Small-Cap Stocks to Benefit from Carney’s Stimulus
Mark Carney has been elected Canada’s 24th Prime Minister and the stage is set for him to begin executing on his campaign trail promises. According to Oxford Economics, these promises include $77 billion in new fiscal stimulus over four years, funded by larger deficits, focused on “increased defence spending, infrastructure projects, and new housing construction alongside personal and corporate tax cuts.” Politicians are notoriously bad at following through with their promises, but if Prime Minister Carney executes, it could lead to pockets of strength within Canada’s economy—particularly in areas that may boost the performance of small-cap stocks positioned to benefit from renewed economic activity.
This article discusses which Canadian sectors could benefit under Prime Minister Carney’s liberal platform and discusses a few businesses which could potentially benefit. The companies we highlight in this article are not necessarily good investment opportunities, but we include a few Canadian businesses within each section that may benefit from sector tailwinds.
Defence Spending
At a Bombardier plant in Montreal, Carney exclaimed, “It’s clear military expenditures will be higher than 2% of Canada’s GDP in a few years,” which would be up from 1.3% of GDP in 2023. This could represent an increase from the roughly $28 billion spent on defence in 2023 to north of $45 billion per year over the course of his term.
Canada’s defence spending as a percentage of GDP is included below from the WorldBank.
(Source: https://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS?end=2023&locations=CA&start=1960)
Mr. Carney may not deliver on his promise to increase defence spending to above 2%, but if one believes he will, what stock should one invest in for exposure to Canada’s defence sector?
A name like Bombardier (BBD.B:TSX) may come to mind – they would certainly benefit from the increase in spending – but despite the strong share price performance since the COVID-19 pandemic, the business has struggled to create long term shareholder value with a CAGR of just 1% since the bottom of the 2008 financial crisis. The poor share price performance has been the story of spotty profitability and heaping debt on its balance sheet. Worst yet, the company didn’t even pay common shareholders a dividend over that time horizon – talk about a lousy return on one’s investment!
That’s why KeyStone focuses on high quality Small-Cap stocks, companies like Firan Technology Group (FTG:TSX), a seller of aerospace and defense electronic products and subsystems in Canada and internationally. We originally recommended Firan at $1.35 per share when the business traded at just 8x cash flow, today the stock trades at $9.18 per share (now 16x cash flow), for a gain of over 560%, driven by excellent growth in revenue and earnings.
Other businesses that could benefit include 
Kraken Robotics (PNG:TSX), a marine technology company that manufactures and sells sonar and optical sensors, batteries, and underwater robotic equipment for unmanned underwater vehicles used in military and commercial applications in Canada and internationally. The business has inflected into profitability in 2022/23 driven by tremendous revenue growth, but the business remains a bit pricey at 25x trailing EPS for KeyStone’s growth-at-a-reasonable-price (GARP) investment philosophy. Regardless, the business is one to monitor closely for an entry point as it possesses a cash rich balance sheet and the growth in revenue and earnings has been compelling.
Another quality business in the sector includes MDA Space Ltd. (MDA:TSX), a provider of space technology solutions in Canada and internationally. Like Kraken, MDA possesses a cash rich balance sheet, has grown revenue and EPS at an aggressive pace, and recently reported record backlog, with FY 2025 revenue expected to be up 45%. However, given the excellent fundamentals, the business is not cheap at almost 40x trailing earnings failing to meet our GARP model, but again, it is a name to keep on the watchlist as it could offer value long term.
One company we rate as a Long-Term BUY and remains an exclusive recommendation to KeyStone clients is a significant player in Canada’s defence spending. This undisclosed company has secured numerous contracts with the Department of National Defence (DND) and the Canadian Armed Forces (CAF), as well as with NATO and other allies, reflecting the growing demand for this company’s services and manufacturing capabilities. Plus, the business pays a dividend >2%, has been repurchasing shares over the last year, possesses a healthy balance sheet, and trades at just 10x free-cash-flow.
Become a client to our Canada Small-Cap Research to uncover this stock that could benefit from increased defence spending in Canada.
Residential Housing
Canada’s housing affordability crisis has reached new heights following the Covid-19 pandemic, as debt has become more expensive with the increase in interest rates, and a lack of supply has made a competitive bidding environment. Housing prices have gone parabolic post-pandemic, as shown below by the provincial housing price index provided by MLS.
(Source: https://www.crea.ca/housing-market-stats/mls-home-price-index/)
One of Mr. Carney’s headline promises is to remove the GST on new homes under $1.0 million for first-time buyers—something that could help bring down costs for those entering the market.
To address the lack of supply for homes in Canada he plans to simplify restrictions on zoning, reduce development charges by funding the municipalities, fund apprenticeship and trade programs and will focus on prefab social housing while using Canada’s abundant lumber. All of which is expected to be funded with $25 billion on Canada’s balance sheet. With Carney proposing that these measures could double the rate of housing construction and build 500,000 new homes a year over the next decade, up from just 230,000 new homes per year over the past decade.
