In Today’s Issue:

• Trump says buy stocks

• Are SPACs back?

• The opportunity in mid cap defense stocks

• and more……..

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Trump Says Buy Stocks

Throughout this whole move in the stock market if you had listened to Trump and Bessent you would be ok. Trump told you things would be rough before liberation day, he told you to buy stocks at the low, and now this. Will it play out again? Who knows, the market initially rallied off this but then sold off a bit and was slightly negative on Friday.

Futures are up big and gold is getting crushed. If things stay this way then SPY and QQQ will move back above their 200 day moving averages, a key level. I find it unlikely that this is “over” and we just move back to the all time highs here, things usually aren’t that easy. Of course the last time Trump pumped the market I was at the Masters and today I have an all day golf tournament. If I was sitting at my desk I would probably see if I could find a spot to add gold miners and/or some shorts just in case. Harder to do from my phone.

The other big news last night was this….

The ramifications are less clear than the tariff news at the moment. I have puts on XBI, which seems like a good thing, but it is only down 5bps at the moment. May try to do a deep dive on this tomorrow.

The theme I have been continuing to lay out is Trump’s winners.

That means buying stocks when he tells you to, selling when he tells you to, betting on the people who are going to be his handpicked winners, and betting on the asset classes he wants to go up. That means anything out of Cantor, Elon Musk, anything his kids are involved in, crypto, and anything else he talks or tweets about. I am not making a judgement about this, it doesn’t matter whether you like or hate Trump, or what you feel about people in his orbit doing better than those that aren’t. I’m just reading the investment tea leaves and investing where I see the most potential upside and least potential downside.

Colombier Acquisition Corp II (CLBR) is one example, it’s a SPAC that Don Jr. is on the board of (full disclosure this is the top holding in SPCX). It has a floor of $10 until the merger is finalized…

Cantor Equity Partners (CEP) is another example, this blends Cantor and Crypto….

TSLA continues to defy the haters…..

I also continue to like the companies who are copying MSTR (I also like MSTR). These are a bit under the radar and carry more risk….

Of course DJT….

This is something to keep an eye on for crypto, however, at least for now the market doesn’t care….

Are SPACs Back?

The A in the H.E.A.T. Formula stands for asymmetry. The idea is you want to set up your trades and your portfolio as much as possible with asymmetric risk/reward. If you are right you can make a lot, if you are wrong you lose a little. Pre merger SPACs can at times be the ultimate asymmetrical trade. Pre merger they hold cash in trust which you can redeem you shares for, providing a know floor. Technically, they have unlimited upside if they announce a deal that Wall Street likes, see CEP chart above for example. I haven’t talked much about SPACs for a number of years because after being hot post covid, they started to fizzle in 2022. Now it appears they may be coming back and we are seeing many more interesting opportunities in SPCX. So I had GPT do a primer on SPACs…..

Introduction

Special Purpose Acquisition Companies (SPACs) are shell vehicles listed on public exchanges with the sole purpose of merging with or acquiring a private operating company, thereby taking it public in lieu of a traditional IPO. SPACs first emerged in the 1990s but have evolved dramatically in structure and scale. By placing IPO proceeds in a trust and setting a defined window—typically 18–24 months—to consummate a merger, SPACs offer sponsors and target firms an accelerated path to public markets while providing investors optionality via redemption rights. This structure can de-risk certain listing mechanics and introduce seasoned sponsors into the capital-raising process PwCSPACInsider.

History of SPACs

The SPAC concept dates back over three decades, first gaining traction as blank-check companies in niche sectors such as oil & gas and shell operations. However, a genuine insurgency occurred in 2020–2021 when ultra-low interest rates, massive liquidity, and retail enthusiasm fueled a speculative boom. In 2021 alone, SPACs accounted for over 49% of U.S. IPO proceeds, raising $162.5 billion across 613 listings SPACInsider. This frenzy attracted marquee sponsors—billionaires, private equity veterans, and celebrity backers—only to see a swift correction as underperforming de-SPACs, heightened SEC scrutiny, and poor post-merger returns eroded confidence. In response, 2022–2023 ushered in tighter disclosure requirements, standardized projections, and more stringent governance, marking the transition to a more “mature” SPAC 4.0 era White & CaseWoodruff Sawyer.

Where We Are Now

After a lull in mid-2023, the SPAC pipeline has steadily revived. In Q1 2025, 19 SPAC IPOs priced $3.1 billion—roughly in line with the trailing three-quarter average of $3.4 billion per quarter—80% of which were serial sponsor vehicles ICR. Year-to-date through May, SPACs have represented 67% of total U.S. IPO counts and 47% of proceeds, underscoring their renewed relevance amid stretched private-market valuations and a tepid traditional IPO market SPACInsiderAxios. Today’s SPAC universe is far narrower, dominated by experienced sponsors who conduct deeper due diligence, structure earn-outs, and negotiate tougher governance covenants, reflecting lessons from the boom-bust cycle Colonial Stock Blog.

