Investment Pitches

Pitch Summary:
In an environment of persistently high prices for basic essentials, value is front and center in the minds of consumers. Warehouse clubs like BJ’s have a track record of market share gains, particularly from grocery stores, due to a structural per unit pricing advantage of typically 25%. Such a price gap is possible due to characteristics of the warehouse club model, which involve concentrated supplier buying power, high inventory turns, efficient in-store labor, and membership-funded margins. The model facilitates a powerful flywheel effect: Membership fees and efficient in-store operations fund consistently low prices, which drive higher volumes and create buyer leverage, further enhancing member value and fueling continued membership growth. BJ’s appears to be at an inflection point with membership momentum, an accelerated new store rollout, and a proven management team. The BJ’s membership base today, as measured by tenured renewal rate and higher tier membership penetration, is in a strong position. In addition, the company has refined its new store formula and plans to open 25 to 30 new clubs over the next two years, representing the fastest rate of openings in the company’s history. BJ’s has carefully crafted its new store playbook, and the current approach is working as new stores generate comparable club sales at two to three times the rate of the legacy footprint. Finally, BJ’s CEO Bob Eddy and the management team have demonstrated skill and discipline as capital allocators, consistently balancing reinvestment in member value and store growth with debt reduction and share repurchases. Overall, membership momentum combined with high performing new store openings and proven management should drive a compelling financial picture of strong comparable club sales, impressive free cash flow generation, and cost leverage.

BSD Analysis:
BJ’s offers a defensive growth profile backed by recurring membership income and value-led positioning. Trading around 17x forward earnings, its capital discipline and store expansion strategy support double-digit EPS CAGR. The company’s structural pricing advantage versus peers and accelerating membership metrics underpin durable comp growth through 2026.

Pitch Summary:
ITT is a diversified industrial company with three segments, led by Motion Technologies, which contains ITT’s market-leading brake pad business with margins and returns well above competitors. Motion Technologies has very high share in electric vehicles and Chinese automakers, translating to above-market growth as both categories win greater share in the global automotive market. The Industrial Process segment includes ITT’s pumps and valves businesses, where ITT has also gained market share in both customized pump solutions as well as attractive aftermarket revenues. Industrial Process’s growth will be further driven by a new innovative motor with patented embedded variable drive functionality that significantly increases power efficiency (an increasingly important focus area for many customers including energy and chemical companies). The Connect and Control Technologies segment includes ITT’s electrical connectors and cable assemblies, primarily for the aerospace and defense end markets. Connect and Control Technologies has renegotiated decade-long supply agreements to aerospace customers at significantly higher prices starting in 2026 and has exposure to growing new aircraft builds and global defense spending. CEO Luca Savi and CFO Emmanuel Caprais have proven to be excellent operators and capital allocators, with further mergers and acquisitions building on a successful track record to supplement the CEO’s “healthy paranoia for continuous improvement”. Over the next five years, ITT expects to deliver double-digit annual organic earnings growth with further upside from successful capital allocation.

BSD Analysis:
ITT’s diversification across EV, aerospace, and industrial efficiency themes underpins steady growth. With strong balance sheet, mid-teens ROIC, and expanding aftermarket mix, the company offers consistent compounding potential. Valuation at ~18x forward P/E remains fair given its double-digit EPS growth outlook and capital discipline.

Pitch Summary:
Bruker declined -18.4% during the quarter through the date of our exit. Bruker is a leading provider of high-performance scientific instruments, analytical and diagnostic solutions, and related services. BBH Mid Cap has long admired Bruker’s innovative track record that has allowed the company to consistently grow its revenue alongside operational excellence that has facilitated strong margin expansion and earnings growth. Bruker is diversified across a wide variety of end markets including academic, government, biopharma, industrial, and semiconductor. However, this diversification has provided no safe harbor from academic and government life science funding cuts and prolonged tariff uncertainty. These include restrictions on federal research funding to colleges and universities; efforts to cut the National Institutes of Health (NIH) and National Science Foundation (NSF) budgets and limit the pace of grant disbursements; tariffs on China, the EU, and Switzerland; and policy to re-shape the biopharma industry via sector-specific pharmaceutical tariffs and most-favored-nation drug pricing. While the impact was initially contained to direct funding cuts among academic customers in the US (approximately 10% of revenues), more recently we have seen a sharp slowdown in activity across Europe and China, and in industrial and biopharma end markets. Given continued policy uncertainty, both at the country and healthcare sector level, we have chosen to step aside at this time while we await a stabilization of the policy landscape and to redeploy proceeds to readily available opportunities.

