The TSX Small Cap Index Is at Record Highs: 2 White-Hot Stocks to Watch

As the TSX Small Cap Index is breaking records in 2025, these two rising stars are helping drive the momentum with strong results and continued expansion.

Jitendra Parashar

Author Bio Jitendra Parashar is a financial journalist who has been writing for The Motley Fool Canada since June 2020. With more than 13 years of experience in financial journalism, equity research, and market analysis, he helps investors understand market developments and identify long-term investment opportunities. Before joining The Motley Fool Canada, Jitendra spent several years at Market Realist covering U.S. equities, major economic developments, and developments in the automotive and technology industries. He also worked in commodity and currency research at brokerage firms, gaining insight into how economic trends, central bank decisions, and geopolitical events influence financial markets. Jitendra writes for beginner investors, dividend seekers, and Canadians looking to build wealth over the long term. He also contributes to the daily TSX Today series, explaining key Canadian market developments and highlighting news investors should watch. Based in India, Jitendra follows Canadian and U.S. markets closely. Outside of work, he enjoys travelling in the Himalayas, street and nature photography, and exploring programming and artificial intelligence. Education MBA in Finance and International Business Bachelor's degree in Journalism Areas of Expertise Canadian and U.S. financial markets, long-term equity investing, dividend investing, macroeconomic and geopolitical trends, automotive stocks, emerging technologies, and artificial intelligence. Social Media Profiles LinkedIn Muck Rack Favorite Investment Quote “Simplicity is the master key to financial success.” — John C. Bogle

Published October 2, 2025 4:00 pm EDT

The year 2025 is proving to be one of the best periods for Canadian small caps in recent memory. The S&P/TSX Small Cap Index isn’t just inching higher, it’s climbing to all-time highs. At the time of writing, the index was up around 35% year to date. What’s even more exciting is that this rally isn’t just about hype. It’s being backed by real numbers, real growth, and in many cases, attractive dividends. Small-cap companies that have focused on fundamentals and execution are now being rewarded in a big way.

So, in this article, let’s look at two top small-cap stocks on the TSX that are doing just that and giving investors reasons to cheer.

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Extendicare stock

First up is Extendicare (TSX: EXE), a stock that’s seen a remarkable run in 2025, driven by smart growth moves. It’s a senior care services provider based in Markham. After surging over 40% so far in 2025, EXE stock is currently trading at $15.16 per share with a market cap of about $1.27 billion. It delivers a monthly dividend with a current annualized yield of 3.3%, making it even more attractive for income-focused investors.

One key reason behind the recent rally in Extendicare stock could be its consistent focus on its expansion strategy. In recent months, Extendicare completed the acquisition of nine long-term care homes from Revera and closed a $75 million deal to acquire a healthcare services provider called Closing the Gap. These moves are expected to bring stronger scale and operational leverage, just in time to meet rising demand driven by Canada’s aging population.

In addition, the company’s latest financial results show that momentum is already building. In the second quarter, Extendicare’s revenue jumped 11.4% YoY (year over year) to $383.4 million with the help of higher funding, volume growth in home health care, and contributions from its new acquisitions. Meanwhile, the company’s cash flow from operations stayed strong, supporting its dividend, which had a healthy 43% payout ratio in the last quarter.

With a $100 million increase to its credit facility and strong liquidity, Extendicare has enough funds to pursue further growth. As demand for senior care rises in the years to come, its recent acquisitions, improved margins, and efficient capital allocation could help this small-cap stock rally further.

Magellan Aerospace stock

Next, let’s shift focus to Magellan Aerospace (TSX: MAL), a small-cap industrial stock flying high this year. Headquartered in Mississauga, this firm is a manufacturer of complex components for the aerospace, defence, and space sectors. Up nearly 65% so far this year, MAL stock now trades at $16.58 per share with a market cap of roughly $948 million. It offers a quarterly dividend with an annualized yield of 1.2%.

Magellan stock’s recent surge has been powered by a mix of new contract wins and margin expansion. In the June quarter, the company reported a 25% YoY increase in gross profit, even though its revenue only rose by 2.8% to $249.8 million. This margin boost came from a stronger product mix, better pricing, and improved performance in its Canadian operations following disruptions in the prior year.

Interestingly, Magellan recently signed new multi-year deals with GE Aerospace and Pratt & Whitney Canada, securing its position in major global programs like the KF-21 aircraft and next-generation engine platforms. These contracts are expected to run through the next decade and will be supported by its global facilities.

With global commercial aircraft orders at record highs and defence budgets expanding, Magellan’s backlog and revenue pipeline are well aligned with industry trends. As the aerospace sector growth continues, this small-cap stock could continue to be one of the most exciting TSX small-cap stories to watch.