The Bank of Canada announced another rate cut on March 12, 2025, the second this year and seventh since June last year, notwithstanding escalating trade tensions with the United States. Notably, the inflation rate has substantially fallen (1.9% in January 2025) from a peak of 8.1% in June 2022.
Canadian stocks have benefitted from the rate-cutting cycle and delivered handsome returns in 2024. However, stocks belonging to sectors highly sensitive to trade are beginning to feel the pressure. Despite heightened market volatility and a roller coaster ride, a cheap but outperforming industrial stock could be the hottest TSX stock in 2025.
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Modern aerospace consolidator
Canada has become a top destination for aerospace industry investments and partnerships. Magellan Aerospace (TSX: MAL), a consolidator in the modern aerospace industry and high-value supplier to original equipment manufacturers (OEMs), is a standout choice for value, growth or income investors.
The $611.4 million company designs and manufactures aero-engine and aerostructure assemblies and components for aerospace markets, including advanced proprietary products for military and space markets. Magellan caters to civil aerospace and defence markets and serves industrial power applications of aerospace engine technology.
Spare parts supply, repair and overhaul services provide strong aftermarket support. Magellan manages market risk by balancing exposure within its customer base. It invests in new, early-stage programs to ensure long-term relationships or participation.
New business development
A microsatellite project is underway to monitor objects in space over Canada and the South Pole. In October 2024, Magellan and the University of Manitoba and Magellan Aerospace, in collaboration with Canada’s Department of National Defence Science and Technology organization, Defence Research and Development Canada, and the U.K.’s Defence Science and Technology Laboratory are working to monitor and protect the Earth’s orbital environment.
Early this month, Magellan signed a Memorandum of Understanding with Aequs Private Limited to explore the development of a business plan to form a 50/50 jointly owned aerospace sand-casting facility at the Belagavi Aerospace Cluster in Karnataka, India. The proposed facility aims to meet sand-casting demands in the aerospace industry, and the increased capacity should support commercial and defence sectors.
Improved profitability
“This past year, the aerospace industry experienced improved stability following years of turbulence,” said Phillip C. Underwood, President and CEO of Magellan Aerospace. “We have successfully navigated a prolonged and challenging period in our industry.”
In Q4 2024, net income reached $15.9 million compared to the $266,000 net loss in Q3 2023. Cash provided by operating activities rose 146.6% year-over-year to $46.3 million. For the full-year 2024, Magellan’s net income skyrocketed 283.8% to $35.5 million from $9.2 million in 2023.
According to Underwood, the company experienced inflation pressures and supply chain disruptions. The solution was to prioritize improving the commercial terms of the contracted portfolio. As of March 14, 2025, this dividend-paying small-cap stock trades at $10.70 per share. Besides outperforming the broad market year-to-date (+6.26% versus -0.71%), current investors partake in the modest 0.93% dividend.
Business growth
Magellan Aerospace enters 2025 with cautious optimism and acknowledges that U.S. trade tariffs are the new challenges. However, the aerospace consolidator maintains a competitive position. It is prepared to seize new business opportunities, and advance new capital programs and facility expansions across its global operations. This year, earnings and cash flow growth should drive its share value higher.