BSD Analysis:
Bruker’s sell-off reflects macro policy and funding headwinds rather than operational flaws. With EBITDA margins above 20% and modest leverage, fundamentals remain sound. Long-term demand for analytical instruments will recover with R&D spending normalization. Shares at ~17x forward earnings could re-rate once visibility improves.

Pitch Summary:
Globant declined -37.5% during the quarter through the date of our exit. Globant is the second-largest pure-play digital software engineering vendor with a focus on front-end, custom-designed software engineering applications that are mission critical to its customers. Globant has been a strong outperformer in recent years, with double-digit revenue growth throughout 2023 and 2024. Revenue growth was well ahead of peers during this period, supported by industry-leading AI studios that help large enterprises implement and leverage AI capabilities. However, Globant has been significantly impacted by tariffs, especially among its Latin American customers, who have reduced or paused IT spending against a weak macroeconomic backdrop in the region. North American customers have also experienced a deceleration. While Globant’s AI studios continue to grow at a double-digit rate, this has not been enough to offset slowing growth elsewhere, and market sentiment has also soured out of concern that AI could compress revenues due to efficiency gains and the prevalence of new AI coding tools. Despite our frustration with the repeated cuts to guidance this year, we believe the preponderance of evidence is that Globant’s business model is not permanently impaired. While its growth has slowed to low single digits for 2025, Globant’s margins and cash flows have held up and the balance sheet remains strong with a net leverage ratio of 0.5x. However, given the decline in the share price and lack of near-term catalysts, we believe it was opportune to exit our position to harvest the tax loss for the Fund.

BSD Analysis:
Globant’s weakness reflects cyclical demand softness rather than structural erosion. The firm’s AI expertise remains differentiated, but regional exposure and tariff disruptions weigh on revenue visibility. With net cash and margins intact, recovery could resume in 2026. Current valuation (~18x forward P/E) prices in excessive pessimism relative to peers in IT services.

Pitch Summary:
Shift4 declined -21.9% during the quarter, ending with a weight of 4.4%. Shift4 is an integrated payments processor, specializing in the hospitality vertical, including restaurants, lodging, and leisure. In the quarter, the company slightly missed consensus estimates on volumes, EBITDA, and EPS while slightly beating consensus on net revenue and free cash flow. Excluding the recent acquisition of tax-free shopping solutions provider Global Blue, annual guidance for net revenue was raised while the rest of the standalone guidance was reaffirmed. Guidance, including the acquisition of Global Blue, was below consensus estimates for volumes. Global Blue was accounted for under IFRS, and we believe this made it difficult for some sell-side analysts to update their models and led to confusion about the underlying performance of Shift4. However, we note that Shift4 continues to expect over 20% organic net revenue growth this year, and management believes the company is tracking toward the high-end of its intermediate term guidance issued in January.

BSD Analysis:
Despite near-term valuation pressure, Shift4’s fundamentals remain strong. With over 20% organic growth and expanding merchant base, its margin profile is improving through scale efficiencies. The firm trades at under 10x 2025 EBITDA, an attractive entry for a profitable fintech consolidator. Management’s execution on integrations and channel diversification should sustain long-term growth momentum.

