Software Stocks Melt Down, Palantir Beats, Energy up 12%

18:24Michael Batnick:Down seven on a double beat is not what you want to see. All right, lastly, some of the sales, some of the work, oh, geez. Some of the sales, software, damn it, sorry. Software stocks we've been talking about the last couple of months. New fresh lows, just the trap, the door just keeps getting worse. The trap door, whatever. Adobe down 41. At Lazian down 68. Service now 47. Workday 42. Salesforce 43. These are all below their 52-week high. It's not like a three-year return. So with that, let's go.

18:53Downtown Josh Brown:This is one of the most violent re-ratings for any sector I have ever seen. Would you co-sign that? Number one for me.

19:05Michael Batnick:I've never – yeah, I guess I haven't been around that long. I've never seen an industry group in my mind. Maybe like coal and things like that. But something like this large, this is a huge sector of the economy.

19:19Downtown Josh Brown:Right. It's the dollar amounts involved. It's not just the prices and it's not just the steepness of the decline or the compressed window of time. It's the dollar amounts involved. Like I've seen sector re-ratings. Like I saw the coal stocks go to zero. I saw the steel stocks go to zero. Like I've seen – I've definitely seen some shit.

19:42Michael Batnick:but like they were tiny and there wasn't that many of them and we've seen we've seen re-ratings and like utilities in the zurp era right where it was like macro factors and investor preference but nothing like this where it's like all of these names you're you're gonna be worth a lot less in

19:58Downtown Josh Brown:the future than you are today you imagine can you imagine a venture capital fund where there's like 20 names in the portfolio and 16 of them are sas yeah and guess what the portfolio has been marked

20:10Michael Batnick:up yeah you haven't you've got one exit but the portfolio is marked up three times nope not anymore

20:14Downtown Josh Brown:really brutal and like also in the portfolio they have like two robotic stocks and two defense two robotic startups and two defense startups and they're like clinging to good news from those with like for dear life because otherwise they have nothing to tell their lps like like we would talk about ipos three months ago we're not ipoing software companies anymore i don't think that's That's on pause right now. Yeah. So it's being pointed out in the chat. Situation zero. PE owns lots of mid-market software. Right. Done. Done. Those are the types of investments. A lot of like hyper-specific vertical stuff like, oh, we are the leading provider of software for rental car agencies.

21:02Downtown Josh Brown:Like stuff like that where somebody in the IT department is just going to be like, yo, I just wrote a program that lets us rip this thing out of here. It's scary.

21:12Michael Batnick:It is scary. Okay.

21:14Downtown Josh Brown:So I'm calling this IGV, which is the software ETF, the iShares product, IGV Nuclear Armageddon. That's what I'm calling this particular sell-off. Let's do this first daily chart book thing.

21:32Michael Batnick:Frickin' Adam Parker nailed it. So, all right. Adam says, many software companies have been revising their expectations for future revenue and earnings down. In fact, we haven't seen this much downward revision to the median software company sales estimates relative to the broader tech sector since the 2009 financial crisis. Chart off. This is, it all makes sense. It's not just investors are like changing their mind. The companies are aggressively lowering their guidance. It is bad. The PEs are coming down. The E's are coming down. The prices are coming down. Where this bottoms, like it is scary shit, man.

22:13Downtown Josh Brown:I think, yeah. So I think what happened last year, I mean, I'm just, I'm like overgeneralizing. And obviously this isn't the case for every one of these companies. But I think there was like this moment of like suspended disbelief last year where a A lot of CTOs were just like, let's wait and see. In other words, before we recommit to the same license, the same number of seats we were paying for in 2025, before we recommit to that in 2026 or whenever the contract is up, let's just take a beat and see what's going on out there because there might be new solutions. And then you have like Google and you have Microsoft and you have Amazon Web Services.

23:05Downtown Josh Brown:Whoever at your company is interacting with the reps there, they're screaming at you. You don't need to buy any of this shit. Like our models, just tell it what you want. And the model will build you exactly whatever point solution you want. So they're hearing from their cloud provider, like, don't buy anything. Just hang out because we have a whole new story to tell. And so I think people just like paused. And now this year, you're seeing like the reality of that start to dawn on everyone. It's a financial crisis for software companies. Like the buyers have – now the buyers can go back and say, what do you mean$80 a head?