The Opportunity

1. Faster, more certain execution: A SPAC binder provides a clearer timeline and defined check-size at IPO, versus the roadshow-dependent price discovery of a traditional IPO. Sponsors often bring sector expertise and established deal flow, potentially reducing execution risk PwC.

2. Attractive cost of capital: In a higher-rate environment, SPACs lock in financing at an IPO price, shielding target companies from interim rate hikes. Combined with forward equity commitments (PIPEs), this can result in an all-in cost of capital often below equivalent public or private placements Colonial Stock Blog.

3. Optionality for investors: Public SPAC warrants and redemption mechanics give investors a downside buffer. If a deal is unattractive, investors can redeem shares at IPO price plus interest, preserving capital while maintaining participation rights in higher-volatility warrants SPACInsider.

Risks and Caveats

1. Underwhelming returns post-merger: Historically, many de-SPAC deals have underperformed broader indices, with redemption-adjusted IRRs trending below traditional IPOs, particularly for sponsors lacking deep sector expertise MarketWatch.

2. High redemption risk: Aggressive redemptions can shrink deal proceeds, force PIPE backstops, and derail transaction economics. As redemption rates have climbed—often north of 50%—sponsors may struggle to complete mergers or face dilution from equity resets Woodruff Sawyer.

3. Regulatory and litigation exposure: Past SPAC boom spawned dozens of class-action suits over alleged misrepresentations in projections and disclosures. Though 2024–2025 regulations have tightened, residual legal overhang and evolving SEC guidance continue to pose execution and reputational risks Woodruff SawyerAxios.

How to Invest in SPACs

1. Screen for Cash-in-Trust Arbitrage

   • SPAC IPO proceeds (85–100%) are held in a trust invested in short-term U.S. Treasuries or cash. Public shareholders can redeem at $10 per share plus interest if they dislike the deal—effectively setting a floor on the share price .

   • Strategy: Identify SPACs trading below the $10 trust value (e.g., at $9.70). Buying at a discount and redeeming at $10 locks in low-risk upside.

2. Evaluate Sponsor Quality and Track Record

   • Serial Sponsors: Prioritize SPACs backed by teams with successful de-SPACs under their belt. Investopedia’s “Top Performing SPACs of 2020” highlights deals like DraftKings (DKNG) and Nikola (NKLA) as examples where experienced sponsors drove post-merger gains .

   • Avoid Fame-Only Backers: Celebrity involvement doesn’t guarantee success—the SEC warns against investing solely on sponsor fame .

3. Plan Your Post-Merger Strategy

   • Pre-Merger Redemption: If you lack conviction in the deal, redeem before the vote to recoup capital plus interest.

   • Post-Merger Due Diligence: Once the SPAC converts, focus on the new company’s fundamentals, valuation, and lock-up expirations. Many de-SPACs trade below the IPO price after combination—so be prepared to exit if your thesis doesn’t play out .

4. Leverage Optionality via Warrants

   • SPAC units often include warrants. Holding warrants into the merger can provide asymmetric upside if the combined company outperforms expectations, though they carry higher dilution and volatility.

5. Track Catalysts and Deadlines

   • Monitor merger deadlines (18–24 months), target announcements, PIPE commitments, and shareholder-vote dates. Entering just before a high-conviction vote or other catalyst can maximize risk-adjusted returns.

Conclusion

The SPAC vehicle has evolved from a high-octane speculative trend into a more disciplined capital-markets tool. While the “SPAC 4.0” wave—anchored by serial sponsors, advanced governance, and sponsor-aligned PIPE structures—offers compelling benefits like execution certainty and optionality, investors must remain vigilant about post-merger integration, redemption dynamics, and potential legal pitfalls. For investors with a high risk tolerance and conviction in a sponsor’s sector thesis, SPACs can unlock asymmetric return profiles; for others, the full lifecycle scrutiny and track record underperformance may counsel caution.

Mid cap defense stocks are another area I really like. You can’t listen to a Palmer Luckey podcast and not get juiced up about this area. I had GPT take a deep dive on the stocks in the article and create a broader watchlist…..

Here’s a focused look at four mid-cap defense names highlighted in Al Root’s Barron’s piece—each graded on a 1–10 risk/return scale—and a quick primer on their tariff exposure:

1. AeroVironment (AVAV) — 7 / 10

• Thesis: Leading maker of small loitering munitions (Switchblade) and Puma recon drones; fiscal ’24 Ukraine sales (38% of revs) have faces volatility, but its BlueHalo merger ramps backlog toward $2 billion next year.

• Upside catalysts: Expansion into autonomous systems, pipeline of U.S. military awards, higher volume from commercial and public-safety drone units.