Pitch Summary:
Advanced Drainage returned 20.9% during the quarter, ending with a weight of 4.0%. Advanced Drainage is the leading manufacturer of thermoplastic pipe and allied products for stormwater and wastewater management applications. Despite difficult end markets, Advance Drainage has executed well and delivered better than expected sales and earnings and reiterated fiscal 2026 guidance. Although organic growth was down slightly in the quarter due to wet weather and continued interest rate headwinds, the company outgrew most of its end markets. Aside from infrastructure, the company’s sales grew in all end markets. Its higher margin leach field, stormwater, and wastewater categories grew faster than its core pipe products. For example, Advanced Drainage saw double-digit organic growth in sales of on-site wastewater tanks driven by material conversion to plastic. Demand was also supported by strength in the multifamily residential market, where the company saw double-digit growth of key products like retention/detention chambers, water quality products, and stormwater capture structures. Water quality remains a key growth area for the company and this category has grown at high-teens CAGR over the last three years.

BSD Analysis:
Advanced Drainage continues to demonstrate resilience through pricing power and product mix improvement. With EBITDA margins near 25% and ROIC above 20%, it remains well positioned as an infrastructure play on water management. Trading at ~17x forward earnings, its long-term demand is supported by regulatory trends favoring sustainable stormwater solutions and resilient construction spending.

Pitch Summary:
Arista returned 42.4% during the quarter, ending as our fifth-largest position with a weight of 4.9%. Arista is the leading provider of data center switches to cloud network and AI customers. Arista is executing extremely well and reported strong second quarter results, with revenue, margins, earnings per share (EPS), and qualitative commentary, all above expectations. In addition, Arista raised revenue guidance for all of 2025 to 25%, up from 17% previously, and provided initial conservative guidance of 14% growth in 2026. Arista also announced they will exceed targets for both their AI and Campus product solutions in 2025. At the recent investor day, CEO Jayshree Ullal was not shy about noting advantages vs. rivals and future opportunities ahead. AI revenue, targeted at $1.5 billion this year, is expected to be $2.75 billion next year, growing 60% to 70%, which means AI will be about 25% of revenue. Looking beyond 2026, Arista gave a target of “mid-teen” growth through 2029. This is similar to their long-term guidance three years ago, which they significantly exceeded at a 27% CAGR.

BSD Analysis:
Arista’s AI-driven growth narrative remains robust. With hyperscale demand from AWS and Meta fueling high-margin network switch sales, EPS growth above 25% seems sustainable. Trading around 30x forward P/E with net cash and rising software mix, the company’s outlook is compelling. AI infrastructure buildout should extend visibility through 2027, and its execution discipline sets it apart from legacy vendors.

Pitch Summary:
Salesforce was a detractor during the quarter. The U.S.-headquartered customer relationship management company’s stock price declined despite reporting earnings that we viewed as solid. Data Cloud and Agentforce performed well, in our view, and management continued to repurchase shares. In our view, there is room for continued growth as the company leverages its unique position to help businesses deploy AI and continues to restructure its sales organization.

BSD Analysis:
Harris remains constructive on Salesforce’s AI-driven growth story. Despite valuation compression to ~24x forward earnings, recurring revenues, AI automation, and strong buybacks underpin earnings durability. cloud, SaaS, AI, CRM, recurring revenue, buybacks, margin expansion

Pitch Summary:
Molina Healthcare was a detractor during the quarter. The U.S.-headquartered managed care company’s stock price declined after it reported challenging second-quarter results and reduced full year earnings per share guidance. This negative revision was caused by cost pressure in the company’s Medicaid and Marketplace businesses. While today’s valuation seems to imply that the headwinds impacting Molina are structural, we believe they’re attributable to temporary factors and expect a meaningful earnings recovery in the coming years.

BSD Analysis:
Harris views Molina’s weakness as cyclical. With P/E ~12x and strong balance sheet, the stock offers asymmetric upside as Medicaid margins normalize. State renewals and cost controls are likely catalysts for EPS recovery.

Pitch Summary:
Keurig Dr Pepper was a detractor during the quarter. The U.S. beverage company’s stock fell after announcing the acquisition of JDE Peet’s, which owns a collection of global coffee brands. Once the combination is complete, Keurig Dr Pepper plans to split into two separate entities. One entity will specialize in coffee, while the other focuses on soft drinks. Separating the coffee and soft drink segments makes strategic sense, as synergy estimates appear conservative, and the multiple paid for JDE Peet’s was undemanding. In our view, investors reacted harshly to this announcement because the two-step transaction adds complexity, increases debt, and unexpectedly raises exposure to the coffee category. We believe the sell-off was overdone since Keurig Dr Pepper’s fundamentals remain healthy, the organization has a proven track record of deleveraging after prior deals, and the upcoming separation will expose the significant sum-of-the-parts discount.