23:50Downtown Josh Brown:How about$50 a head or we'll look at something else? Like they haven't been able to ever do that. You want to run a business, you need software. It was the opposite. It was the opposite.

23:59Michael Batnick:These companies were raising our fees every year. Yeah. Every single year. By the way, I just want to point out that my flu game take when I said I actually think that software semis bottoms is the – I hope it's my worst take of all time. I just hope that – Wait, what was the – Remember I said I actually think that a lot of the software names that are getting bombed out are going to end up being a beneficiary of AI? Like Adobe and Salesforce are going to take AI, integrate it, and then have a better output? Some will. Maybe. But anyway, it's just hilarious. It was the worst time to call that I could personally remember for myself in a long time.

24:34Michael Batnick:Hopefully the worst ever.

24:35Downtown Josh Brown:All right. Anthropic launched a legal tool today, which if you listen to the financial media, was the thing that set off today's sell-off. And so it just completely hammered the sector. Like they it just like everyone, everyone lost their mind over it. So this is Bloomberg. Once again, artificial intelligence is dominating investors attention to the stock market these days. However, the focus is turning more toward companies that may get disrupted rather than those who stand to profit from it. A Goldman Sachs basket of U.S. software stocks sank six percent Tuesday. biggest one-day decline since April's tariff-fueled sell-off as a new automation tool from Anthropic, heightened concerns about the business prospect, blah, blah, blah.

25:26Downtown Josh Brown:It's a legal and data services technology. And so anyone that even touches that space peripherally, nuclear Armageddon. And I don't even fully understand. And Anthropic launched new capabilities for its co-work to the legal space, heightening competition within the space, says Morgan Stanley. We view this as a sign of intensifying competition and thus a potential negative. Blue Owl fell 13 % on that news. I don't specifically know why Blue Owl. Aries got killed. TPG got killed. Apollo got killed. Blackstone got killed. I suppose they would be the types of firms that have made investments in areas like this.

26:11Michael Batnick:Do they all own like – do they invest in that company, Harvey? Like why would they fall 13 %? They're not.

26:17Downtown Josh Brown:Long before Anthropics plug-in, startups including Lagora and Harvey AI were flooding the legal industry with tools. They say we'll save lawyers from grunt work.

26:26Michael Batnick:Let me ask Claude why Blue Alpha. By the way, I am all of a sudden – Yeah, what are you asking me, Claude? All of a sudden, I am in love with Claude. I started using it seriously on Sunday night. And it is so much better than chat GPT. It's unbelievable.

26:42Downtown Josh Brown:Well, now you're a part of the problem. All right. Let me show you some charts.

26:48Michael Batnick:Software tech. Hold on before you do that. It's saying software tech exposure. BDC's fellow Monday has concerns over the group. Yeah, it's software. Legal troubles. There's a class action lawsuit. All right. So it's, yeah. All right. You know what's interesting about this? Is this the anti-bubble? So it's not like the AI names are going to the moon. look at Microsoft, which is the way to get exposure, I guess, NVIDIA too. These stocks are not mooning. They're not bubbling. But the companies that are being displaced by AI are getting nuked. It's like an anti-bubble.

27:22Downtown Josh Brown:Yes.

27:25Downtown Josh Brown:But the reason the Russell was green today and the reason why 270 S &P stocks were green with the index down is because what I started out saying, what we started out talking about, which is now we're talking about the benefits of all this AI accruing to the customers, to the users in the form of hopefully, what a story. Here's the IGV. So this is like just a big picture of the whole software sector. You can see that we have now round tripped the entire recovery from Liberation Day almost a year ago, nine months ago. and guns in my head, we're going to break lower because the AI situation then was not as advanced as it is now.

28:13Downtown Josh Brown:And the fears were not as specific as they are.

