Defence is one of the smallest sectors in the Canadian stock market, and it makes sense, considering the country’s foreign policy and lack of security vulnerabilities. But it’s a relatively undesirable condition for investors who wish to tap into this market segment. Only a handful of defence stocks are trading on the TSX at any given time, and three of them might be worth looking into in September.
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An aircraft manufacturer
While Bombardier (TSX: BBD.B) markets itself as a business jet manufacturer, the defence sector is a sizable part of its target market. The company has a product portfolio consisting of five different jets that can be used by militaries for a comprehensive range of aerial missions.
These jets offer relevant capabilities like high “hours of endurance” numbers (how long the jets can stay afloat) and easy installation of mission equipment.
However, that’s just one part of its business. The company has evolved to become purely an aircraft company, shedding its weighed-down railway business, and this has been a boon for the stock’s performance.
However, after an intense bull market phase that lasted from mid-2020 to mid-2022, the stock has mostly remained stagnant. This may not seem very appealing, but the price-to-earnings (P/E) ratio of just 4.5 is enough to keep an eye on this stock in September.
A simulation technology company
Training is a big part of defence institutions and the sector as a whole, and this is where CAE (TSX: CAE) operates. This Montreal-based company has been creating training simulation equipment and refining relevant technologies for decades. It makes these technologies (and equipment) and offers a few other services to civilian and defence clients.
Its defence capabilities and services include specialized technologies and equipment like magnetic anomaly detection (MAD) and electronic warfare (EW) systems. It also offers services like fleet maintenance for military crafts.
Newer technologies, particularly artificial intelligence (AI), have transformed the training and simulation part of the industry quite radically. But the company’s diverse array of services is keeping it afloat. Right now, it’s suffering through a bear market phase and has fallen 23.4% in the last 12 months alone. But its core strengths remain, and a recovery is highly plausible.
An aerospace company
Magellan Aerospace (TSX: MAL) is another aerospace company on this list that offers multiple integrated products to aerospace companies/stakeholders worldwide. These include engines, sand-casting products, and rockets.
It can be considered a defence stock for two reasons. One, defence sector stakeholders are part of its overarching target market, and two, military-specific products, like the CRV7 rocket weapon system, are in its portfolio.
However, treating it primarily as a defence stock might be a mistake, and when predicting its performance, you should consider its entire business model.
Thanks to its bullish trend, it’s a stock worth considering right now. Although it’s not very consistent, it has still pushed the stock’s value up by 22% in the last 12 months. This rate might double your capital in fewer than five years.
Foolish takeaway
All three defence stocks are worth keeping an eye on, but not all are worth buying. Magellan Aerospace might be worth buying to leverage its current bullish trend. But you should wait for the other two to turn things around and start moving in the right direction before you make a purchase decision.
