When most investors think about the FTSE 100’s best-performing defence stocks this year, one name dominates the conversation: Rolls-Royce. <\/p>\n
But there’s another defence giant that has quietly outperformed it in 2026, trades on a lower valuation, and is backed by one of the strongest order books in European aerospace. So, what’s the stock and is it worth a closer look? <\/p>\n
How do the numbers compare? <\/p>\n
The stock in question has returned 27.9% year-to-date, compared with 27.2% for Rolls-Royce. Here’s how the two line up side by side: <\/p>\n
This stock <\/p>\n
Rolls-Royce <\/p>\n
YTD return <\/p>\n
+27.9% <\/p>\n
+27.2% <\/p>\n
Market cap <\/p>\n
\u00a367.3bn <\/p>\n
\u00a3126.8bn <\/p>\n
P\/E ratio <\/p>\n
32.1 <\/p>\n
42.1 <\/p>\n
Dividend yield <\/p>\n
1.7% <\/p>\n
0.7% <\/p>\n
Two things stand out immediately. First, this stock has delivered marginally stronger returns in 2026 on a lower price-to-earnings (P\/E) ratio. Second, its dividend yield of 1.7% is more than double what Rolls-Royce offers. So what’s the stock in question, and what’s the real story behind the outperformance? <\/p>\n
Are investors sleeping on this defence giant? <\/p>\n
The stock I’ve been watching is BAE Systems (LSE: BA.), the UK’s largest defence contractor and one of the most strategically significant businesses on the Footsie. <\/p>\n
At 2,244p as I write ahead of the market opening on Tuesday (11 August), this year’s gains have been supported by a record order backlog of \u00a383.6bn and rising NATO defence budgets across Europe. <\/p>\n
I think the company’s growth story rests on three pillars: <\/p>\n
A record order backlog providing future revenue visibility. <\/p>\n
Rising European defence spending commitments following the ongoing conflicts in Ukraine and the Middle East. <\/p>\n
A disciplined capital returns programme, with a quarterly dividend of 9.45p per share and an ongoing buyback. <\/p>\n
The P\/E ratio is 31.8 and not cheap, but it looks considerably more modest than the 42 times earnings the market is currently paying for Rolls-Royce. I think the valuation gap makes it worth considering for investors wanting some defence exposure at a lower relative valuation. <\/p>\n
What could go wrong? <\/p>\n
The shares sit 5% below their 52-week high of 2,360p, a reminder that sentiment can cool even in a sector with a strong outlook from an investment perspective. <\/p>\n
There has been uncertainty in the UK political environment, and defence spending commitments have been a big factor. After all, any defence policy changes could impact on the domestic order pipeline. <\/p>\n
Execution risk on large, complex contracts is a permanent feature of the defence sector, and cost overruns on any single major programme could weigh on margins. <\/p>\n
The breadth and depth of our geographic and product portfolio, together with our trusted track record of delivery, strengthen our confidence in the positive momentum of our business. <\/p>\n
CEO Charles Woodburn <\/p>\n
My verdict <\/p>\n
In my view, BAE Systems deserves more attention than it seems to get relative to Rolls-Royce. <\/p>\n
The returns in 2026 have been stronger, the valuation is more modest, and the dividend a little higher. <\/p>\n
I am watching the shares closely at current levels, particularly for any update on European order flow in the second half of the year. <\/p>\n
While there are other Footsie opportunities I’m assessing at the moment, I think this stock is one for investors wanting defence sector exposure to consider today. <\/p>\n
Should you invest \u00a35,000 in BAE Systems right now? <\/p>\n
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. <\/p>\n
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list? <\/p>\n
\u00a0See The Six Stocks <\/p>\n
Ken Hall does not hold any positions in the companies mentioned. <\/p>\n
The post This FTSE 100 stock is giving Rolls-Royce a run for its money in 2026<\/a> appeared first on The Twelfth Magpie<\/a>. <\/p>\n More reading <\/p>\n The Twelfth Magpie 2026 <\/p>\n","protected":false},"excerpt":{"rendered":"When most investors think about the FTSE 100’s best-performing defence stocks this year, one name dominates the conversation:…\n","protected":false},"author":2,"featured_media":101165,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[20731],"tags":[8160,35065,1238,12357],"class_list":["post-101164","post","type-post","status-publish","format-standard","has-post-thumbnail","category-rolls-royce","tag-bae-systems","tag-defence-sector","tag-rolls-royce","tag-stock"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/117075825221331305","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/101164","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=101164"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/101164\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/101165"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=101164"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=101164"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=101164"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}