28:16Michael Batnick:I can't wait to see the 13 Fs. I think there's going to be some buyers in size. Some of these stocks are too low.

28:25Downtown Josh Brown:We agree. And by the way, the alternative asset managers are now going to be facing a situation for the first time in a long time where there might be some publicly traded targets in this space that are a better price than what they have been paying on the private market. So that's all. You could have take privates happen in the IGV names and nobody's ready for that. Okay, Thomson Reuters. So this directly touches the legal and data, the legal and data area that Anthropic is coming in to disrupt. Like this is the company that sells information and sells software for law firms, large corporations, research outfits, et cetera.

29:11Downtown Josh Brown:This thing annihilated today, just absolutely taken out behind the woodshed. And look at it from the high. It's in more than a 50 % drawdown. This is a boring business. This is TRI, Thompson Reuters. Legal Zoom. Holy shit. Look at this candle. Oy yi yi. Right? This is a$7 stock now. Kiss it goodnight. You think that$6.50 support from Liberation Day holds?

29:41Michael Batnick:No.

29:42Downtown Josh Brown:I don't. Fact Set. Hey, shout out to our friends. I know. Shout out to our friends at Fact Set. We like these guys and we love their products. But I mean, this is because how many things did you go to FactSet for that you now don't have to? I mean, you're the director of research at the firm. You're talking about Claude Code right now. I'm retired from that title. But your point was still in the role.

30:11Michael Batnick:No, I'm not. And FactSet, again, like every other company, they just kept taking more and more and more. Oh, you want to use this? More. Everything was more and more and more. Do you have S &P in there, by the way? SPGI?

30:28Downtown Josh Brown:I know it's bad. Down 11 to a second.

30:31Michael Batnick:S &P. Same thing.

30:33Downtown Josh Brown:Same thing. Check this one out. Verisk Analytics. This name last year was on the best stocks in the market list. It hasn't been on for a while. This thing, if I pulled back the chart and showed you like 10 years just up into the right relentlessly and is now falling vrs k from that looks like 3 30 ish down to 193 today's candle is just an absolute puke there's there's literally nobody pulling pulling the trigger on sales in that stock that's not absolutely terrified i'm on the website because

31:09Michael Batnick:i'm not familiar with this company powering better insurance decisions the risk connects the global insurance industry through proprietary data and technology to deliver the insights that real people depend on every day. Guess who else delivers real insights at a fraction of the price?

31:23Downtown Josh Brown:I hope your data is super proprietary, my friends. All right. Atlassian, this is team. This has always been a terrible, terrible stock, but more terrible than ever. No, it was hot.

31:33Michael Batnick:It was hot years ago, like years and years ago.

31:35Downtown Josh Brown:All right. It was 300 a year ago. It's 100. This stock had a split three for one enforced. We used to call these market enforced splits. It's not an actual split. They just took two-thirds of the price off. This is annihilated. I don't know what the market cap is or care. I don't know. See, the thing to me is I'd rather buy Microsoft. I don't think I'll get the biggest bounce. It ain't going to zero. I'll feel less stupid if it doesn't bounce. like the risk management way to play this this um this nuclear armageddon and the software stocks to me is not timing it's more like selection like like i'll feel less dumb if i buy microsoft and pukes up another 12 yeah who cares if i buy team at 100 and it goes to 80 i'll be suicidal because

32:30Michael Batnick:i know better so i know all right take it easy at lazin had a market cap in 2021 during the bubble of$116 billion. And then last year, it had a market cap. And when I say last year, ladies and gentlemen, I'm talking about February, like literally a year ago, it peaked at$85 billion in market cap. And it's now 27 on its way to what? 10? I don't know.

32:54Downtown Josh Brown:Holy shit. Imagine you own this. Imagine you have an S block against this. Like you borrowed money against this security because you're an executive and you bought a house and the thing pancakes in one year drops 70 % a year?

