Chit Chat Stocks Podcast: "A US Defense Spending Supercycle? 7 Top Stocks For The Coming Spending Boom"

Hosted by Ryan Henderson & Brett Schafer – January 14, 2026

Episode Overview

In this episode, hosts Brett Schafer and Ryan Henderson explore the potential for a major surge—a “supercycle”—in US defense spending and its broader implications for investors. With proposed increases to defense budgets (notably a potential $500 billion boost in the US), the duo takes a thematic investing approach to the defense sector. They break down key geopolitical motivations, discuss where the money might flow, and analyze a lineup of seven defense-related stocks ranging from the industry giants (the so-called “prime contractors”) to lesser-known, tech-forward companies poised to ride the wave. The episode aims to equip listeners to spot opportunities (and risks) as global defense budgets balloon.

Key Themes and Discussion Points

1. The Macro Defense Trend – Why Now? (00:32 – 06:13)

• Thematic Approach: A new format for 2026, focusing on long-term, secular investment themes starting with defense.
• Backdrop: US defense spending is climbing sharply, set off by a proposed $1.5 trillion budget highlighted by former President Trump. Allied spending is rising alongside, bringing projected combined (US + allies) spend to $2 trillion by 2027—with 75% led by the US.
• Geopolitical Drivers:
  • China’s ambitions (esp. around Taiwan)
  • Iran, Russia’s war in Ukraine, instability in Venezuela and Cuba
• “The list of geopolitical concerns could go on and on... It seems like a million reasons right now that citizens all over the world should be cautious.”
  — Ryan Henderson, 06:13

2. How to Invest in the Defense Supercycle? (07:51 – 10:39)

• The primes (Lockheed, RTX, etc.) always benefit, but Brett and Ryan want to spotlight smaller, tech-forward firms capitalizing on modern warfare shifts: AI, cyber, satellites, unmanned systems.
• President’s remarks about the Venezuelan op highlight the tech edge (e.g., cyber capabilities to disable enemy infrastructure).

Stock Deep Dives & Snapshots

I. Leidos (LDOS)

Brett’s Pick - 10:45

• Profile: $25B market cap; hybrid defense/civilian gov contractor; backbone for military digital infrastructure & IT.
• Operations: 87% of rev from US govt; runs US air traffic control, military healthcare IT; provides CIA/NSA tracking tools; works on hypersonics & autonomous ships.
• Financials:
  • $43B backlog (1.3x book-to-bill)
  • Operating income up 20% annually since 2016
  • EV/EBITDA < 15
• Quote:
  “They run IT and software that connects all parts of the US military together... recurring contracts with extremely high switching costs.”
  — Brett Schafer, 10:52
• Sticky, high-margin business with steady growth.

II. RTX Corp (Raytheon, formerly)

Ryan’s Pick - 19:49

• Profile: 2nd largest defense contractor by market cap, 1st by revenue. $89B revenue.
• Segments:
  • Pratt & Whitney (aircraft engines, mainly commercial)
  • Collins Aerospace (avionics, systems)
  • Raytheon (missiles, radars, electronic defense)
• Thesis: Massive golden dome missile defense push, huge contracts, entrenched as the go-to for US military procurement.
• Quote:
  “It’s hard to imagine a massive 50% budget increase for the defense sector not helping this RTX stock.”
  — Ryan Henderson, 24:29
• Financials:
  • Trailing EV/EBIT 33x (inflated by temporary margin issues)
  • Forward EV/EBIT ~24x

III. CACI International (CACI)

Brett’s Pick - 25:11

• Profile: $12B market cap; focused on cyber tech, electronic warfare, and intelligence services for the US government.
• Specialties: Drone jamming, dark web surveillance, laser communications, cyber architecture for missile defense.
• Financials:
  • ~10% annual revenue growth
  • 9% operating margin
  • EV/EBIT ~20
• Quote:
  “This feels like a tailor-made business to benefit from the increase in defense spending... I’d say the future is cyber tech, drone jamming, all that good stuff.”
  — Brett Schafer, 25:12
• Potential for margin expansion with a solid base and government lock-in.

IV. L3Harris Technologies (LHX)

Ryan’s Pick - 29:25

• Profile: 6th largest defense contractor by revenue; formed in 2019 from a merger; emerging as a potential “6th prime.”
• Segments:
  • Space & Mission Systems (payloads, sensors, intelligence)
  • Communications (tactical radios, battlefield comms)
  • Aerojet Rocketdyne (acquired 2023, rocket propulsion)
• Discussion:
  A conglomerate approach; slow historical growth (~3.8% revenue since 2019), but 75% from government clients. Exposure to next-generation warfare/tech themes with potential for strong returns if the spending surge continues.
• Investment Take: “For me, that means sticking to the obvious beneficiaries… L3Harris, RTX… [or] even take an ETF approach.” — Ryan Henderson, 31:20

V. BWX Technologies (BWXT)

Brett’s Pick - 37:21

• Profile: $17.6B market cap; sole supplier of nuclear reactors/fuel for the US Navy; monopoly position.
• Expansion: Moving into portable microreactors (for Army), space nuclear projects (partnered with Lockheed & DARPA), and growth in medical applications.
• Financials:
  • 119% YoY backlog growth (now $7.4B)
  • 29% consolidated revenue growth
  • Historically 6%/yr revenue CAGR since 2013
  • Operating margin 13% (recently dipped due to contract ramp-up)
  • Trades at ~50x earnings (was 20x a few years ago)
• Quote:
  “They are the only company authorized to build nuclear reactors, nuclear fuel and equipment for the US navy. I think this is quite an enviable position...”
  — Brett Schafer, 37:33

