What to Buy in the Momentum Stock Slaughterhouse | TCAF 228
Speakers
Summary
- The "Anti-Bubble" in AI: While the broader S&P 500 remains near highs, a massive rotation is occurring under the surface. Software and "AI losers" are being liquidated (down 20-30%), while "Old Economy" sectors (Energy, Financials, Materials) are hitting new highs.
- Value Investing Evolution: Traditional value factors (low P/E, Price-to-Book) have decayed due to ETF proliferation. The new edge in value investing requires constructing "peer groups" based on business models rather than GICS sectors (e.g., comparing Sherwin-Williams to Home Depot rather than chemical companies).
- The "Staples Trap": Investors fleeing tech volatility are crowding into Consumer Staples (Walmart, Costco), pushing valuations to 23x forward earnings despite negative or low earnings growth. This "safety trade" is now as expensive as Tech, creating a dangerous risk/reward profile.
- Refiners & Miners: The guest highlights that Energy Refiners and Gold Miners are currently growing earnings faster than the Nasdaq due to operating leverage (crack spreads and gold prices), yet trade at deep value multiples.
Trade Ideas
Josh explicitly stated, "I bought IGV today." He notes that software stocks have seen liquidation-level selling (down 18% in 7 days), a magnitude only seen during the 2008 crisis and the 2022 crash. This is a "falling knife" trade based on market structure, not necessarily fundamentals. When a specific sector is liquidated indiscriminately while the broader market holds up, it often signals a short-term capitulation bottom. LONG (Tactical/Contrarian). The "AI displacement" thesis could be structurally true, meaning these software companies are value traps that will continue to lose pricing power.
Mowrey is bullish on refiners, noting they are growing earnings at 40% (faster than the Nasdaq) due to healthy crack spreads. Josh Brown adds that he has been "pounding the table" on these names (Marathon, Valero, Phillips 66) based on technical accumulation. The market misunderstands these as "dirty value" stocks, but they are currently high-growth momentum names with fundamental support. The "peer group" logic suggests they are undervalued relative to their cash flow generation. LONG. A global recession or a sharp drop in crack spreads (refining margins) would instantly invert the earnings growth story.
Mowrey is overweight Financials, specifically noting Regional Banks are growing earnings at 30% and valuations reset to 2008 levels during the 2023 crisis. The 2023 banking crisis was a "liability crisis" (rates up, bond portfolios down), not an "asset crisis" (bad loans) like 2008. With the yield curve normalizing and the economy holding up, these banks are re-rating from distressed levels. LONG. Commercial Real Estate (CRE) exposure remains a significant overhang for regional bank balance sheets.
Mowrey points out that Consumer Staples are trading at peak multiples (23x forward P/E) despite many having negative or flat earnings estimate revisions. Investors are paying a "fear premium" for safety. They are buying these stocks solely because they are "real things" (defensive), ignoring that they are paying tech-like multiples for utility-like growth. This creates a valuation air pocket if the "safety trade" unwinds. AVOID. If the economy enters a hard recession, Staples may still outperform on a relative basis due to consistent demand, even if expensive.
Despite the software sell-off, Josh asserts, "If you are selling Microsoft today, take your hands off the keyboard." Mowrey confirms, "We own Microsoft." Microsoft is being dragged down with the broader software/AI skepticism, but it is the utility-like monopoly of the sector. It is currently trading at a reasonable valuation (approx. 30x) compared to the low-growth Staples sector (23x) that investors are fleeing into. LONG. Continued multiple compression in the mega-cap tech space if rates stay higher for longer.
Josh explicitly stated, "I bought Bitcoin at 66,000 today." This is a pure "panic buy" strategy. He identifies the current price action as a liquidation event (falling knife) and is stepping in to provide liquidity during a washout, betting on a mean reversion bounce. LONG (Tactical). Bitcoin has no fundamental floor (no earnings/cash flow), so liquidation can extend significantly further than in equities.
Mowrey is overweight Materials and specifically discusses Gold Miners. He explains that once gold prices pass a certain threshold, miners become "money printing machines" due to fixed costs. Operating Leverage. If a miner's cost is fixed at $1,600/oz and gold moves from $2,000 to $2,400, the profit margin expands disproportionately (e.g., earnings double on a 20% move in the commodity). Current gold prices suggest miners could grow earnings 130-140%. LONG. A sharp reversal in gold prices would immediately crush the earnings growth thesis, as miners are a levered bet on the metal.
Up Next
This The Compound News video, published February 06, 2026, features Josh Brown, John Mowrey discussing IGV, VLO, MPC, PSX, KRE, XLP, WMT, COST, WTI, MSFT, BTC, GDX, NEM. 7 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Josh Brown, John Mowrey · Tickers: IGV, VLO, MPC, PSX, KRE, XLP, WMT, COST, WTI, MSFT, BTC, GDX, NEM