Do you remember your first budget?

Back when I was trying to pay my way through college, I knew exactly how much I could spend on food, exactly how much gas I could afford, how much had to be paid for tuition, and the tiny amount left for “entertainment” (a.k.a. splitting a pizza with my dorm mates)

In the real world, having a budget means you MUST choose not to spend money on things you want to. And sometimes the choices are hard (and messy).

Of course, having a budget also allows you to save money for the good things in life that really matter!

For the first time in decades, the U.S. government is at least taking some initial steps towards financial responsibility. It’s a messy process that will have ripple effects across our economy. 

And while there are still many questions unanswered, we’re already seeing some clear winners and losers when it comes to this new era in Washington. 

Today, I want to show you a trade that I’m considering for my own account… One that will actually profit from cuts in government spending over the next few years.

A New Era of Government Efficiency 

The Department of Government Efficiency (DOGE) represents a major shift in how Washington plans to manage contractor relationships.

Unlike previous cost-cutting initiatives like sequestration, this new legislation is specifically focused on eliminating redundancies and driving efficiency across defense and government spending.

Enter Booz Allen Hamilton (BAH) – a consulting firm that generates the vast majority of its revenue from government contracts

During the company’s recent earnings call, CEO Horacio Rozanski acknowledged the shifting landscape:

“If I listen to the conversation that is happening around DOGE, this is about creating efficiencies and then deciding how that is going to be invested for the American people,” Rozanski told analysts.

But here’s what concerns me…

While Rozanski tried to paint an optimistic picture, the reality is that BAH has tremendous exposure to any pullback in government spending. 

According to Bloomberg Finance, federal contracts accounted for a whopping 81% of BAH’s revenue in fiscal year 2023 – that’s $10.2 billion at risk!

And unlike the 2011 sequestration period that played out over several years, Rozanski admits this transition could be more abrupt: “We think this is a much shorter period of adjustment…”

A shorter adjustment period means less time for BAH to adapt its business model. And that could spell trouble for the company’s profits – and its stock price.

An Opportunity for Speculative Traders 

Given BAH’s overwhelming dependence on government contracts and the accelerated timeline for spending adjustments, I’m looking at buying put contracts on the stock.

These contracts will increase in value if shares of BAH trade lower. And given the stock’s recent strength, this could be an excellent time to take a bearish position.

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