BSD Analysis:
The manager sees upside in KDP’s restructuring despite short-term skepticism. The coffee-spin unlocks value through clearer segment focus, and historical deleveraging supports capital discipline. At ~18x forward P/E and 3% yield, valuation offers margin of safety amid operational stability.

Pitch Summary:
IQVIA Holdings was a contributor during the quarter. The U.S.-headquartered provider of advanced analytics, solutions, and clinical research services saw its stock price appreciate after having delivered solid second-quarter results amidst a challenging pharma environment. The results reaffirmed our thesis that the technology and analytics solutions (TAS) segment is underappreciated and poised for future growth. Further the R&D solutions business showed signs of gaining share, with its win rate improving significantly. We believe forward-looking indicators are encouraging and think the company can extract further value as it leverages next-gen trends.

BSD Analysis:
Harris highlights IQVIA’s mix of stable analytics revenue and cyclical R&D tailwinds. With EV/EBITDA ~14x and steady margin expansion, the TAS segment is driving multiple re-rating potential. Digital trials, AI-driven data use, and recurring software sales reinforce visibility.

Pitch Summary:
Alphabet was a contributor during the quarter. The technology conglomerate’s stock price appreciated following a favorable ruling in the Google Search antitrust case and second-quarter earnings that exceeded expectations across the board. Innovations in the Google Search experience are driving both engagement and revenue benefits. Moreover, Cloud growth is accelerating thanks to robust demand for AI workloads. We continue to believe Alphabet is undervalued on a sum-of-the-parts basis and see potential for the company’s AI leadership to drive further upside across the portfolio.

BSD Analysis:
The fund maintains a bullish stance on Alphabet, emphasizing its AI-driven monetization across Search and Cloud. With forward P/E ~23x and strong free cash flow, Alphabet remains underappreciated given its diversification. Legal overhangs are easing, and AI integration across products like Gemini and Vertex boost revenue visibility.

Pitch Summary:
Warner Bros Discovery (WBD) was a contributor during the quarter. The media company’s stock price surged by 29% in a single trading session in September – its best day on record – amid reports that it is an acquisition target for Paramount-Skydance. In our view, this merger could generate meaningful cost synergies and create a scaled competitor with a deep and unmatched content library. We continue to closely monitor WBD’s evolving outlook and believe its long-term prospects remain attractive, backed by solid recent earnings, renewed distribution deals and growing momentum in its Streaming segment.

BSD Analysis:
Harris Associates is constructive on WBD’s improving fundamentals and merger optionality. Despite high leverage, deleveraging progress and a robust IP library support a rerating. Trading at ~7x EV/EBITDA, WBD is undervalued relative to peers. Cost synergies from a potential merger and improving streaming economics create upside potential.

Pitch Summary:
Naturally, as investors seek out winners, they’re quick to jettison companies they fear may be come “AI Victims”, too. No doubt, this technology will ultimately change the way businesses operate. However, we think it’s premature to declare just who the “losers” may be. For instance, this year we have built a new position in Accenture, a provider of IT consulting and managed services, including additional purchases in the recent quarter. Accenture is rapidly retooling its own operations to incorporate AI technology, and we believe this will play a critical role in the evolution of their clients’ technology stacks as well. This quarter, we also began building a new position in CDW, a value-added reseller of technology solutions to small and medium-sized enterprises, education and government clients. In 2020, CDW helped clients rapidly adapt their organizations for the challenges of remote work. Five years later, the next hardware cycle will also likely include clients asking CDW specialists how to enable their platforms to take advantage of AI. In both cases, these opportunities are not yet reflected in earnings, but for patient investors we think that creates attractive entry points.

