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BAE Systems plc (BA), RSA Insurance Group plc (RSA): Are These FTSE 100 Shares a Buy?

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LONDON — I have recently been evaluating the investment cases for a multitude of FTSE 100 companies.

Bae Systems plc (LON:BA)

Although Britain’s foremost share index has risen 9.6% so far in 2013, I believe many London-listed stocks still have much further to run, while conversely, others are overdue for a correction. So how do the following five stocks weigh up?

Lloyds Banking Group PLC (LON:LLOY)
I am a firm believer that extensive transformation work at Lloyds Banking Group PLC (LON:LLOY) should drive solid earnings growth in future years. The bank has carried out extensive cost-cutting measures and disposals in order to repair its bombed-out balance sheet, and I expect this to yield an improving bottom line moving forwards.

The group is already a big player in the British retail banking space — around a third of all U.K. mortgages, and 25% of savings, are tied up in the bank — and Lloyds Banking Group PLC (LON:LLOY) is set to continue investing heavily in branch refurbishments and improvements to its website to boost business.

This work helped push losses per share lower last year, to 2 pence, from 4.1 pence in 2011, and City brokers expect the company to post positive earnings figures over the medium term — earnings per share (EPS) of 4.4 pence and 5.6 pence are expected in 2013 and 2014, respectively.

Lloyds Banking Group PLC (LON:LLOY) currently trades on a price-to-earnings (P/E) ratio of 11 and 8.6 for this year and next, providing a decent discount to a forward reading of 13.1 for the broader banking sector.

BAE Systems plc (LON:BA)
I believe that BAE Systems plc (LON:BA) is a great stock market pick for income investors. The company has steadily built yearly dividends, even during times of squeezed earnings, and forecasters expect this to continue creeping higher in coming years.

Last year’s dividend of 19.5 pence was up from 18.8 pence in 2011, and this is predicted to rise to 20.4 pence this year before marching to 20.8 pence in 2014. And these prospective payments carry yields of 5.2% and 5.3% respectively, well above the 3.2% FTSE 100 average.

City analysts expect EPS to rise 9% in 2013 before dipping 1% the following year, the impact of reduced defense expenditure in traditional Western regions weighing on revenue expectations.

However, I expect increased activity in juicy emerging markets to open up great earnings potential over the longer term. BAE Systems plc (LON:BA) saw orders from outside of the U.S. and U.K. leap to 11.2 billion pounds in 2012, from £4.8 billion in the previous year.

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