33:11Michael Batnick:All right, so it's not funny, it's sad. So the bubble years aside, it's stabilized in 2023 to 2025. It went sideways, and maybe this is the wrong metric, but whatever, who cares? It went sideways at like 11 times sales, you know, like something like that. Last year at the peak, it was 15 times sales, 17 times. It's now five on its way to two. What are these names going to trade at if the earnings aren't sustainable, if the sales aren't sustainable? there's no there's no floor the thing is that i don't know that we're seeing like

33:42Downtown Josh Brown:huge drop-offs for for these companies in sales yet not yet market's not waiting for that that has the market is just anticipating either problems with raising prices or problems with churn or just like outright contract cancellation, the market is like pricing in the absolute worst case scenario indiscriminately for all of them. I couldn't find a software company that was able to escape this. And I know some of that is algorithms and baskets and ETF stuff, but like the market is, even the cyber names, they came for the cyber names today. Like, you know, I'm a long-term shareholder in crowd. they crushed it.

34:29Downtown Josh Brown:It stocks down$150 from the tie.

34:33Michael Batnick:So on a, on a lazy in particular, I don't know anything about this business, but the revenue it's up. I'm looking now it's up until the right dude. Like they're still growing at 20 % year over year. And the market's just saying, I don't believe you. Like I don't care. I'm not that.

34:45Downtown Josh Brown:Or congratulations on your past revenue.

34:48Michael Batnick:Great. It's not sustainable.

34:51Downtown Josh Brown:Yeah. That's it. That's what it is. All right. Palantir reported last night. They did it again. Earnings up 78%, revenue up 70%. And the business, now that it's larger than it was a year ago, is actually accelerating. They're growing faster. And, you know, it's remarkable, the commercial part of Palantir, which is what everyone cares. In other words, the government contracts are great. And yes, in the multiple, they do get some credit for that. But defense contractors notoriously don't earn a really high multiple on those revenues. They're highly dependable, and everyone loves it. But it's not the thing that gets people excited.

35:36Downtown Josh Brown:So it's the commercial part of the business where a lot of – I shouldn't say all. A lot of the growth is. So put that back up just so I could explain it. The quarterly revenue is nuts, dude. Insane. commercial revenue surged 137 % year over year to chart off to 507 million. The estimate was 474. So it's a huge beat. Government revenue grew 66 % to 570 million. So the company now is basically in balance. It's 50 % military stuff and spy stuff. And then it's 50 % commercial business. And most of it is in the United States, not all. but I do think that there are companies and countries that are a little bit hesitant to open up all their data to Palantir just given how tied in they are with the US government.

36:30Downtown Josh Brown:You could understand that, which might put a ceiling over how big this company can get. Morgan Stanley's analyst, with 2026 guidance targeting growth of 61 % plus, Palantir is on course to reach 10 billion in revenue at the fastest growth rate and highest margins perhaps in software history, underscoring its status as a clear AI winner. Palantir delivered its fastest revenue growth as a public company, equally impressive as the margin performance. The midpoint of the 26 outlook calls for operating margins of 56%, which topped consensus looking for 50. For full year 26, Palantir said revenue in a range of$7.18 billion to$7.2 billion.

37:19Downtown Josh Brown:And prior to today, analysts were looking for$6.295 billion. So it's a beat. It's a raise. It's faster revenue growth, faster earnings, better news on the commercial front. The government business is also growing fast. it's like if you're a tech investor this has to be on your sheets

37:40Michael Batnick:and yet not the greatest reaction look at the environment I know I'm saying the market's changing it's not January anymore it's February

37:55Downtown Josh Brown:here's a guy from William Blair, Louis DePama said in his research report our research tracker suggests that the US Department of War is going all in on Palantir for its mission critical data analytics platform. I forgot that they renamed the Defense Department the Department of War. I forgot that Trump did that last year. They also, the company's holding$7 billion in cash on its balance sheet. So it's just a remarkable report from a remarkable company. and I know the company's controversial and I know there are political overtones and not everyone agrees that they want to celebrate Palantir. But just from a purely investor standpoint, holy shit are these guys delivering.

38:47Yeah, yeah.

38:49Michael Batnick:All right, let's pivot to - Well, what's this quote?

38:53Downtown Josh Brown:Oh, is this your, did you put this in?

