Canada has a small defence industry, and this is reflected in the country’s lack of major publicly traded defence companies. But even though there is a lack of “pure-blood” defence stocks on the TSX, multiple companies can be categorized as such, thanks to their defence division or the fact that their products/services have applications in the defence sector.
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A simulation technology manufacturer
Training simulations are commonplace nowadays, thanks to technologies like virtual reality (VR), augmented reality (AR), and artificial intelligence (AI), but it wasn’t always the case.
Market leaders like CAE (TSX: CAE) developed complete simulations (both hardware and software) that could be used for training and testing pilots, and they still have a strong place in the market, even with complementary technologies becoming readily available.
Their dedicated simulations include the broadest range of real-world variables and scenarios that can only be mimicked with proper equipment. CAE leverages this expertise to cater to the defence sector as well.
Their defence and security business offers a comprehensive range of cutting-edge training solutions to various defence stakeholders around the globe. The stock has struggled since the pandemic, but a reassurance that mimics its growth spurt between 2012 and 2019 could yield excellent returns.
An aircraft manufacturer
Even though it had a more complex business model before, Bombardier (TSX: BBD.B) has become a pure-play aircraft manufacturer after selling its railway division. The company has a decent range of aircraft in its portfolio, including five in its defence category. They can accommodate 12 and 19 passengers, and the fastest one reaches a speed of 982 kilometres per hour.
The company is quite optimistic about its defence division, with the revenue forecast ranging from $1 to $1.5 billion by 2030 (as per the Q2 financial results). It posted strong results in the last quarter, and considering a price-to-earnings ratio of just 4.4, it looks attractively valued. The stock has remained relatively stable in the previous couple of years.
A satellite company
MDA Space (TSX: MDA) is a “space mission partner” to various businesses. It has been around for 55 years and has been part of over 450 space missions.
The company offers a range of space-related services, including a wide range of products for communication satellites, an earth observation satellite that provides relevant data to a wide range of entities, and developing space exploration infrastructure, including robots, rovers, and instruments.
While most of its current clientele is commercial organizations or research entities, its technologies, products, and services also have applications in the defence sector.
It’s already a trusted partner in the defence sector and has multiple technologies in its portfolio that can serve defence or, more accurately, intelligence agencies around the globe. The stock experienced a decent 110% hike in the last couple of years, but it’s plateauing now.
Foolish takeaway
Two of the three stocks are either in their bear market phase or stagnant, but their long-term potential cannot be denied, and that’s reason enough to consider these stocks in August at least.
You can track their performance and buy just when the right trend is building up and define the right exit strategy to capture most of the growth they offer during a bullish trend.
