2 Stocks With Growth Potential in an Industry That’s Literally Flying!

Share prices of United Technologies Corporation (NYSE:UTX) and Magellan Aerospace Corporation (TSX:MAL) have increased steadily over the past five years and still offer significant upside.

The Motley Fool

With political uncertainty and cross-border tensions on the rise, enhanced security infrastructure is of the utmost importance. As a result, increased government spending in the defence and aerospace industry has reaped solid returns for investors. For example, the S&P 500 Aerospace & Defense Index has generated five-year annualized returns of 19.66% compared to the S&P 500’s five-year annualized returns of 12.21%.

In a year that has seen a false missile alert, a trade war, humanitarian crises, and much more, it is clear the defence industry provides a necessary service to the world. Aside from the social aspect, investing in the aerospace and defence industry could provide a degree of stability to your portfolio.

One industry leader that investors should pay close attention to is United Technologies Corporation (NYSE:UTX). United Technologies Corporation (UTC) is a multinational conglomerate that is poised for growth. The company operates a diversified portfolio of subsidiaries, such as Otis Elevator Company, Pratt & Whitney, UTC Aerospace Systems, and UTC Climate Controls & Security.

UTC is set to acquire Rockwell-Collins for US$30 billion later this month. The acquisition will bolster UTC’s aviation manufacturing division in pursuit of streamlining efficiencies and increasing market share. If UTC is successful with the Rockwell Collins acquisition, it could benefit Magellan Aerospace Corporation (TSX:MAL) as a subcontractor.

Magellan is a Canadian manufacturer and supplier of specialized components for aeroengines and aerostructures. The company provides unique systems solutions and advanced products to the military, industrial power, and space markets. Magellan is a partner of UTC and has several long-standing contracts with the aerospace titan. Most recently, Magellan secured a supply agreement with Pratt & Whitney for $81 million.

What makes Magellan an attractive long-term investment?

First and foremost, the company is well managed and growing at an incredible rate. From 2014 through 2017, Magellan increased year-over-year earnings, while managing to reduce long-term debt. In fact, earnings per share have more than doubled over the past five years.

For the 2017 fiscal year, Magellan outperformed the industry average in terms of the gross margin, operating margin, and profit margin. The management team has also been effective in increasing dividend yields over the past five years. Magellan’s history of profitability is an encouraging sign and the company currently pays a dividend of 1.91%. If the past five years are any indicator and the company can keep up its excellent performance, that dividend yield should grow.

As mentioned before, investing in the aerospace and defence industry provides a level of stability to a portfolio largely due to the fact that governments are the primary customers. With NATO’s secretary general recently reiterating that member countries have committed to spend approximately 2% of GDP on defence and security, the argument that the sector should see continued growth is solidified. All in all, the market outlook is positive for Magellan Aerospace — a company whose share price has gained returns of nearly 200% over the past five years.

Evidently, it may be a grounded decision to take a flyer on this stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tom Hoy has no position in the companies mentioned.

More on Tech Stocks

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

ways to boost income
Tech Stocks

2 Stocks to Help Turn $100,000 Into $1 Million

Do you want to turn $100,000 into $1 million quickly? Look for small- or mid-cap stocks that are scaling as…

Read more »

Man data analyze
Tech Stocks

3 Reasons Celestica Stock Is a Screaming Buy Now

These three reasons make Celestica stock a screaming buy for long-term investors.

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

telehealth stocks
Tech Stocks

Well Health Stock: Buy, Sell, or Hold?

Another record-breaking quarter and strong demand sets the stage for continued momentum for Well Health stock.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

profit rises over time
Tech Stocks

2 Non-AI Tech Stocks to Buy in November for Better Returns

Not all AI stocks are riding the hype train, and for many investors, well-understood and predictable growth stocks might be…

Read more »

worry concern
Tech Stocks

In a Few Years, You’ll Probably Regret Not Owning BlackBerry Stock

Here’s why I believe BlackBerry could be one of the most overlooked Canadian tech stocks right now.

Read more »