38:56Michael Batnick:I almost, yeah, I love this quote.

38:57Downtown Josh Brown:It's a goodie.

38:58Michael Batnick:Okay, this is so emblematic of the entire conversation we're having tonight. And we're going to have more of it. So stick around. Josh, I'm glad that you flagged this. Thank you. All right. This is, we've said this before. It's so goddamn good from Steve Mandel, the founder of Lone Pine Capital. I don't need an analyst to tell me when a 10 PE stock is cheap. I need an analyst to tell me when a 40 PE stock is cheap.

39:20Downtown Josh Brown:Well, right. And that's very apropos. Palantir. Of today. And PayPal. On the surface looked expensive. Turned out it was cheap. PayPal on the surface looked cheap. Turned out it was expensive.

39:30Michael Batnick:Exactly. All right, so we're seeing fewer positive surprises in the market, earning surprises that is, and you're seeing them being less rewarded, which, try it on please, won't be a popular take. And like, I feel like I'm being like a Debbie Danner for this. I think it's really good that the bar is getting raised and it's getting harder for the stock market to keep going up uninterrupted because another 30 % up year where you just have a free-for-all, more margin expansion. That is not good for everybody who is listening. Ultimately, that sets us up for a major fall. And I would much rather this where we're getting the beat in the raise and stocks are having a muted reaction.

40:11Michael Batnick:Good. Let expectations catch up. You agree?

40:15Downtown Josh Brown:Well, it's right. It's preferable to, I think, having a situation where every stock goes vertical at once and then gets killed all at once. It sort of feels like people are getting used to the dispersion and some sectors doing well others not doing as well i just i think that's like a normal market today didn't feel normal though today no today was ugly today was today

40:40Michael Batnick:was a risk off day yeah for sure no no no even though we had a lot of big stocks like jp morgan

40:45Downtown Josh Brown:green today just today felt like something substantial about the market psychology has changed when it comes to AI and they don't want to hear about, uh, tech for a while. Yeah. People want to go, they want to hear about anything, uh, but tech. All right. Last hold on in the chat. What happened to service Titan? It went down, Jack. What do you think happened to it? It's a soft, it's a software company. Uh, toast is down to also, what are you getting excited about? Well, is that anyone else? Anyone else in the chat want to shout out any other stock that I might have a red day in?

41:26Michael Batnick:All right, all right, all right. Stocks go down too. Okay. So, oh, Chipotle. All right. So here's the point. Here's the topic. The topic for today is avoid the garbage. And I have been guilty of this a million times. I will continue at some point to bang my head against the wall. we all want to make money in the stock market if we're buying individual stocks it is a lot easier to make money for the stocks that are already going up i am tempted by 52 week lows as much as anybody else here i'm not i've learned my lesson the hard time a million ways it's much harder to make money this way okay it just is so let's talk about chipotle um chipotle reported after our chipotle reported knee-jerk reaction down 11 immediately i don't know where it is trading right now.

42:14Michael Batnick:But I went to the report and I told you I listened to this guy's call last time and I just didn't like what I was hearing. I didn't like his voice. It just didn't.

42:23Downtown Josh Brown:The new CEO?

42:25Michael Batnick:Yeah, Scott Boatwright. So here's what Scott Boatwright said today or in the report. He said this on the report. Through our proven business model, prudent investments in operational excellence and the support of a strong balance sheet. 2025 was a year of progress and resilience for Chipotle. Against a dynamic consumer backdrop, we opened a record number of restaurants globally and grew Q4 in full-year revenue. Really? Okay, let's look at the numbers, Scott. Comp store sales decreased 2.5 billion. I'm sorry, decreased 2.5%. Is that good? No, it's bad. Operating margin was 14.1%, a decrease from 14.6%.

43:12Michael Batnick:Restaurant level operating margin was 23.4%, a decrease from 24.8%. So yes, revenue increased 4.9%. That's what happens when you open more stores. But inside the stores, Jack, things aren't doing so great. And don't tell me about the consumer backdrop. Nobody wants this shit. It's enough already. So chart on. Look at Chipotle, the stock. Two forward, please. Or one forward. Yeah, here we go. Thanks, John. Um, listen, the stock's in a downtrend.