BSD Analysis:
CDW is a downstream AI beneficiary positioned to ride the next hardware/infra refresh across SMB, education, and public sectors. Mix shift toward data-center, networking, and endpoint upgrades should lift gross profit dollars even if unit volumes are choppy. Operating leverage and vendor incentives support resilient margins; balance sheet strength enables steady buybacks. Shares trade at a reasonable premium to distributors given higher ROIC and sticky customer relationships; catalysts include accelerating AI-related orders and backlog rebuild.

Pitch Summary:
Naturally, as investors seek out winners, they’re quick to jettison companies they fear may be come “AI Victims”, too. No doubt, this technology will ultimately change the way businesses operate. However, we think it’s premature to declare just who the “losers” may be. For instance, this year we have built a new position in Accenture, a provider of IT consulting and managed services, including additional purchases in the recent quarter. Accenture is rapidly retooling its own operations to incorporate AI technology, and we believe this will play a critical role in the evolution of their clients’ technology stacks as well. This quarter, we also began building a new position in CDW, a value-added reseller of technology solutions to small and medium-sized enterprises, education and government clients. In 2020, CDW helped clients rapidly adapt their organizations for the challenges of remote work. Five years later, the next hardware cycle will also likely include clients asking CDW specialists how to enable their platforms to take advantage of AI. In both cases, these opportunities are not yet reflected in earnings, but for patient investors we think that creates attractive entry points.

BSD Analysis:
Accenture is a leveraged play on enterprise AI adoption, with durable fee-based revenues and strong free-cash-flow conversion supporting capital returns. Its scale and client embeddedness position it to capture AI services demand across strategy, integration, and managed services, while margins should benefit from automation. Valuation is reasonable versus large-cap IT services peers given double-digit bookings and improving headcount productivity. Key catalysts include AI-led deal wins, utilization gains, and resumed buyback cadence.

Pitch Summary:
I also established a capital structure arbitrage in Bel Fuse (“BELFA” / “BELFB”). As you may recall, I previously owned BELFB based first on new management improving sales and profitability and subsequently on the acquisition and integration of Enercon. That investment worked out wonderfully for us, though in hindsight I sold too early as the company posted banner Q2 results. In revisiting the name, I noticed two things. Firstly, the discount in the price of the Class A shares versus the Class B shares had materially widened and was approaching historic levels. Secondly, Gabelli, a large holder of the Class A shares updated his holdings report to note that he is considering resubmitting a shareholder proposal to collapse the share structure. Gabelli had previously submitted similar proposals in 2018 and 2020. At the time those proposals did not pass as the company’s governance documents suppress the voting rights of Class A shareholders who own more than 10% of the outstanding Class A; and with approximately 21% of the outstanding Class A, Gabelli was not able to fully exercise its voting rights. At the 2020 shareholder meeting, the Gabelli proposal received 567k votes in favor and 921k votes against. Had Gabelli been able to vote their 463k shares the proposal would have passed. In the years since, however, Gabelli has sold his Class A shares down to 7.966% and should be able to vote for any proposal. The largest Class A shareholder is Daniel Bernstein, who is allowed to vote his shares through an exemption. Daniel is the son of the company’s founder and former CEO. Since 2020 we have seen Daniel slowly release the reigns of the company as he brought in an outsider as CFO to effect change and ultimately decided to promote him to CEO effective this year. This decision has been incredibly beneficial to Daniel and all shareholders, as the stock price has increased about 10x. Given that 90% of Daniel’s holdings are in Class A which are trading at a material discount to the more liquid Class B shares, Daniel is no longer involved in the day-to-day operations, and has demonstrated the willingness to put ego aside for the greater good, I would not be surprised if he changes his stance on the matter. Collapsing the structure would be a win-win as it would improve corporate governance and provide liquidity to all shareholders.

