For most countries, defence is something that comes under the purview of the government, and there are relatively few mainstream publicly traded defence companies. The choices in Canada are even more limited, and most of the defence stocks in Canada are only tangentially connected to the defence industry. But this is not a weakness per se since this disassociation works in their favour.
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Space technology company
With about 2,800 employees and a market capitalization of about $1.4 billion, MDA (TSX: MDA) is a relatively large player among Canadian small-cap stocks and companies. The company has been serving a wide range of global clients for about five decades. It started out in a basement in 1969 and has now grown into an international space company. Its products have been part of over 300 space missions.
The company has three main business divisions: satellite systems (the largest revenue stream for now), space robotics, and geo-intelligence. It has a healthy portfolio of clients, about 43% of them are from the government. The company also has its own launchpad.
From its financials and operational history to its client portfolio, most elements mark it as a powerful player in the space industry, and like most space-related businesses, it has a natural overlap with defence, which is evident from its clients like Defense Advanced Research Projects Agency (DARPA) and Lockheed Martin from the U.S.
Even though the stock’s long-term history hasn’t been very impressive, the performance in the last 12 months has been quite exceptional. The stock rose by about 88%, though not consistently. If the current momentum continues, MDA may emerge as a powerful pick this November.
An aviation technology company
If you are looking for a higher degree of exposure to the defence industry, CAE (TSX: CAE) can be a good pick. It has been the flight simulation giant for decades, catering to a sizable global target market. Now, the company has divided its services into three divisions, one of which is defence and security.
CAE offers immersive training solutions and operational support solutions to the global defence industry and operates in eight markets, including India and Germany.
The stock has historically been a powerful grower, though the last five years have been relatively stagnant. During the market crash of 2020, the stock fell hard, losing about 61% of its market value.
One reason behind this disproportional fall was its association with the aerospace industry, one of the most significant victims of COVID. But it bounced back, and even though the ascent has not been consistent at all, the stock rose by about 20% in the last 12 months.
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Foolish takeaway
The two stocks offer two different types of growth opportunities. CAE is a mature growth stock with a solid history that may be gearing up for a long-term bullish phase. In contrast, MDA, even though it is not a wild card, may continue with its uncharacteristic growth for a while. As a space technology company, MDA may also prove to be a strong long-term pick.
