The Next Boom No One Wants to Talk About Is Already Underway
A misunderstood industrial business is transforming into a high-margin compounder, powered by long-term contracts, rising content per unit, and demand that’s starting to outstrip supply.
As I mentioned in Weekly #76, I think the odds of a much broader global conflict are rising, yet I had no aerospace and defence exposure in the portfolio.
So for my April Stock Pick, I started digging into that world. On April 13th, I sent a trade alert with my pick.
Below is the deep dive.
I will admit, this is not a cheap corner of the market anymore. The sector has already re-rated as the market woke up to the obvious: war, rearmament, and strained supply chains tend to get attention. But once you look past the headline valuation multiples, there are still a few pockets where the risk-reward looks interesting.
There are two things worth keeping in mind from the start.
First, the situation with Iran is fluid. Right now, there is a two-week ceasefire (or has the ceasefire been cancelled? Not sure anymore 🤔), but that can change quickly. The conflict could resume, escalate, or cool off. My own view is that it is more likely to continue than disappear. Still, that part is outside my control, and it is outside yours too. So I don’t want an idea that only works if the war gets worse. I want a fundamentally strong business that can hold up even if the headlines calm down and sector valuations cool off.
Second, investing in this theme does not mean buying the obvious defence prime contractors. The better opportunity can sometimes sit one level deeper in the chain. It is the same way I have approached AI and energy. Rather than chase the most crowded names, I would rather look for the picks-and-shovels businesses that supply something critical, hard to replace, and easy to underestimate. That is what led me here.
The stock market loves a clean story, and right now, aerospace and defence is one of its favourites. You have war in the background, defence budgets moving higher, a multiyear ramp in commercial aircraft production, and a supply chain that is still tight in the materials that actually matter. The company I found sits right in the middle of all of that.
This is not some generic industrial name hoping to catch a cyclical bounce. It supplies specialized materials and components that go into some of the most demanding aerospace and defence applications in the world. In several cases, it holds deeply embedded positions that are difficult to replace, not because management says so on a slide deck, but because qualification cycles are long, technical requirements are brutal, and customers cannot afford mistakes. Over the last several years, the business has reshaped its portfolio, pushed further into higher-value end markets, and materially improved margins. Management is guiding for more growth ahead, and the market has noticed. The stock is trading near its highs.
That leaves the real question. Is this still an attractive way to own a protected franchise at the center of one of the market’s strongest themes, or is it now just a great business priced as if nothing can go wrong? That is what I set out to answer.