Sometimes the market serves up opportunities that hide in plain sight. CAE (TSX:CAE) and Stella-Jones (TSX:SJ) have both been quietly building value while trading at valuations that still leave room for meaningful upside. For income seekers who also want growth, these two names could deliver a double in five years if current trajectories hold.
CAE
CAE spent the last year riding strong demand in both its civil aviation and defence segments. Revenue in its latest quarter rose to $1.1 billion, up from $1.07 billion last year, while operating income jumped 23% to $133.8 million. Adjusted earnings per share (EPS) held steady at $0.21, but that masks stronger operating performance, particularly in Defence, where operating income nearly doubled year over year. Civil aviation remains its largest segment, with $607.7 million in revenue and stable margins despite a slight dip in training centre utilization to 71%. The value stock’s $19.5 billion backlog provides excellent visibility into future revenue streams, and the transition to new CEO Matthew Bromberg should keep the focus on efficiency and shareholder returns.
What makes CAE interesting for long-term value is the mix of steady recurring revenue from training contracts and exposure to long-cycle defence modernization. Canada and other NATO members are ramping up spending, creating durable demand for CAE’s simulators and training services. The market already rewarded the stock with a 69% gain over the past year. Yet at around 31 times forward earnings, the valuation isn’t excessive given the growth runway. Risks remain in the form of execution on large defence contracts and potential swings in airline training demand if the global economy slows. But with its strong order book and diversified end markets, CAE is well-positioned to keep compounding earnings.
SJ
Stella-Jones is a different type of value story, rooted in infrastructure and steady cash flows. The value stock specializes in utility poles, railway ties, and other wood products that are essential for North American infrastructure. In its latest quarter, sales came in at $1.03 billion, down 1% from a year earlier, while operating income slipped to $155 million from $168 million. Even so, earnings before interest, taxes, depreciation and amortization (EBITDA) margins held strong at 18.3%. This demonstrated pricing power and cost control. Management also closed the acquisition of Locweld, a steel transmission structure manufacturer, expanding its reach in the utility market.
The value stock trimmed its 2025 sales guidance to $3.5 billion from $3.6 billion, citing softer utility pole and railway tie volumes. But it maintained its EBITDA margin target above 17% and continues to return capital aggressively, with $417 million returned to shareholders since 2023. The value stock trades at under 13 times earnings with a 1.6% yield and a history of dividend growth. That low valuation reflects near-term volume pressures, but longer term, utility grid investment, railway maintenance, and the Locweld expansion could drive both top- and bottom-line growth. With a beta of just 0.36, it’s also less volatile than the broader market, giving investors a smoother ride while they collect dividends.
Foolish takeaway
Both CAE and Stella-Jones share a few traits that make them appealing for investors with a five-year horizon. They operate in sectors with high barriers to entry, benefit from long-term contracts or entrenched customer relationships, and are positioned to ride structural trends. The value stocks also have management teams focused on operational efficiency and disciplined capital allocation, both critical for sustaining returns over time.
If earnings compound at high single digits and valuations hold steady, both companies have a realistic path to delivering 100% total returns in five years when factoring in dividends. For income-focused investors willing to mix stability with growth potential, CAE and Stella-Jones may be two of the most overlooked opportunities on the TSX right now.
