Bombardier (TSX:BBD.B) inventory has outperformed its aerospace and defence friends over the previous three years, and traders might want to purchase extra shares, wanting ahead to sustained upside momentum. Nonetheless, the aircraft maker stays a speculative play whereas it repairs its steadiness sheet. In the meantime, CAE (TSX:CAE) inventory is one other aerospace and defence business play that would provide a extra steady long-term capital progress alternative.

Let’s discover which of the 2 Canadian industrial shares ought to belong in your retirement plan portfolio.

Bombardier inventory

Bombardier is a aircraft maker rising from multi-year monetary doldrums. It earned credit standing upgrades from S&P World Scores and Moody’s Investor Companies in 2023, and its inventory has delivered a 375% acquire up to now 36 months. Momentum is constructive, however ought to traders purchase Bombardier inventory and count on the share value progress momentum to maintain?

The $5.1 billion airplane producer could possibly be a fabulous restoration story of this decade. It not too long ago turned earnings constructive, and quarterly web earnings have been rising sequentially — for 3 consecutive quarters now. Though the enterprise stays extremely leveraged (debt comprised 44.8% of its whole property in March this 12 months), Bombardier paid down US$400 million (about $540 million) in the direction of lowering its astronomic $10 billion debt through the first quarter of 2023.

A US$14.8 billion order guide ought to maintain steady income progress. Bombardier not too long ago raised its monetary and working targets for 2025 to incorporate a US$9 billion annual income and US$900 million in free money circulate. Its new leverage targets might take it nearer to an investment-grade credit standing by 2025. Extra traders might fall in love with a financially more healthy Bombardier inventory going ahead.

If the world economic system doesn’t fall right into a near-term recession, Bombardier’s extremely cyclical enterprise might carry out properly, and shares might proceed to ship desired capital good points.

That mentioned, the corporate has a really dangerous historical past of destroying shareholder worth and receiving authorities bailouts. The extremely levered inventory might keep that status if the macroeconomy takes a dip.

Bombardier inventory is thus a high-risk, high-reward funding.

Why I’d purchase CAE inventory as an alternative

CAE is a $9.5 billion aerospace and defence business inventory that could possibly be a extra steady funding than Bombardier inventory.

The corporate trains pilots, has flight simulators in additional than 200 coaching centres throughout 40 nations, and it trains defence, safety, and healthcare personnel, too. CAE’s enterprise is a little more diversified than Bombardier’s, and it has traditionally generated essentially the most steady free money flows over twenty years.

I might personally be extra snug holding a steady performer CAE inventory than a speculatively promising Bombardier inventory.

Though CAE and Bombardier face aviation business income difficulties throughout financial downturns, the previous’s range in safety, defence, and healthcare business coaching gives a layer of money circulate stability.

Development is loading at CAE. The corporate is increasing its enterprise attain organically by way of new amenities and acquisitions. A brand new facility in Austria is ready to open in 2024, and it is going to be Europe’s first aviation coaching centre providing full flight simulators for Bombardier’s widespread enterprise jet: the World 7500.

The corporate not too long ago launched two extra aviation coaching centres, one in Singapore (launched in November 2022) and one other in Nevada (April 2023). Two extra amenities will open doorways in Florida, and in Georgia through the second half of 2023.

Additional, CAE has decrease debt leverage dangers. Its long-term debt contains beneath 30% of its whole property. The corporate generates constructive free money circulate and has been worthwhile whereas Bombardier struggled.

Thus, CAE inventory has a clear status for execution, dependable earnings era, and regular share value progress. We are able to’t say the identical about Bombardier inventory, although the latter’s profitable turnaround story might rewrite a prolonged stretch of awful efficiency historical past.

Investor takeaway

Bombardier inventory might generate life-changing returns if it meets its 2025 targets with precision, but it surely’s a high-risk speculative play. Its dangerous monetary historical past might stay intact if a recession hits earlier than it pays down debt to sustainable ranges.

CAE inventory is a steady, extra diversified play which will provide regular returns and higher portfolio stability. Administration might reinstate the dividend it suspended in 2020 sooner or later.