43:38Downtown Josh Brown:Did they do a split in 24?

43:40Michael Batnick:Yeah, a while ago, I think.

43:41Downtown Josh Brown:So I remember the stock trading in like the threes and four hundreds. Yeah. They did a 10 for one split.

43:47Michael Batnick:Does that sound right? Yeah, somewhere along the way. Yeah, this was a$900 stock, I think, at some point. So, all right, here's the deal. With stocks like this, it's so tempting. It's Chipotle. It's a brand name. It's cheap, blah, blah, blah. Throw that chart back on. Let's say that you were so smart to buy it a couple of weeks ago, a couple of months ago at the bottom, all right? You got in. Now, fairness, the stock stabilized, right? So it gapped down to 32 bucks and it spent the next couple of weeks going sideways and then it accelerated. And guess what? There was a nice trade there. It went from$30 all the way up to 40, okay?

44:20Michael Batnick:So you had a 25 % return in just a couple of weeks. You're feeling yourself, you're feeling good. What do you do now?

44:27Downtown Josh Brown:I mean - Here's another example. It depends on why you bought it, I guess. Lululemon, same story. You bought it for a trade, you're out of it.

44:34Michael Batnick:So all of these stocks, yeah, they could bounce. Lulu had a great bounce. We spoke about this. When The Economist has Lulu on the cover, you just shut up and buy. And guess what? It worked. The stock went from 160 to 210. What if you didn't take profits? Yeah.

44:52Downtown Josh Brown:So do you take on – like I know you don't like bet a lot of games or maybe you used to when you were younger. But like do you find yourself taking dogs? Never. Never. So then why do you have that temptation in the stock market? Isn't it sort of the same thing? Yeah, it's such a good point. To me, it's the same thing. Obviously, nobody thinks the Patriots are going to win. It's a very weird Super Bowl result, like how we got here. And now the Golden Boy is probably secretly injured. And just whatever. Maybe I'm being too pessimistic, but I think it's going to be a blowout. So how about this? You're right.

45:31Downtown Josh Brown:But wait a minute. If you have the kind of personality where you're like, nope, taking the Patriots. I'll take the points. I'm taking the Patriots. Then it makes sense if you're bottom fishing in Lulu. Because you're like, it's Lululemon. They'll be fine. I don't have that attitude. Maybe I'm like a front runner. I don't know. I'm just much more likely to look at whatever's doing great right now and assume it'll continue than constantly looking for reverses.

46:01Michael Batnick:It's interesting that you mentioned that because if I was to tease the game, now I unintentionally have a lot of money on the Patriots because I did this stupid bet in week 16 where I bet a lot of money against the Seahawks. Oh, yeah, free 40 % return. But if I was coming in straight to this game, now the Seahawks are a better team, full stop, like period. I don't care what happens in the game. The Patriots can win. It doesn't change the fact that the Seahawks are the better team. Hard stop. Would I be more likely to tease the Patriots up to like 12 and a half than the Seahawks down to like plus two and a half?

46:34Michael Batnick:I think I might, and I don't know what's wrong with me.

46:36Downtown Josh Brown:But I want to take it further. They're not just the better team because, like objectively they are, but then they have more momentum. Like the Patriots are winning these games in snowstorms, blizzards, like these very bizarre games that are not going to look anything like what's going to happen in the Super Bowl. so they might be better at sloppy conditions, football. And some of those games could have easily gone any other way. I don't think the Seahawks are amazing. I just think they're winning these standard games. They're killing teams. They're killing teams, yeah. They have momentum. It's not the best team I've ever seen, but they have momentum.

47:12Downtown Josh Brown:So it's a combination of being better on paper and sort of gliding into the Super Bowl. The Patriots tripped over and fell backwards into it.

47:21Michael Batnick:Right, right, right, right.

