Pentagon's $54 Billion Drone Bet: 3 Under-the-Radar STOCK WINNERS

[00:00:00]The Pentagon just requested a 24,000% budget increase in one key defense area and it could create big winners in the stock markets. I'm going to show you three stocks already plugged into that buildout and why Wall Street may still be underpricing them. Hi, I'm Jacob Wade. I'm a financial coach that helps high income earners retire early. And if you like timely financial news videos just like this one, just hit the thumbs up button below. It lets me know to keep making more videos just like this one.

[00:00:30]So, we have movements of foot that could create big moves for stocks like V2X, ticker symbol VVX, and more. Yeah, that was a little spoiler. But before I get into the actual stocks, I need to give you a little important context here.

[00:00:45]That 24,000% number I mentioned at the top of this video relates to the Pentagon's autonomous warfare program, better known as D AWG, DOG. The program got $225.9 million in fiscal 2026 budget for the new fiscal 2027 budget request. 54.6 billion with a B. That's roughly a 24,000% increase in a single year. 1 billion of it in regular defense budget and the other 53.6 6 billion coming through reconciliation, a fast-track process that lets Congress pass certain spending bills with a simple majority instead of the usual 60 votes. Now, there's a big reason this can move faster than typical Pentagon spending fights. Though, it is worth remembering that the money isn't locked until a specific bill actually passes here. So, to put that into context, the entire fiscal 2026 defense authorization came in at about $923 billion, the largest in US history. And this year marks the first time the Pentagon has tracked AI and autonomy as its own standalone budget line at 13.4 billion. Now DAWG absorbed the old Replicator program which hit its goal of filling thousands of lowcost actionable drones by August of last year. Now, Replicator 2 made its first acquisition in January, and the Air Force just handed autonomy contracts for its collaborative combat aircraft program to RTX and Shield AI, the loyal Wingman drones that'll fly alongside the piloted fighter jets. Now, here's why all that matters for investors. This isn't a slowmoving procurement cycle anymore. It's a budget line that grew nearly 240x over 12 months with bipartisan support in Congress because it's sold in a way to reduce American casualties. And when defense spending moves that fast, it doesn't just lift the prime contractors that everybody already owns. It actually flows down to the smaller companies building the power systems, test equipment, and mission support the drones actually run on. And that's where I found three different stocks and all of them have excellent fundamentals.

[00:03:03]Now, let me quickly remind you that while I'm sharing real stocks and data here, none of this should be considered personalized investment advice. Always do your own due diligence. And by the way, finding these types of news stories and keeping a pulse on the market is exactly what Steve Wrightmeister, our editor-inchief here at Wall Street Zen, walks through in his free Monday training sessions at 700 p.m. Eastern.

[00:03:27]So, if you want to join them, you could sign up for free at wall streetzen.com/live or just scan the QR code on the screen right here. Sign up and we'll see you Monday at 7 p.m. Eastern. All right, stock number one on our list. I already teased this one out. It's V2X, ticker symbol VVX.

[00:03:43]Now, let me explain why this one specifically is on the list. Now, V2X doesn't build drones, but it's the company that the military calls to integrate, sustain, and support the systems once they are fielded. That matters more than it sounds because every dollar that the Pentagon spends fielding new autonomous systems eventually needs logistics, base operations, and technical sustainment behind it. Now, let's look at the actual numbers here. Now, V2X's trailing 12-month earnings came in at 88.7 million, up 114% from just a year ago, and the full fiscal 2025 earnings grew 124.5% to 77.9 million. Shares are already up 59% over the past year. And this looks like the start of the story, not the peak of it, because V2X's growth only recently inflicted and the earnings were still negative on a 5-year basis and its most recent quarter, dipping 16.9% from the prior one. In other words, the big acceleration is really kind of brand new here, and it's landing right as the Pentagon's autonomy budget surge is starting to ramp up. So if that DAWG spending flows through the way the budget numbers actually suggest V2X's next few quarters could be where the turnaround really shows up in the actual earnings themselves. Now what is Wall Street saying about this stock? Overall nine analysts cover the stock and Wall Street's consensus is that it lands at a buy. Now, Trevor Walsh at Citizens, a top 1% analyst tracked, has a buy recommendation and calls for a nearly 20% upside from current levels, pointing to a new national security contract behind the recent revenue beat. And Andre Madrid at BTIG, also a top 20% analyst, backs that up with a strong buy recommendation and similar upside. Now, our Zen ratings, which is Wall Street Zen's proprietary 115 factor quant model that distills dozens of due diligence checks into a single easyto read letter grade that gives V2X an overall A rating based on its truly stellar fundamentals.