Again, there is no guarantee that the new Prime Minister will be able to successfully resolve Canada’s housing crisis like his predecessor Justin Trudeau failed to. But if one wanted to benefit from increased infrastructure spending and activity within the Canadian Residential home sector, one could look at Atlas Engineered Products (AEP:TSX-V). While general headwinds and a lack of meaningful EPS has kept us on the sidelines (negative EPS in FY 2024), the business is looking for an inflection in profitability into 2026/27 as it rolls out its robotics investments at its manufacturing facilities that are expected to significantly increase manufacturing capacity and reduce costs. Until we see signs of this inflection, Atlas continues to be a name we monitor.
Doman Building Materials (DBM:TSX) provides wholesale distribution of building materials and home renovation products in the United States and Canada (majority of sales from Canada). The company offers an array of products including treated wood; siding and trim; decking and aluminum railing; engineered wood products; roofing products; and lumber and plywood products – all which could experience an increase in demand under a robust residential construction market.
Doman offers investors an attractive dividend yield of just under 8% with a payout ratio of approximately 90% and trades at just 12 times earnings. We view the company more as an “income investment” as it has lacked long term EPS growth and maintains a levered balance sheet with a trailing net debt-to-EBITDA multiple of approximately 5x – keeping us on the sidelines – but Carney’s increased spending could lead to tailwinds for the business.
Like Doman, Adentra Inc. (ADEN:TSX) is another supplier of building products within Canada and the United States (majority of sales come from the U.S), offering doors, decorative surfaces, stair parts, hardwood lumber, plywood and other building products. Adentra also trades at approximately 12 times earnings but possesses a better balance sheet with trailing net debt to EBITDA of 3.7x, and while the dividend yield is just 2.8%, management has grown the dividend by 15% since 2023. Adentra is not a company we have under coverage, but increased demand for building supplies could benefit the business and help support their dividend growth into the future.
Infrastructure Spending
When it comes to Canadian Infrastructure projects including hospitals, schools, water/wastewater, and transit, companies that could benefit include Dirtt Environmental Solutions (DRT:TSX), an interior construction company in Canada serving the healthcare, education, government, technology, retail and hospitality industries.
Dirtt is a name we have monitored for years, appearing to trend in the right direction under control of new CEO, Benjamin Urban. Over recent quarters margins have increased, and the business is looking at diversifying its revenue distribution channels to include more construction contractors as opposed to its primary distribution channel through furniture dealers. The company has approximately $400M in revenue capacity with its current facilities and its proprietary ICE software platform allows a 10-day manufacturing lead time which is quite impressive. Dirtt’s Q1 2025 results reported on May 7, 2025, did experience some headwinds due to tariff’s, leading to a net loss in the quarter and the stock to decline 16% in the following trading session – but it is a name worth keeping on your monitor list for an intriguing turnaround story.
Dexterra Group (DXT) engages in the support services for the creation, management, and operation of infrastructure in Canada to public and private sector clients in the industries of aviation, education, industrial, transit, healthcare, and leisure. Also providing workforce accommodation structures, access solutions, and space rentals to clients in the natural resources and infrastructure sectors. The company has been able to grow its revenue at a good pace, trades at 13x trailing EPS and pays an attractive dividend yield of >4%.
Carney’s Liberal platform also promised to invest $2.5 billion in digital infrastructure like chips and data centres through the next two fiscal years. Send us an email below to highlight a Canadian stock you think may benefit from increased digital infrastructure spend and we may even cover the stock on our Stock Talk Podcast!
Renewable Energy
Prime Minister Carney embraces reaching net-zero emission in the face of rising global temperatures. In his book, Value(s), he writes that “the scale of such investment is estimated at $2 Trillion of new capital spending in Canada alone”. Highlighting that Governments need to incentivise private investment in the net-zero transition, with the goal to put in place the information, tools and markets so that “every financial decision takes climate change into account”.
Given his enthusiasm toward net-zero, sentiment could increase for the renewable energy space, which is at a significant low with President Trump’s dismay for emission reductions. Plus, policies that encourage renewable energy investing or punitive measure on traditional oil and gas – like the commercial carbon tax – could give the sector a step above the playing field.
A friendly government toward renewables could benefit names like Boralex (BLX:TSX), a pure play renewable energy provider with wind, solar, and hydroelectric resources (1,085 MW power production in Canada) or TransAlta Corp. (TA:TSX), with 922 MW of hydroelectric capacity located in Alberta, B.C., and Ontario as well as 2,057 MW of owned wind and solar capacity across North America.
Within KeyStone’s Canadian Income Stock Research, we also have a few specific businesses which could benefit from increased sentiment in the renewables space or directly benefit from positive legislation on their Canadian renewable’s portfolio – but these recommendations remain exclusive to KeyStone’s clients.
Nonetheless, under “Carbon Tax Carney”, the writing is on the wall for Canada’s traditional oil and gas energy industry, which has prompted Enbridge to publish an open letter to the Prime Minister on April 30, 2025. The letter, which was signed by 37 companies in Canada’s oil and gas space voiced a need for, simplified regulation, a commitment to firm deadlines for project approvals, growing production, a demeanor to attract investment, and to incentivize indigenous co-investment opportunities in traditional oil and gas opportunities. But with the carbon tax remaining and a friendly U.S. president to traditional oil and gas development, we believe it will be hard for Canada to attract increased investment.