47:22Downtown Josh Brown:It's a great point. It's multiple things. It's not just good team, bad team, good company, bad company. It's like, what are the immediate conditions around the stock or around the team? And that's, I don't know. I do a lot of stupid shit, but I'm allergic to stocks that look like Chipotle. They don't want to track me at all. They don't want to track me at all. So on the PayPal print, Consensus Media. If I'm going to lose money, I want to lose money in toast.

47:48Michael Batnick:Don't take it personal. uh consensus media tweeted well it was only nine and a half times forward earnings going to the print uh paypal a first lesson in value traps for many so yeah you could play this game um you're not gonna make money i mean maybe by accident sometimes you will but it's hard the market is

48:04Downtown Josh Brown:smart the market is we flirted we flirted with paypal over the years each of us yeah i definitely

48:09Michael Batnick:i definitely bought it and lost my but you know what we do that's really well at least what i do i don't lose a lot of money in these stocks if i'm wrong i'm out i don't care i lost four percent an adobe i'm out whatever it doesn't matter i'm getting married to these names and downtrends

48:21Downtown Josh Brown:so paypal had a moron paypal had a promising story they brought this guy alex christen who had succeeded at intuit and he had a strategy and the stock was reacting to him you know coming and he had a few quarters and the the shine wore off and people no longer believed in him and i think they just i think he just stepped down today yeah he got a shine box after this. No, but it's like, you know, the story changes as part of it. And then the thing with, the lesson from PayPal is when Apple decides they're going to destroy a company, it'll probably work because they own the device. So you might have the best app, but they own the device.

49:02Downtown Josh Brown:And if they're launching a competing app, I'll give you a really great example of this where I haven't learned my lesson. The Life 360 story is so incredibly compelling. And any parent who's listening to this or watching us right now is probably familiar with Life360. Even if you don't use it, there's a good chance families you know of in the neighborhood are using it. So the company came public. They had a really great growth story where they would explain how sticky the app is. And once a family is fully uploaded on it, they keep it forever and blah, blah, blah. They keep paying. And the one question they can't ever answer on their calls is what happens if Apple just decides to make this a feature?

49:48Downtown Josh Brown:In other words, picture a family, two kids in elementary school or junior high. They have phones. Both parents have phones. What if Apple just rolls out an interface where you can see your whole family on a map? Who is paying for Life360 ever again? It becomes completely redundant. And they can't answer that question. I saw her be interviewed and somebody asked her that. she can't answer it the ceo if apple decides they're getting into your business nothing will nothing will save you if your business's primary entree for the user is via

50:23Michael Batnick:an apple device it's such a great that's such a good story do we like this is the world we live in it tough shit it doesn't matter if we like it or not i don't i don't love this who does like

50:33Downtown Josh Brown:that i mean you know tim kirk likes it apple shareholder likes it i know but it's it's what it is so it is no because you got i mean if you look at a chart of uh light 360 you look at this thing just absolutely exploded in 2021 and everyone like discovered oh shit like this is a new growth story and it ran to i don't know 34 and now it's 20 i mean i'm not saying it's going back to two bucks but i don't what happens to a stock like this i i almost don't i almost don't I don't know what to tell people. So, uh, wait, where is it?

51:11Michael Batnick:No,

51:11Downtown Josh Brown:it's at$61. I don't know. I have the wrong, I have the wrong ticker in front of me. My bad. Um, I just, I think that, I think that people, I think that people, uh, need to be reminded in certain businesses, like anything tech related. If Apple says we're going to compete you out of business, you should, you should probably expect it and, uh, not be bottom fishing there. I don't know if Chipotle is the same story as that. I'm just, I'm making the point. There are different reasons that should keep you from catching falling knives. Is that the way to say it? Totally.

51:44Michael Batnick:Okay. Yeah, it's a good point. Okay. Was that it? That was it for me, I think.

51:47Downtown Josh Brown:Yeah.

51:48Michael Batnick:Do you want to do Kevin Walsh or do you want to skip it?

