We have argued over the last few years about the merits of building up a ‘defensive’ portfolio given the Russian sabre rattling in 2021, and then invasion of Ukraine in 2022. This remains the case, and while we don’t believe in a ‘forever war’ scenario (or would like to believe that this won’t happen) it does seem likely that countries that can, and play a role in common defence treaties or wish to ensure that they have some capabilities, will spend more money on defence.
The UK, as wishing to be seen as a leader in this field, has shares that have lagged their US counterparts quite badly. Patient investors will have taken heart from Babcock’s recent news though, where the company seems to be seeking profitability and talked about reinstating their dividend in 2024.
The chart of the Babcock share price (daily, above*) shows how disenchanted fund managers have been about this company over the last decade or so. The current rally is encouraging and the key 390p/410p lines are under pressure (old lows/highs). The share, on a technical basis, may be basing - with gains to 600p open on a simple measuring objective if this resistance area can be cleared.
This is very much an unloved share that is showing signs of recovery. The problem with this rally is that the share is loitering near post-pandemic highs. Some fund managers will see this as a chance to play a ‘get out of jail’ card and trim their losses. Technically, regaining some nearby levels would do much to suggest that sentiment is turning from ‘sell the rally’ to ‘buy for future gains’.
Gerry Celaya
Chief Strategist
*original chart and share price levels were corrected