As global conflicts continue to drive increased defense spending worldwide, Canadian military stocks are attracting attention from investors.
In 2021, Canada spent roughly US$26.5 billion on defense, which is an increase of around US$3 billion from 2020.
From the ongoing Ukraine-Russia conflict and the Israel-Hamas attacks in Gaza, we are living in an era of battles at a scale not seen in decades.
This article aims to provide an informative and objective overview of the top five publicly listed Canadian military stocks.
The top 5 Canadian military stocks
5. Draganfly (CSE:DPRO)
Drone solutions and systems developer Draganfly manufactures commercial unmanned vehicle systems and software. It serves public safety, agriculture, industrial inspections, security, mapping and surveying markets.
The team recently completed training and demonstrations in Ukraine to equip people with the expertise to leverage Draganfly’s de-mining solution. After the dam destruction in Ukraine, Draganfly performed evacuation, flood management and de-mining missions in Kherson.
In September 2023, the company had secured its first orders for its Commander 3 XL Hybrid drone with the U.S. military.
With a market cap of C$59.0 million, Draganfly opened trading at C$0.82 per share. So far this year, DPRO stock has risen 35 per cent and is up 9.7 per cent since this time last year.
As the demand for innovative drone technology continues to soar on the consumer and military fronts, investors are tracking the top players in the market.
Stories in the media covering drones have escalated after Russia’s invasion of Ukraine. Ukrainian forces have been using air and sea drones to attack and surveil the Russians with results that have surprised many.
4. Magellan Aerospace Corp. (TSX:MAL)
Magellan is a global aerospace and defense contractor, providing various products and services to customers worldwide. With an emphasis on engineering excellence, Magellan Aerospace has become a key player in the Canadian military industry.
In its Q2 2023 financial results statement, the company recorded a 14 per cent increase in revenue and an 84 per cent increase in profit of C$219,651 and C$23,012, respectively.
The company also noted that though global air travel has seen signs of recovery with revenue passenger kilometres approaching pre-COVID 19 pandemic levels, its finances and operations continue to be influenced by overhanging impacts from the pandemic.
These impacts include customer build rate adjustments (and the impact on production scheduling), higher prices for goods and services, limited availability of products, disruptions to supply chains and labour shortages.
The ongoing invasion of Ukraine by Russia also continues to disrupt supply chains and cause instability in the global economy. The team admitted that the extent and potential magnitude of the economic impacts on the aerospace industry remains uncertain.
This international aerospace company boasts a market cap of C$422.0 million and last traded at C$8.00 per share, with a 0.55 per cent bump over the past five days.
3. Héroux-Devtek Inc. (TSX:HRX)
Héroux-Devtek Inc. specializes in the design, development, and manufacturing of aerospace and defense products. The company’s offerings include landing gear systems, airframe structural components and hydraulic systems, catering to domestic and international military markets.
Serving the military and commercial aerospace markets, Héroux-Devtek just signed an agreement with IperionX Ltd. to underpin a 100 per cent recycled titanium supply chain using scrap titanium metal from the aerospace industry.
The company’s stock opened at C$14.65 per share and is up 29.0 per cent since this time last year, with a market cap of C$519.0 million.
2. Bombardier Inc. (TSX:BBD)
Bombardier is a global aviation company focused on the design, manufacturing and servicing of business jets. It has approximately 5,000 aircraft in service across multinational corporations, charter and fractional ownership providers, governments and private individuals. Bombardier aircraft are also used in government and military special-mission roles across the world.
The company recently reported US$1.9 billion in Q3 revenue, which is up by 28 per cent year-over-year because of strong aircraft sales and aftermarket growth. Its market cap is C$4.4 billion.
Bombardier Inc. last traded at C$48.61 per share and its stock has added approximately 25 per cent year-over-year.
1. CAE Inc. (TSX:CAE)
CAE Inc. is a leading provider of simulation and modeling technologies, as well as training services for various defense and security sectors. With a wide array of customers domestically and internationally, CAE has established a strong position within the Canadian military industry.
The company recently sold its healthcare business to Chicago-based Madison Industries for an enterprise value of C$311 million.
Holding a market capitalization of C$9.25 billion, CAE opened trading at C$30.21 per share and the stock is up 14.5 per cent in the past year.
Honourable mentions
Rheinmetall Canada Inc. (OTC Pink:RNMBF) is a subsidiary of Rheinmetall Group, a renowned defense contractor specializing in vehicle systems, electronic solutions, and weapons and munitions systems. The company’s advanced technologies have made them a vital contributor to Canada’s military capabilities.
MDA Ltd. (TSX:MDA) is an international space mission partner and a robotics, satellite systems, and geointelligence business. The Brampton, Ontario-based company recently selected SpaceX to be the launch service provider for CHORUS, MDA’s next-generation Earth observation constellation.
iShares U.S. Aerospace & Defense Index ETF (TSX:XAD) provides exposure to U.S. companies in the aerospace and defense industry, including companies that manufacture commercial and military aircraft, missiles, and other defense-related products.
Risks of investing in Canadian military stocks
While investing in Canadian military stocks might offer potential advantages, it is essential to acknowledge the associated risks. These risks include:
1. Government contracts: The majority of Canadian military companies rely heavily on government contracts, thus making their revenue vulnerable to changing political and defense spending priorities.
2. Regulatory environment: Defense companies operate within a highly regulated industry, necessitating compliance with rigorous standards and certifications. Non-compliance or changes in regulations could impact their operations and profitability.
3. Global political dynamics: The performance of Canadian military stocks can be influenced by geopolitical events, conflicts and government decisions. Investors must stay updated on global affairs to understand the potential impact on their investments.
Investment conclusion
Investing in the Canadian military industry can be enticing because of increased global defense spending and ongoing international conflicts. However, potential investors must conduct thorough research and carefully evaluate their risk tolerance before considering investing in any specific military stock.
Beyond that, diversification within a portfolio is crucial to minimize risk exposure. Consulting with a financial advisor or conducting independent research is recommended to make informed investment decisions.
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