Canadian Prime Minister Mark Carney announced the ‘Canada Strong’ initiative last month – a landmark $585.9 billion spending plan focused on targeted industrial sectors. This multi-year plan aims to increase defence spending to strengthen the country’s capabilities while building a robust domestic defence industrial base.
Included in the program is a substantial $81.8 billion allocation over five years toward the new Defence Industrial Strategy. This portion of Budget 2025 prioritizes government contracting in sectors related to defence, national interest, and national security.
Investors should watch out for CAE, Inc. (TSX: CAE), Calian Group (TSX: CGY), and Magellan Aerospace (TSX: MAL). The federal government’s strategy is a significant tailwind for the TSX-listed defence stocks in 2026. Also, all three have shown remarkable momentum in 2025, with gains between 13% and 84% thus far.
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Multi-billion-dollar backlog
CAE is a major defence contractor globally. Its Defense & Security business unit, the lead growth driver, provides flight simulation and training, as well as mission support solutions across multi-domain operations– air, land, maritime, space, and cyber. The large-cap stock currently trades at $41.56 per share (+13.8% year-to-date).
In addition to Canada, the $13.4 billion high-technology company serves defence and security customersin the United Kingdom, Europe, Asia, Oceania, Africa, and the Americas. According to management, CAE is harnessing the power of digital technologies to develop and implement solutions to address military training challenges and mission support.
CAE’s defence edge is its multi-billion-dollar backlog. At the end of Q2 fiscal 2026 (three months ending September 2025), the adjusted backlog is $19.6 billion. Net income rose 41% to $73.9 million versus Q2 fiscal 2025.
Clear tailwinds
Expect Calian to gain prominence next year. The $651.7 million Canadian contractor delivers mission-critical services and solutions that protect lives, strengthen security, and foster global connectivity. It provides military training and simulation, and health services to various clients, including the Canadian Armed Forces.
According to its Vice President for Defence, Russ Beaudin, Calian designs and develops complex, custom solutions for defence programs. The company also delivers vetronics platforms for armoured vehicles.
Kevin Ford, retiring CEO of Calian, said, “Looking ahead, with a robust $1.4 billion backlog, a strong acquisition pipeline, a solid balance sheet, and clear tailwinds in our defence markets, we are well-positioned for a strong fiscal year 2026.” This strong base assures continued growth.
If you invest today, CGY’s share price is $57.42, up 21.7% year-to-date. This small-cap stock pays a modest 2% dividend.
Long-term contracts
Magellan Aerospace has been red-hot for most of the year. At $18.29 per share, the year-to-date gain and positive one-year price return are 83.6% and 90.2%. Also, the three-year return of this small-cap stock is plus-144.4%. MAL pays a 1.1% dividend.
This $1 billion company designs, engineers, and manufactures aeroengine and aerostructure components for aerospace markets. In April this year, Magellan signed long-term agreements (LTAs) with Pratt & Whitney Canada for the delivery of complex machined components. Other major clients include Boeing, GE Aerospace, and Lockheed Martin.
In the first nine months of 2025, total revenues increased 9% year-over-year to $766.4 million, 36.2% of which came from defence markets. In Q3 2025, net income climbed 117% year-over-year to $12.7 million.
Industrial engines
CAE, Calian, and Magellan Aerospace could be among the primary industrial engines as the federal government prepares to mobilize over $81 billion in defence spending. You can take positions in these defence stocks before the prices skyrocket in 2026.