• Risks: Concentrated exposure to U.S. drone procurements; pivots in Ukraine policy could crater near-term revenue.

• Tariff story: Virtually none. AVAV’s hardware is built to U.S. military spec and largely exempt from Section 232 steel/aluminum duties; most electronic subsystems sourced from domestic or allied vendors.

2. Kaman Corporation (KAMN) — 5 / 10

• Thesis: Niche player in rotorcraft components, composite airframes and turnkey systems; defense accounts ~60% of total.

• Upside catalysts: Growth in special-mission helicopters, vertical-lift programs, and aftermarket spares; stable backlog but limited scale.

• Risks: Slower organic growth, reliance on a handful of prime-contract programs, cyclical commercial biz.

• Tariff story: Minimal. Kaman benefits from broad DoD carve-outs on critical mission hardware; any steel/titanium it buys is typically domestic or from tariff-exempt country lists.

3. Kratos Defense & Security Solutions (KTOS) — 6 / 10

• Thesis: Builder of high-speed missiles, target drones and directed-energy prototypes for the Air Force and Navy; in early stages of scaling.

• Upside catalysts: New contracts for sea-based target drones, hypersonics testing rigs, growth in uncrewed “attritable” systems.

• Risks: Still pre-profit on key programs, high R&D cash burn, concentrated customer base.

• Tariff story: Negligible. Like most prime and Tier 1 contractors, Kratos sources from qualified U.S. suppliers under DFARS—shielding it from broad tech or metals tariffs.

4. Booz Allen Hamilton (BAH) — 8 / 10

• Thesis: Defense-centric consulting & IT services, now a leading integrator of Palantir-powered AI tools for warfighting; 3-year EBITDA growth > 10%.

• Upside catalysts: AI/ML deployments across C4ISR, cybersecurity, space; sticky revenue model with > 85% recurring services.

• Risks: Contract-efficiency crackdowns under new DoD leadership, modest multiple compression if spending reviews bite.

• Tariff story: None. As a services firm, BAH has no material goods to import—completely immune to hardware-focused levies.

Tariff Takeaway

• Defense carve-outs: Critical mission hardware and component imports for DoD-approved suppliers are generally exempt from Section 232 steel/aluminum and tech-goods tariffs.

• Electronics: Most mid-cap defense names either use domestic/AESA-qualified vendors or have DoD waivers—so broad trade-policy shifts have minimal P&L impact.

Bottom line: These mid-caps sit at the intersection of rising defense budgets (Trump’s FY 2026 ask is +13% y/y) and a shift toward unmanned, AI-driven systems. With near-zero tariff drag and differentiated growth vectors, they merit a combined overweight—but remain higher-beta than the big primes.

You said:

Expand the list past what's in the Barron's article and also comment on the opportunity generally in these stocks based on a shift of how warfare is being conducted

ChatGPT said:

Here’s a broader slate of U.S.-listed mid-cap defense names—beyond the Barron’s quartet—with each rated 1–10 on a risk/return scale, plus a thematic take on why the shift in modern warfare makes this group compelling:

Expanded Mid-Cap Defense Watchlist

Thematic Opportunity: Warfare’s New Playbook

1. Unmanned & “Attritable” Systems

   • Small drones and loitering munitions are proliferating on every battlefield. Mid-caps like Mercury, AeroVironment, and Cubic sit squarely in this sweet spot—delivering both sensor‐to‐shooter kits and swarm control solutions.

2. AI/ML & Networked C4ISR

   • JADC2 and similar initiatives demand edge-computing nodes, secure data links, and real-time analytics. CACI, ManTech, and Parsons provide software-defined architectures that legacy primes often bolt on—but mids integrate organically.

3. Hypersonics & Next-Gen Propulsion

   • With carriers and cost-plus platforms under threat, hypersonic strike and defense take center stage. Aerojet Rocketdyne and Mercury’s hypersonics subsystems are direct beneficiaries of DoD’s multi-billion-dollar prototyping push.

4. Services & Sustainment

   • Even as hardware evolves, global logistics, MRO, and cybersecurity remain indispensable. AAR’s aircraft-service model and Vectrus’s base-ops footprint offer lower-beta ways to ride budget tailwinds.

5. Budget Tailwinds & Policy Continuity

   • A Trump FY2026 ask of ~$1 trillion (+13% y/y) prioritizes unmanned, AI, shipbuilding and hypersonics. Mids with specialized IP can capture outsized share gains vs. lumbering primes.

Bottom Line:
The pivot from monolithic, cost-plus platforms to agile, software-and-sensor-driven systems creates a rare opportunity for mid-cap specialists. By focusing on companies with demonstrable tech roadmaps in AI/C4ISR, unmanned systems, and next-gen propulsion—while knowing that tariff exposure is effectively zero—you can build a diversified sleeve of high-beta defense names poised to outperform as warfare becomes faster, data-centric, and networked.

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