[00:05:48]Now, each grade is actually built on seven underline component grades here.

[00:05:52]Now, V2X earns four grades of a B or higher. It ranks in the top 14% of stocks tracked for sentiment. It ranks in the top 9% for safety, which is a sign of balance sheet stability. And it ranks in the top 7% for value, suggesting shares still look reasonably priced. And best of all, it's in the top 1% for growth, indicating it has a big runway ahead of it. Now, as with any stock, there are some considerations.

[00:06:20]Financials is V2X's weak spot with a C-grade landing around the middle of the pack. But again, with strong Wall Street backing, any defense budget tailwind behind it, that's a name worth watching closely as more contract news comes in.

[00:06:34]And real quick, if you're getting any value from this video, consider subscribing to the channel. We do this kind of real-time market research every single week, and I'd love to have you back for the next video. All right, let's get on to the next stock pick. Our stock number two here is SB Manufacturing and Electronics, ticker symbol ESP.

[00:06:50]Now, SB is about as under the radar as it gets here. a roughly $172 million company that most investors have never heard of. But it makes the power supplies, converters, and distribution equipment used in shipboard power, airborne power, groundbased radar, and mobile power systems for the military.

[00:07:12]The actual physical power infrastructure that every new drone, radar, and counter drone system the Pentagon is buying actually needs to run. Now, SB's real story is what's sitting in its backlog, not what showed up in last quarter's headline number. Orders on the books have grown to $137 million, about three times last fiscal year's revenue, and up from 120 million just a year ago. And this isn't a company that just stockpiles contracts and sits on them.

[00:07:43]Trailing 12-month earnings are already up 41.9% year-over-year to 10.8 million at a 25.5% margin. the best of any stock in this story on top of a decade of earnings have actually climbed 200%.

[00:07:59]Now, yes, reported sales dipped recently, but management has pinned that on delivery timing shifting to the second half of the year, not really lost business, and the customers seem to agree with advanced payments up 46%, meaning they're already funding work that hasn't even hit the books yet. So, putting all that together, SB looks like a company sitting on more demand than it's ever reported so far, right as the DAWG spending starts to flow. Now, coverage is lied on this company, which is not surprising given its small size.

[00:08:30]However, that may change as the drone story gains more traction. Now, the best way to know what's going on with it is to add the stock to your free watch list on wall streetzen.com, where you'll get regular updates or any new upgrades or downgrades to the rating of this stock.

[00:08:46]Now, once again, ESP is a well-rated stock in the Zen ratings system, earning an excellent overall Agrade thanks to its solid fundamentals. Now, if we dig into those component grades we talked about, it ranks in the top 17% of stocks traded for growth, a direct reflection of that 41.9% earnings growth that we just talked about. And it's also in the top 17% for value, meaning shares still look reasonably priced relative to those fundamentals despite the run already.

