Supply Chain Alpha

The Portfolio

For a $1,000 account that can tolerate small-cap volatility, execute this allocation:

Average forward P/E across the core positions: ~12x. The structural themes are identical to those commanding 30–50x multiples in the visible leaders.

The Thesis

The market has correctly identified geopolitical tension and data center buildout as the defining investment themes of this cycle. Capital has flooded into NVIDIA, Lockheed Martin, and Samsung accordingly.

The error is concentration. While those names trade at enormous premiums, their supply chains trade at deep value multiples despite capturing the same demand drivers. Photronics manufactures the photomasks required for every advanced chip NVIDIA designs but trades at one-third of semiconductor industry P/E. V2X provides cybersecurity and logistics to the same military that announced a 50% budget increase for next year—yet trades at one-twentieth the earnings multiple of Kratos.

The asymmetry is structural and led by market attention, picks-and-shovels plays instead capture industry growth without winner-take-all risk. During infrastructure buildouts, the enabling layer historically delivers the most durable returns.

I. Photronics (PLAB): The Widest Valuation Disconnect in Semiconductors

Photronics is the last major merchant photomask manufacturer. Every 3nm logic die, every HBM stack for AI training, every advanced memory device begins as a pattern on a PLAB mask. The physics of semiconductor fabrication make this step irreducible. Captive mask shops at major foundries exist, but merchant capacity is the marginal supplier enabling industry growth.

Valuation Comparison

Recent Catalysts

Q4 2025 delivered record IC revenue and a 45% share price surge on the earnings beat. The company deployed the industry's first merchant multi-beam mask writer supporting 3nm/2nm nodes at its Boise, Idaho facility and capacity expansion of $330M is underway. D.A. Davidson raised their price target to $45 against a current price around $30—implying 50% upside from an institutional analyst.

The Case

Photomasks are infrastructure. They benefit from chip industry volume without bearing fab capex risk or the winner-take-all dynamics of chip design. CHIPS Act reshoring tailwinds hit PLAB's U.S. operations directly. The valuation gap to peers—trading at one-third of industry P/E despite being essential to every advanced node—is extreme and unlikely to persist especially as capacity constraints bind.

The Risks

It must be noted that geographic revenue concentration creates geopolitical exposure: Taiwan accounts for 33% of revenue, China 26%. Insider selling occurred in January 2026. Competition from captive mask facilities at major foundries could compress margins over time. The recent rally means entry timing carries is important.

II. V2X (VVX): The Cheapest Defense Equity Identified

The NYSE Arca Defense Index has rallied 31% YTD, outpacing the S&P 500's 14%. Retail capital has concentrated in momentum names—Kratos now trades at a $15B+ market cap and 500x+ P/E after a 196% run.

V2X provides cybersecurity and logistics services to the U.S. military, including vehicle-to-everything secure communications. The market sees a service provider, but the backlog suggests something closer to the nervous system of the DoD.

Valuation Metrics

The Case

V2X is priced as a stagnation stock but has delivered 61% income growth. The $11.3B backlog provides revenue visibility that most growth companies would envy. Coverage is thin—the stock lacks the retail momentum premium that has inflated peers to absurd multiples.

Ducommun (DCO): The Hardware Substrate of American Missile Defense

Ducommun is the company that makes the components the defense primes take credit for. Founded in 1849—making it older than the state of California—the company operates as a tier-2 manufacturer supplying electronic systems and structural components to classified programs across missiles, radar, and military aircraft. The market cap is $900M. The backlog is $1.03 billion.

The specific programs Ducommun supplies read like a catalog of American strategic priorities. On the missile side: AMRAAM, PAC-3, SM-2, SM-3, SM-6, Tomahawk, Naval Strike Missile, RAM, and TOW—over a dozen platforms in total. On the radar side: the SPY-6 (the next-generation radar for Flight III Arleigh Burke destroyers, 30x more sensitive than its predecessor), the LTAMDS radar for Patriot missile defense, the TPY-2 radar for THAAD, and the GATR radar for the Marine Corps.

This is a bet on the specific programs that will receive priority funding under any administration—missile defense, next-generation radar, munitions restocking to replenish inventories depleted by Ukraine and Taiwan contingency planning.

Operational Performance

Ducommun has articulated a "VISION 2027" plan targeting 18% adjusted EBITDA margins, up from 16.2% currently. The path involves consolidating manufacturing footprint, shifting product mix toward higher-margin engineered products (now 23% of revenue, up from 15% in 2022), and strategic pricing on long-term contracts. Q1 2025 net income grew 53%. Q2 grew 63%.

Defense Growth Trajectory

Structural Advantages

Ducommun generates 95% of revenue from domestic U.S. facilities - this is not a supply chain that crosses the Taiwan Strait. Management has stated explicitly that tariffs will have limited if any impact on 2025 revenues—the company's exposure to China is minimal and largely mitigable through duty exemptions on military products or contractual pass-throughs.

