Al Root

Relations between the U.S. and its neighbor to the North have been a little rocky lately, even outside hockey arenas. That's evident from Canada's new defense strategy, which has some implications for investors looking to allocate funds in the industry.

Canada recently released its "Defense Industrial Strategy," a 58-page document that lays out the country's vision of the world and its implications for national defense and weapons procurement.

"The world has become more volatile and dangerous, and it is more important than ever that Canada be ready and able to defend our territory, our people, and our values," the document begins.

Canadian defense spending approaches $30 billion a year, or roughly $700 per capita, far lower than the $1 trillion and $3,000 per capita that America spends.

Canadian spending is poised to rise as it pursues a "build-partner-buy" framework. Ideally, Canada will prioritize boosting defense exports and buying locally. Where it can't, the country wants to diversify its purchases and partnerships with EU countries.

"Canada has three large public companies that should benefit from these new policies: Bombardier, CAE, and MDA," wrote Capital Alpha Partners analyst Byron Callan in a recent report.

To some extent, investors have realized the potential. Coming into Wednesday trading, those three stocks are up an average of 86% over the past 12 months and trade for about 30 times earnings expected over the coming 12 months, up from closer to 20 times a year ago.

Bombardier stock has been the big winner, gaining almost 200%.

Higher spending and less reliance on the U.S. are the prevailing themes in much of the defense industry lately. Shares of European defense contractors Thales, Rheinmetall, BAE Systems, and Leonardo were up 57% over the past 12 months, coming into Wednesday trading. The group traded for about 29 times earnings expected over the next 12 months, up from about 23 times a year ago.

Still, the potential for higher spending has helped U.S. contractors, too. Lockheed Martin, Northrop Grumman, and L3Harris Technologies' shares were up an average of 63% over the past 12 months, leaving shares trading for about 25 times earnings, up from about 16 times a year ago.

The U.S., which has encouraged higher spending from NATO members, is also focused on supporting its domestic defense players. Secretary of State Marco Rubio made some conciliatory remarks at the recent Munich Security Conference.

"We are connected spiritually, and we are connected culturally," he said. "We believe that Europe must survive, because the two great wars of the last century serve for us as history's constant reminder that ultimately, our destiny is and will always be intertwined with yours."

It was a softer message to European leaders. "We would have been surprised if Rubio said that the U.S. no longer cares about Europe and it's on its own," added Callan in another report. "Rubio's speech didn't mention Russia as a threat to Europe, though he also didn't mention the threat posed by China to Taiwan."

Canada's plan and even Rubio's remarks tell investors a similar story. The defense world has changed. That's good for the valuation and growth of non-U.S. defense stocks, even if there is plenty of business for traditional American contractors.

Write to Al Root at allen.root@dowjones.com

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February 18, 2026 12:18 ET (17:18 GMT)

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