BSD Analysis:
Bel Fuse presents a classic capital-structure arbitrage opportunity driven by a historically wide discount between the Class A and Class B shares, despite identical economic rights. The spread has ballooned just as governance dynamics are shifting in a way that makes a share-class collapse materially more plausible than in past attempts. Gabelli, the key proponent of unifying the structure, has reduced his Class A ownership below the ten percent threshold that had previously stripped him of voting rights, meaning any renewed proposal now has far greater odds of passing. Meanwhile, Daniel Bernstein — the largest Class A holder and long-time insider — has already stepped back from day-to-day operations, promoted an outside CEO, and benefited enormously from the stock’s tenfold increase under improved leadership. With roughly ninety percent of his economic exposure tied to the discounted Class A shares, he is now heavily financially incentivized to support a unification that would immediately lift the A-share valuation. Governance reform would not only unlock liquidity and narrow the discount but also further institutionalize Bel Fuse’s corporate profile after its operational turnaround and successful Enercon integration. For investors, the upside is driven by both mean reversion in the share-class spread and the prospect of a formal structure collapse, both of which offer asymmetric returns with limited fundamental risk.

Pitch Summary:
I bought shares in American Woodmark (“AMWD”) following their announced merger with Masterbrand (“MBC”). AMWD & MBC are two of the largest US manufacturers of residential cabinets. What stood out to me were the identified synergies relative to their current earnings power. Specifically, the companies have identified $90mm in cost synergies relative to ~$490mm in EBITDA, an 18% increase. Importantly, MBC management is already 1 year into acquiring Supreme and have stated that the integration progress is on track relative to their initial estimates. Unlike Supreme, which has many high-end and customized products, AMWD has a more standardized product offering; as such any rejiggering of manufacturing locations with AMWD should be a lot easier. MBC is run by Dave Banyard who will remain as CEO of the combined company. Having previously worked in senior roles at both Danaher and Roper, he has a lot of experience in acquisitions and operational excellence. Keeping in mind that this is a highly cyclical industry, from 2019 to LTM, Dave was able to grow revenue at MBC by 5.7% organically; this compares positively to AMWD which grew 0.2% during the same period. From a margin perspective, MBC performed favorably as well. MBC expanded its EBITDA margin from 11.1% to 12.5% (+1.4%) while AMWD compressed from 13.9% to 11.1% (-2.8%). I expect that the combined entity will benefit from Dave’s leadership.

BSD Analysis:
American Woodmark’s merger with MasterBrand creates a scaled cabinetry manufacturer with unusually clear, quantifiable synergy potential relative to its current earnings base. The companies have already identified ninety million dollars in cost synergies, equivalent to roughly an eighteen percent uplift on combined EBITDA — a sizable value creation lever before considering any cyclical recovery in housing or remodeling. MasterBrand’s leadership has de-risked execution by already being a year into integrating the Supreme acquisition, a far more complex, customization-heavy business than AMWD’s largely standardized product lines. That experience, combined with AMWD’s simpler manufacturing footprint, suggests that footprint consolidation and operational optimization should be meaningfully easier this time around. The combined entity will be led by Dave Banyard, whose background at Danaher and Roper reinforces confidence in his ability to execute disciplined integrations and margin expansion. Notably, under his tenure MasterBrand delivered positive organic growth and margin improvement through a cyclical period when AMWD stagnated, highlighting a real leadership upgrade. While cabinetry is a cyclical market, the structural efficiencies and management quality embedded in this deal position the merged company to exit the downturn stronger, with higher through-cycle profitability and a more defensible competitive position.

Pitch Summary:
During the quarter I re-established a position in Victory Capital (“VCTR”). VCTR has closed their acquisition of the Amundi US business and now boasts over $300bn in assets under management. Net flows for the acquired business were positive in 2024 and for 2025 YTD. On a consolidated basis, there is upside to flows should VCTR be able to realize the immense cross-selling opportunity at hand. As a reminder Amundi globally manages over $2 trillion in assets, has a 15-year distribution agreement with VCTR, and economic exposure to VCTR with ownership of 23mm equivalent shares (worth about $1.5bn). Management increased their cost synergy target to $110mm and have historically exceeded their guidance. I believe that the company can achieve at least $7.00 / share next year in free cash flow, putting them at about 9x. This level is at a discount to comparable asset managers and does not give the company credit for operational upside and strong capital allocation.