The commercial aerospace weakness (Boeing destocking, Spirit AeroSystems disruption) has masked the defense strength. Revenue from commercial aerospace declined 10% in Q3. Defense growth more than offset this. As Boeing production normalizes and 737 MAX build rates recover, the commercial segment becomes a tailwind rather than a drag. The company is positioned to benefit from both the defense cycle and the eventual aerospace recovery.

The GAAP Loss Distortion

The Q3 2025 GAAP net loss of $64.4M requires context. The company recorded $99.7M in litigation settlement costs related to a 2023 fire at its Guaymas facility. This is a one-time charge, now resolved. Adjusted net income was $15.2M, adjusted EPS $0.99—in line with prior year. The litigation overhang is gone. The operating business continues to execute.

The Case

Ducommun trades at roughly 15x forward earnings with $1.03B in backlog providing multi-year visibility. The company supplies components to the exact programs receiving priority in U.S. defense budgets—missile defense, advanced radar, munitions restocking. Margins are expanding toward an 18% EBITDA target. The domestic manufacturing base insulates against tariff and supply chain risk. The stock is up 43.5% YTD but remains underfollowed relative to momentum defense names trading at 10-30x higher multiples.

The company wins when Raytheon wins on SPY-6. When Lockheed wins on PAC-3. When the Navy orders more SM-6. The primes take the headlines. Ducommun takes the purchase orders.

III. Denison Mines (DNN): Production Inflection in Premier Uranium Jurisdiction

Uranium sentiment has cooled from the peak boom—the Zen Ratings system now ranks uranium stocks dead last among 145 industries. Spot prices remain flat at $75–80/lb while equity valuations have run ahead.

Denison stands apart because it has crossed from developer to producer.

Project Economics

Recent Developments

The McClean North mine produced 85,235 lbs U3O8 in Q3 2025 at $19/lb cash cost—marking Denison's first uranium production in 70 years. The Wheeler River project hosts the largest undeveloped high-grade uranium deposit in the Athabasca Basin, the world's premier uranium district. The Phoenix ISR project uses in-situ recovery, dramatically lowering capex and environmental footprint versus conventional mining.

The Case

Treasury alone covers more than 25% of market cap—a fortress balance sheet heading into the production cycle. The margin of safety between $19/lb cash cost and $80/lb spot price is massive. Analyst targets imply 35%+ upside from current levels.

Alternative Nuclear Exposure

Centrus Energy (LEU) at $5.9B market cap holds an irreplaceable monopoly: it is the only U.S. company licensed to produce HALEU, the specialized fuel required for virtually all advanced SMRs. A $900M DOE contract and NYSE uplisting in December 2025 are recent catalysts. The ~44x P/E prices in a massive market pump already, but the strategic moat is real.

BWX Technologies (BWXT) at $18B market cap supplies reactor components to the Navy, commercial utilities, and SMR developers. With $7.4B backlog (up 119% YoY), BWXT wins regardless of which SMR design succeeds.

IV. Taseko Mines (TGB): Domestic Copper Catalyst in Q1 2026

Critical materials stocks have re-rated violently on government investment news—MP Materials gained 500% YTD after Pentagon backing. Taseko remains under-followed despite production starting in weeks.

AI is a mechanism for converting electricity into tokens. That conversion requires copper—roughly 27–33 tonnes per MW of data center capacity. The grid is beginning to buckle under AI load. PJM's independent monitor has urged indefinitely blocking more data centers due to capacity constraints.

Valuation Metrics

The Catalyst

The Florence Copper project in Arizona commences production Q1 2026—one quarter away. The project uses in-situ copper recovery with an 85-year potential mine life. Wellfield operations began October 2025.

The Case

Domestic copper production carries a strategic premium the market has not priced in. Five analysts cover the stock. The P/CF discount to peers (7x vs. 21x) is severe for a company weeks from a production catalyst.

Speculative Addition: NioCorp (NB)

NioCorp Developments at ~$350M market cap offers pure-play exposure to niobium, scandium, and rare earths. The October 2025 Lockheed Martin partnership for scandium-based defense technology and Pentagon award of up to $10M for supply chain development provide government backing. Mine portal construction begins Q1 2026.

This is a development-stage company years from production. Appropriate only for small, speculative positions where total loss is acceptable.

V. Crowding Analysis

Where Capital Has Concentrated (Avoid or Reduce)

Data center infrastructure is at extreme crowding levels. Bank of America's Bull & Bear Indicator triggered a contrarian sell signal at 8.5 in December 2025. Storage stocks (Western Digital +280%, Seagate +200%) have run far ahead of fundamentals.

Large-cap uranium producers have rallied while spot prices stagnate—a disconnect that suggests equities have overshot. Defense legacy contractors trade at 1.7x EV/Sales versus a 1.4x twenty-year average.

Kratos (KTOS) at 500x+ P/E is momentum, not value.

Where Capital Has Not Arrived (Opportunity)

Disclosures: This newsletter is for informational purposes only and does not constitute investment advice. The author may hold positions in securities mentioned. All investments involve risk, including possible loss of principal. Small-cap stocks carry additional risks including limited liquidity and greater volatility. Past performance does not guarantee future results.