revenue and pushed backlog to $72m. Alongside this, the firm is tripling manufacturing capacity through its expanded Exton facility, supporting management’s target of delivering over 30% revenue and EBITDA (earnings before interest, tax, depreciation, and amortisation) growth versus 2024.

The stock had surged earlier in the year, but now trades 65% below its peak. The valuation also looks undemanding. It trades on a forward price-to-earnings (P/E) ratio of 13.5, falling to 11.3 in 2026 and 8.1 in 2027 as earnings scale. The P/E-to-growth (PEG) ratio is just 0.31. The balance sheet also looks strong.

As always, there are risks. Gross margins have slipped to 35.6% due to integration costs, and management expects a temporary dip in F-16 revenue during the facility transition.

But looking at the valuation, this is definitely one for my watchlist — I certainly think it’s worth considering.

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