BSD Analysis:
Victory Capital’s acquisition of Amundi US materially reshapes the firm’s scale and distribution reach, taking assets under management above three hundred billion dollars and positioning the platform for sustained organic growth. Early signs are encouraging, with net flows turning positive both in 2024 and year-to-date in 2025, and the far larger opportunity lies in cross-selling across Amundi’s global ecosystem. Amundi’s two-trillion-dollar asset base, its fifteen-year distribution agreement with VCTR, and its sizeable equity exposure through twenty-three million equivalent shares create unusually strong alignment and long-term incentives for collaboration. Management has already raised its cost-synergy target to one hundred ten million dollars and has a track record of over-delivering on integration commitments. On forward free cash flow, VCTR is positioned to generate at least seven dollars per share next year, implying a valuation around nine times — a meaningful discount to peers despite better capital allocation and clearer operational catalysts. The combination of scale, distribution leverage, and a proven acquisitive playbook provides a multi-year runway for growth in earnings and free cash flow. With aligned strategic partners and improving flow trends, VCTR offers an attractive mix of undervaluation, operating momentum, and disciplined capital deployment.

Pitch Summary:
The portfolio was most impacted by the strong performance of Kratos (“KTOS”), a position I initiated in Q2. The stock nearly doubled in Q3 driven by positive industry developments and company specific releases. In July, Defense Secretary Pete Hegseth announced that the U.S. would ramp production and fielding of drones. In August the company released their Q2 earnings which beat consensus; but the real mover here was commentary around their future outlook. Management identified several large wins post quarter end that will boost Q3 bookings and give increased confidence on their guidance for 2026-2027. They also noted that additional upside lies in tactical drones, which are currently being discussed by customers and would immediately increase revenue and profitability since they are already in production. I have reduced our position into this strength to ensure that it is not oversized.

BSD Analysis:
Kratos has quickly become one of the most compelling pure-play beneficiaries of the U.S. shift toward lower-cost, high-volume drone systems, and the stock’s surge reflects rapidly improving industry fundamentals. The July announcement by Defense Secretary Pete Hegseth to accelerate drone production meaningfully expands Kratos’ addressable market, given its long-standing focus on affordable, attritable unmanned systems rather than traditional big-ticket platforms. The company’s Q2 results were ahead of expectations, but the more important driver was post-quarter commentary highlighting several significant program wins that will meaningfully boost Q3 bookings. Management also indicated rising customer interest in its tactical drone line, which is already in production and would translate into near-immediate revenue and margin upside if contracted. With visibility improving for both 2026 and 2027, Kratos is transitioning from a speculative growth story to one with tangible backlog expansion and clearer profitability pathways. The company retains meaningful optionality across its drone, space, and defense-systems portfolio, all leveraged to budget priorities that are accelerating rather than slowing. While the recent rally justified trimming position size for risk control, Kratos remains well positioned to compound value as demand for next-generation defense systems scales.

Pitch Summary:
Tesla remains one of our highest-conviction short positions. The company faces intensifying competition from established automakers and a weakening demand backdrop in key markets such as China. Margins have deteriorated due to aggressive price cuts, and we view the company’s AI and autonomy narrative as overhyped relative to commercial viability. We continue to see significant downside risk given stretched valuation and operational headwinds.

BSD Analysis:
Tesla remains one of the most compelling large-cap short opportunities because its competitive position is weakening at the same time its valuation still assumes years of hypergrowth. Demand has softened meaningfully in key markets, especially China, where local EV manufacturers now out-innovate and out-price Tesla across multiple segments. To defend share, Tesla has resorted to repeated price cuts that have driven a material deterioration in automotive margins, revealing how little true pricing power the company has without tax incentives and scarcity. Meanwhile, the company’s AI and autonomy storyline continues to outpace commercial reality, with timelines repeatedly slipping and regulatory constraints limiting near-term monetization. As legacy automakers ramp EV platforms and hybrids regain traction, Tesla’s once-dominant position looks far more vulnerable than the stock implies. The company also faces operational risk from its aging product lineup and a CEO whose distractions increasingly create reputational and execution overhangs. With a valuation that still reflects a tech-platform premium rather than the economics of a maturing automaker, the risk-reward skews heavily to the downside.