Episode summary
Why the Best Defense Stocks Are Quietly Getting Hammered
Summary
Defense stocks have been under pressure even as the broader AI and tech trade has surged, and the host framed that divergence as a “tale of two cities” inside a sector he still likes for the long term. He argued that the smaller, next-generation names have been hit hardest, with some giving back about half their gains even though the underlying businesses remain strong.
He pointed to AeroVironment, Kratos, and Leidos as examples of the disconnect. AeroVironment’s revenue rose 143% after the BlueHalo acquisition, but the stock remains weak because of balance sheet issues the company still has to work through. Kratos, which he described as an emerging prime in drones, hypersonics, and “Golden Dome”-adjacent systems, has been cut in half from euphoric levels despite being stronger today than it was a year and a half ago.
The host said the selloff reflects a broader policy and budget debate, not a collapse in fundamentals. With a proposed $1.5 trillion Pentagon budget and questions about how much should go to legacy platforms versus new systems, he said the market is still pricing a long transition rather than a clean rerating. His view is that the secular defense bull case remains intact, even if the path is volatile.
Key takeaways
- The host said defense stocks have been “hammered” while AI and tech have rallied, especially smaller next-gen names.
- AeroVironment’s revenue was up 143% after the BlueHalo deal, but the host said balance-sheet issues are still weighing on the stock.
- The host said Kratos is an “emerging prime” in drones and hypersonics, yet its shares are still about half of what they were at euphoric highs.
- He thinks the defense selloff reflects a long transition debate over old platforms versus new systems, not a breakdown in fundamentals.
- The host said he has not seen a fundamental deterioration in the companies he owns and remains constructive for the long term.
Notable quotes
“it's kind of a tale of two cities. On one side, it's the best of times. On the other side, it's the worst of times”
“the smaller companies in the defense sector. And you know, it's interesting very common. So, when you look at our model portfolio”
“their Switchblade loitering drones and counter drone technology. I mean, that is hotter than heck right now, and yet the stock is still down”
“Kratos is like an emerging prime. Like an emerging Lockheed, drones, hypersonics, golden dome adjacent”
“I have not seen a breakdown in the fundamentals of any of these companies yet or you know, these are ones that I married and all”
How the episode opens
Good morning. This is Don here with Behind the Markets. Happy Monday.
Today's Monday, June 29th. 2 days left of the month. July starts the 1st on Wednesday, July 1st.
Look forward to getting into that with you. Today, I'd like to talk about a sector that has gotten its butt kicked. And it's a sector that we've been long and have a lot of positions in.
And it's kind of a tale of two cities. On one side, it's the best of times. On the other side, it's the worst of times.
And those of you who've been with us for a while have felt the pain on all of it. The defense sector. So, you know, while all the AI stuff and the tech stuff has been going great and money's been going there, the defense sector, a part of it has gotten its butt kicked.
It's gotten its butt kicked, genuinely speaking. Especially the smaller companies in the defense sector. And you know, it's interesting very common.
So, when you look at our model portfolio, let's say in Breakthrough Wealth, if you look at some of the stocks that we've recommended, seems like the bigger ones have done great. The smaller ones that have gotten their butts kicked, they've done great, too. But recently, they've gotten hammered.
They've given back like half of their gains, you know. And you know me, guys. I ain't the type of guy that's going to ride something all the way back up all the way to ride it back down.
That's not the way I play the game. Unless I actually believe the reason it's coming down is short-term and silly. And I think over time, the thing is going to be worth a lot more.
But it's painful. But you know, it never makes you feel good when you're doing that, no matter who you are.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- defense stocks
- pentagon budget
- ai/tech vs defense performance
- balance sheet concerns
- cyclical sentiment shift
Companies and tickers mentioned
- AVAV
- KTOS
- LDOS
- JPM
- AeroVironment
- Kratos
- Leidos
- JPMorgan
- BlueHalo
Watch the episode
Watch “Why the Best Defense Stocks Are Quietly Getting Hammered” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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