[00:09:14]And it's in the top 12% for sentiment, which tracks how the market's mood and analyst activity around a stock is trending, showing that the mood has been improving here. And best of all, it's in the top 7% for financials. A read on the balance sheet health and cash position of the company. Exactly what you want backing a company that's about to convert a $137 million backlog into revenue. Now, not all of the component grades are as excellent. Momentum is SP's soft spot with a low C-grade, ranking in the bottom 39% of stocks that we track. Now, that component measures recent price trends and overall trading strength. And it makes sense here, right? Shares are down over 16% in the past three months, even with earnings growing. But with a strong profit margin and an overall A rating, this is exactly the kind of overlooked name that's worth keeping an eye on. And by the way, if you like talking stocks just like this, then I once again remind you to just check out Wall Street Zen's nocost live training sessions. You can join our editor-inchief, Steve Wrightmeister, on Mondays at 700 p.m. Eastern time. He doesn't just talk about what he's buying either. He actually shows you how he's finding those stocks, so you can do the same in the days ahead. He also shares his trade of the week, combining the best of Xen ratings with his 40 plus years of investing experience. So again, if you're liking this type of content, then I strongly recommend just pause the video for a second and scan the QR code on the screen right here or just go to wall streetzam.com/live and you can sign up and join for free.

[00:10:50]All right, stock number three here is going to be Astronics, ticker symbol ATR O. Now Astronics makes power distribution systems, lighting, and critically the automated test equipment the military uses to qualify new electronics before they are deployed.

[00:11:05]And as the Pentagon rushes to field thousands of new drone and counter drone systems, that testing and qualification step becomes a bottleneck. And Astronics is one of the few companies built to actually solve it. Now, let's look at some of the numbers that makes Astronics so interesting right now. Now, Astronics just raised its own fullear 2026 revenue guidance to a range of 970 million to a billion dollars. And the reason why is actually worth understanding here. Last quarter alone, the company booked a record $290.4 million in new orders, more than it shipped in revenue, a booktoill ratio of 1.26, which pushed its backlog to a record 734.3 million with roughly 81% of that expected to convert into revenue over the next 12 months. Now layer in a new US Army radio test program set to start contributing meaningfully in the back half of the year. And it's clear why management raised their guidance instead of just meeting it. And the margin story backs this up too. Operating margin nearly doubled last quarter from 6.4% to 11.8% and trailing return on equity sits at 26.6%.

[00:12:18]which is a sign the company is getting more efficient at turning the growing backlog into actual profit, not just bigger topline numbers. Now, only two analysts cover this specific stock, but both of them recommended as a strong buy. Michael Kermoli at Truist Securities ranked in the top 1% of analysts tracked based on their stock picking prowess sees a nearly 60% potential upside from current levels.

[00:12:45]And he wasn't just impacted by a recent earnings beat, but rising confidence that Astronics aerospace operating margins can climb into the upper teens.

[00:12:54]And Godam Kana at TD Cowan ranked in the top 11%. He backs that up with his own strong buy recommendation and roughly a 50% upside. Now, if we look at the numbers, Astronics carries an overall Zen rating of an A, a strong buy, which is the top tier of our model. Now, underneath that headline grade sits three B component grades and one A grade. It ranks in the top 19% for momentum, which tracks recent price trends and trading strength. It's in the top 16% for safety, a read again on balance sheet risk, and it is in the top 12% for financial, which measures the overall balance sheet health. Again, all of this is pointing to a solid balance sheetdriven strong company. But the standout here is actually growth, the component built to capture earnings and revenue trajectory where Astronic sits in the top 3% of all the stocks that we track over 4,000 stocks. But really, this is no surprise given the guidance raise and the record backlog that we just talked about. Now, there is one risk to consider here. Value is actually the weakest grade here at a C. And that's the component that weighs share price against the underlying fundamentals themselves. And shares are not necessarily cheap here. So they're trading at a rich multiple after the recent run. But when two topranked analysts and the Zen ratings model all point in the same direction on a name with margins expanding into a testing bottleneck, the entire industry needs solved. That premium starts to look like the market pricing in the real growth story and not just hype. Now I want to hear from you. Do you think the big uptick in drone defense spending could actually be a boon to stocks like these ones? Did I miss any stocks that maybe you're watching in the space? I would love to hear from you. Just drop a comment below. And if you want to learn about another recent catalyst for defense stocks that's already unfolding, check out the video on your screen right here.