VI. Kratos Defense & Security Solutions (KTOS)

Ryan’s Pick - 43:24

• Profile: $15B market cap; known for unmanned drones, but offers wide range of defense tech solutions.
• Segments:
  • Govt Solutions (microwave/electronic components, satellite comms, training/simulation)
  • Unmanned Systems (drone manufacturing, rapid growth)
• Growth:
  • Unmanned growing ~16.5% CAGR since 2015
• Unique Approach:
  “They use a lot of internal funding to develop prototypes instead of waiting for government funding. This allows Kratos to kind of stay ahead of other defense contractors.”
  — Ryan Henderson, 47:44
• Caution: Profitability is spotty (EV/EBIT ~600); reinvestment is high. “Probably the most interesting, but expensive and risky.”

VII. BlackSky Technology (BKSY)

Brett’s Pick - 50:08

• Profile: High-risk, speculative; satellite image/analytics network for intelligence/military use.
• Stats:
  • $20M quarterly revenue
  • 91% of backlog from international contracts
  • 39% revenue CAGR since 2020
• Product: Near-real-time satellite imagery (35cm resolution) with AI for automated detection/tracking.
• Financials: Unprofitable; trades at 14x gross profit.
• Quote:
  “This feels like a blue ocean of growth, a nice little tailwind of an industry. You’re going to want this type of stuff...”
  — Brett Schafer, 51:24
• **High risk, high reward “David Gardner style” play; yet to secure major US defense contracts.

Notable Quotes & Moments

• “A $500 billion budget increase is a tide that lifts all boats... for most of the prime contractors.”
  — Ryan Henderson, 03:18
• "They run IT and software that connects all parts of the US military together... recurring contracts with extremely high switching costs."
  — Brett Schafer, 10:52
• “I wish they almost would just split up the two businesses…” (on RTX combining commercial aerospace and defense)
  — Brett Schafer, 24:46
• “Not being afraid to invest and then research... you could always sell a few weeks later if you research the business and don’t like what you see.”
  — Brett Schafer, 32:41
• "All these companies have just super opaque, dystopian sounding names: Black Sky Technology, Kratos Security Solutions."
  — Ryan Henderson, 53:45
• “If it weren’t for Trump’s tweet last week, I wouldn’t be interested in any of these. But a $500 billion budget proposal increase is massive.”
  — Ryan Henderson, 56:20

Final Takeaways & Rankings (53:57 – 58:30)

Interest Rankings (General Sentiment)

• Brett:
  • Most Interested: CACI, Leidos (valuation, industry tailwind)
  • Very Strong, but “Too Expensive”: BWXT, Kratos
  • Pure Speculation: BlackSky
  • Least Interested: RTX, L3Harris (“bond-like” returns, slow growers)
• Ryan:
  • Agrees with most rankings; Leidos stands out a bit. Finds most of the group “bond-like” except for higher risk options. Rising tide in defense spending might lift all, but valuations high after big runs. ETF/basket approach seems reasonable.
• Both:
  • The defense sector is intriguing mainly due to geopolitical catalysts and budget headlines but is generally “stodgy,” durable, and not sexy. Watch for one-time bumps in 2027, but beware: “A lot of this was baked in six months ago.”
    — Brett Schafer, 57:03
  • For the next “supercycle”-style investment, look for “tailwinds plus multiple reratings,” ideally before the crowd gets there.

Timestamps for Key Segments

| Topic / Company | Timestamp (MM:SS) | |-------------------------------|------------------| | Macro Theme Introduction | 00:32 – 10:39 | | Leidos (LDOS) | 10:45 – 14:50 | | RTX (Raytheon) | 19:49 – 24:46 | | CACI International (CACI) | 25:11 – 29:25 | | L3Harris Technologies (LHX) | 29:25 – 37:21 | | BWX Technologies (BWXT) | 37:21 – 43:24 | | Kratos Defense (KTOS) | 43:24 – 50:08 | | BlackSky Technology (BKSY) | 50:08 – 53:57 | | Final Takeaways/Rankings | 53:57 – 58:30 |

Episode Tone

The conversation is informal, analytical, sometimes irreverent—balanced between pragmatic investing advice and skeptical banter. Both hosts are mindful that the defense sector, while potentially lucrative, walks the line between solid “bond-like” returns (for majors) and high-risk/high-reward bets (for tech specialists). The dominant emotion: cautious intrigue—driven heavily by macro news and valuation realities.

Key Takeaway

The US (and global) defense sector could be entering a spending supercycle, but much of the anticipated growth may already be priced in. For most investors, broad exposure via baskets or ETFs makes sense, but select tech-forward contractors (Leidos, CACI) could be interesting for further research. Caution is warranted amid stretched valuations, and the “sexy” days for the defense trade may already be behind us—until the next macro shock.

For more deep dives and company analysis, check out the rest of the Chit Chat Stocks podcast and newsletter.