Canada’s Aerospace Boom Is Taking Off: 3 TSX Stocks I’d Buy Now

Canada’s aerospace edge is real, and a global defence-spending surge could make three TSX names worth watching.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published September 21, 10:30 am EDT

Canada may be better known for oil, banks, and apologizing when someone else bumps into us. Yet one of the country’s more impressive industrial advantages is sitting in aerospace.

At the Canada Investment Summit, CAE (TSX: CAE) Chief Executive Officer Matthew Bromberg described Montreal as the world’s “third most significant aerospace hub,” alongside Seattle and Toulouse.

Then he explained why that suddenly matters a lot more. Bromberg called current global defence demand a “once-in-a-generation increase in defence spending.”

Canada already has aircraft manufacturers, simulation technology, satellites, engineers, and a huge aerospace supply chain. Now governments are preparing to spend considerably more on defence while airlines continue needing pilots, aircraft, and training. For investors, that leaves several interesting doors open.

Why aerospace could get much bigger

The summit’s “Built to Last: Defence and Advanced Manufacturing in Canada” panel featured CAE, Bombardier (TSX: BBD.B), Telesat, and Linamar. The discussion centred heavily on defence, advanced technology, allied supply chains, and Canada’s ability to sell globally.

Bromberg summed up Canada’s opportunity nicely, stating, “Trust and technology is what Canada brings to the future of defence.”

Bombardier chief executive officer Éric Martel had another encouraging number. He said Bombardier Defence had gone from roughly $250 million in annual revenue to about $1 billion in just a few years. That’s why I’d look beyond one winner. These three Canadian stocks provide different ways into the aerospace boom.

CAE

CAE sells flight simulators and training to commercial airlines and defence organizations. That creates a recurring feature. Governments may buy an aircraft once, but pilots need training for years.

CAE’s latest quarterly revenue increased 6.8% to $1.17 billion, while defence revenue climbed 8.3% to $532 million. Defence backlog sits around $10.7 billion. Shares recently traded near $34, roughly 29% below their 52-week high, at about 26 times forward earnings. That’s not dirt cheap, but I like the combination of commercial aviation and growing defence demand.

BBD

Bombardier is considerably more exciting and considerably more expensive. The company manufactures Challenger and Global aircraft, but defence is reshaping the story as those platforms are modified for surveillance, communications, and special missions.

Second-quarter backlog reached a hefty US$21.8 billion, up US$4.3 billion from year-end. Free cash flow also swung to US$228 million from a US$164 million outflow one year earlier. Shares recently traded around $305, or roughly 22 times forward earnings.

The risk is that Bombardier has already enjoyed an enormous rally. Supply-chain problems and the cyclical business-jet market haven’t magically disappeared either. Still, that $1-billion defence business could become much more important.

MDA

My growth pick is MDA Space (TSX: MDA). Modern aerospace increasingly extends beyond aircraft. Satellites now sit at the centre of communications, Arctic surveillance, defence, and navigation.

MDA’s second-quarter revenue surged 34% to $499 million, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 26% to $96 million. Backlog finished at roughly $4 billion. Shares recently traded near $42, roughly 38% below their 52-week high, at around 28 times forward earnings.

Cash flow can be lumpy, and government projects don’t exactly move with high-speed efficiency. Yet MDA gives investors exposure to one of aerospace’s fastest-growing corners.

Bottom line

Aerospace won’t be a straight flight higher. Defence procurement can take years, aircraft manufacturing is cyclical, and all three stocks carry execution risks.

Yet the summit made one thing clear: Canada isn’t trying to invent an aerospace industry from scratch. It already has one.

Bombardier builds the aircraft. CAE trains the people operating them. MDA extends the opportunity into space. As Martel told the summit, “Just give us the challenge that we’ll figure it out.” Investors may want to pay attention while they do.