Aerospace and defence stocks tend to remain under the radar on the TSX which, of course, is ironic considering the use of radar in the field. But I digress.
Aerospace and defence stocks, therefore, become a strong option when you’re investing in defensive stocks during a downturn. These companies remain supported by government programs in many cases, with funding that will remain even during a recession.
With that in mind, let’s look at some aerospace and defence stocks that should continue to climb higher.
CAE (TSX:CAE) provides critical training for the civil aviation, defence, security and healthcare markets. The company provides training through simulators and “synthetic exercises” to be used before live-training begins. CAE is diversified throughout the world, though most of its sales come from the United States.
During its recent earnings, CAE stock beat out earnings estimates by a small margin, another quarter in which CAE stock beat estimates. Though revenues declined slightly. This led to a drop in shares of 7%, but analysts came out the next day stating it was “overdone.” The simulator company brought in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $291 million, and operating income of $202 million.
CAE stock also reaffirmed earnings per share guidance for 2022 through 2025 of 20% growth. However, investors seemed to be more concerned about near-term results, which could be slower than the expected 20%. Even so, analysts were quick to point out there are “very attractive” long-term trends, as well as favourable performance in the industry as a whole, but especially in the civil sector.
Shares remain down by 14% in the last year, but are up 5% year to date. So now could be a solid time for investors to jump in for a turnaround before the year is out. Then, hold on long-term as the company recovers in the next year through to 2025 and beyond.
Then, we have Magellan Aerospace (TSX:MAL), another top performer in the aerospace industry. This company focuses on aerostructures and aeroengines. It designs parts that can be applied to new aircrafts, or replacement parts. The company serves both commercial and defence markets, though commercial takes up about three-quarters of sales. Magellan stock sells mainly in Canada, the United States, and Europe.
The company reported a strong first quarter that blew past earnings estimates, according to analysts. In response, several analysts upped their recommendation from a hold to a buy. Further, analysts believe there is now long-term upside as Magellan stock remains undervalued at this point.
As commercial aviation continues to recover from both the pandemic as well as the economic downturn, there’s likely to be a large amount of growth in share price. Supply chains remain limited, but as the company increases production, and Magellan continues to feed the demand for commercial aircrafts, there is bound to be some serious growth through 2025. Furthermore, Magellan stock is primed for growth through acquisitions as well.
Shares are up 5% in the last year, but down 11% year to date. So now could be a great time to get in on these aerospace and defence stocks before there is a major recovery. Meanwhile, you can bring in a nice little 1.26% dividend while you wait.