Talk Your Book: The Case for Value and Momentum

Michael Batnick · Ritholtz Wealth Management

Cable companies are a case of out-of-favour stocks with no turnaround coming; falling prices reflect that.

Michael argues that a stock that keeps falling is usually falling for a fundamental reason, and he uses cable companies as the example. He says there is no turnaround coming for cable and that these out-of-favour businesses are not a value opportunity yet, though they might get cheap enough to be worth paying pennies on the asset. The support is an illustrative example rather than specific data.

“When stocks are going down and down and down, look at the cable companies as an example, or a lot of these companies that are out of favor. Like, there's no turnaround coming for cable.”at 13:28

Lance Humphrey · Victory Capital

Semiconductor fundamentals are growing so fast that their valuations look attractive despite strong price momentum.

Lance says that in his quant value-momentum screens, many AI-related semiconductor stocks now pass both the momentum and value tests. Prices are up, but fundamentals are rising even faster. He cites free cash flow growing at a tremendous rate and earnings growth across essentially any measure. Because those fundamentals are moving so quickly, the valuations look decently attractive even after the rally. That is why these names now show up on value screens that they had failed for most of the prior decade.

“even though the prices of those stocks are up, well, so are the fundamentals and not just one fundamental. A lot of those stocks that you mentioned are growing their free cash flow at a tremendous rate. They're growing their earnings, really any measure that you look at.”at 17:54

Lance Humphrey · Victory Capital

Magnificent Seven valuations are coming down after a long period of underperformance and now look more attractive.

Lance says the Magnificent Seven stocks spent about ten years rarely looking attractively valued, with momentum good at times but never aligned with value. Those names have underperformed the rest of the market on a relative basis, which has brought their valuations down. Several of them have also recently started trending higher. As a result, some of the Magnificent Seven now sit closer to passing his value-plus-momentum screen than they have in the last ten years.

“I would say today, some of the MAG seven are starting to look a little bit more attractive on those measures because on a relative basis, the MAG seven really underperformed the rest of the market. So the valuation is coming in.”at 18:16