It looks as if economies around the world are finally starting to get under control once more. And this could mean there is bound to be some major investment in companies that perhaps saw less of it in the last few years. One area of the market on the TSX today is aerospace and defence stocks.
Why aerospace and defence stocks
Aerospace and defence stocks are some very interesting options, as we look to finally come out of a bear market. These companies have many reasons to consider them these days. Government spending and contracts, for instance, are behind much of the growth in the sector. In fact, even in a bear market, this spending continues as the world remains a pretty scary place.
This also provides these stocks with stability from long-term contracts funded by the government. In fact, most contracts are long term, providing stable revenue streams for companies in the sector. The sector, however, can also benefit from a rise out of the bear market from its technological innovations. The development of these new and advanced technologies can lead to a competitive advantage, attracting early investor interest.
Finally, investing as we exit a bear market can provide investors with some growth as we enter a bull market. One where governments need to invest due to geopolitical tensions. All this stability means these companies usually offer another thing, a solid dividend yield.
Stocks to consider
If you’re looking at aerospace and defence stocks, there are certainly a few to consider. Yet, in my view, I like to find the most diversified options. Ones supported by government growth but also providing private investment from outside sources.
One example is CAE (TSX: CAE). The company provides simulation training for a variety of fields. In the healthcare sector, you can simulate surgeries. In the military sector, you can train to become a helicopter pilot. And the company continues to create partnerships not just in Canada but around the world.
Shares are flat with where they were a year ago as of writing, providing perhaps some growth from this stock. However, it doesn’t offer a dividend at this point. So, definitely watch out for that in the future — especially as the company continues to beat earnings after earnings estimate.
Another option to consider Héroux-Devtek (TSX: HRX), a company that provides the actual products it takes to manufacture much of the equipment for aerospace and defence. Whether it’s ball bearings, doors, cases, or even just fixing equipment, HRX stock provides support around the world.
And yet again, you can pick it up for some value. Even as the company sees earnings beat estimates. Shares are up 16% in the last year but trade at 0.91 times sales and 1.31 times book value. Further, its enterprise value over earnings before interest, taxes, depreciation and amortization is at just 10.09 as of writing. This puts it well into value territory despite the share growth.
So, while these aerospace and defence stocks may not be surging right now, you can expect that very soon. This is why now is the perfect time to pick up these stocks, as we perhaps even exit a bear market for good.