51:52Downtown Josh Brown:Are we doing this on – we're going to do this on the Compound and Friends this week. Okay. Let's skip it. So let's skip it. Can we end with good news? Love good news. All right. The housing market, which has been something people have been complaining about for, I don't know, seven years, it's becoming a buyer's market again. And the rental market, too. And this is objectively good news for people who have been screaming about the affordability crisis. We've had this hysteria over the housing market, and not unfounded, completely legitimately founded. This is the journal. the housing market is swinging toward buyers.

52:33Downtown Josh Brown:Let me see this chart. Nearly two-thirds of home buyers last year purchased at a discount to the original listing price, the highest proportion since 2019. Good news? Yes. Okay. Many home shoppers have given up, but 62 % of buyers purchased below the original price last year, according to Redfin, and the average discount for the homes that sold below their original listing price was 8%. which is the largest since 2012.

53:03Michael Batnick:The prices are still too high. This is trending in the right direction. But if you look at like average days on market, it's slow. It's very, it keeps going higher because the prices are still too high. So yes, they're coming down. Yes, we're going in the right direction, but like they're still too high.

53:16Downtown Josh Brown:But wait a minute. People are, the average discount to listing is 8%. In 2022, people were paying like 10 % above ask. So it's a big difference.

53:30Michael Batnick:It might not have sunken in, and it might not be enough, but it's something.

53:35Downtown Josh Brown:This is Bill McBride at Calculated Risk, writing about rentals. So I'm reading about home prices, and I'm curious, what about the rental situation? Because that's been a really problematic thing for CPI and the inflation story. According to Apartment List, asking rent growth is down 1.4 % year over year. Rents are down 0.2 % month over month. One and a half percent year over year. It's not like catastrophic for the landlords. And it's glacially slow, but again, it's in the right direction. That's nationally. So don't go in the chat and tell me about the block you live on. I'm sure it doesn't probably line up.

54:17Downtown Josh Brown:Give me this chart, though. This is a visual. This is month over month rent growth, which is now negative for, I don't know, is that six months? I feel like that's a positive development. The national multifamily vacancy rate is also higher. 7.3 % apartment vacancy. That's a record high back to 2017. Do you want me to tell you what's causing that? I would love you to. Immigration. That's who's filling the rest of the apartments. And we are deporting immigrants at a very high rate and keeping new immigrants from coming. And that's where that record high vacancy rate comes from. 29 consecutive months of year-over-year decline in rents is another stat worth talking about.

55:11Downtown Josh Brown:The median asking rent across the 50 largest U.S. metro areas was$1 ,689, which is down 0.7 % from December 2024. So slowly but surely, it's not a miracle drop for the housing affordability situation, but it is improving. Any thoughts? Good.

55:31Michael Batnick:No, it's the, I think it's hard to quantify the vast majority of the people in this nation that are upset. It's because they can't afford to live. And the biggest portion that is driving that is where they live. Just period. Like that's it. It's rent, it's house prices. it's a huge, huge national emergency. So I like that it's backing up a little bit.

56:00Downtown Josh Brown:All right, make the case. So because I'm a front runner, we're going to talk about energy. Energy is the best sector in the S &P 500, year to date up 11.9%, followed by materials, followed by staples. Do you know what all three of those sectors have in common? Energy, materials, and staples? you cannot replace what they sell with uh anthropic or chat gpt if you need industrial chemicals typing something into a computer is not going to help you if you need a hershey bar there's no answer coming to you from perplexity and if you need a barrel of oil and you need to drive somewhere um unfortunately you ain't getting anything from open ai um i'm not saying that's the only reason those are the three leading sectors i'm just saying pay attention when the market's speaking um this is a uh a map from uh s &p dow jones global uh through january so it's just it's a month but like take a look take take a gander uh energy all the way on the left so it's the um The reverse mirror image of last year where energy was, I think, the worst.

57:16Downtown Josh Brown:Does that sound right? Or was that the year before?

57:18Michael Batnick:I think it was the year before. By the way, three months too. Not just one month. Not just one month.

57:22Downtown Josh Brown:Leading for three months. Put up the next one. This is industry group. Look at this. Best industry. Better than metals and mining, believe it or not. Month to date. Oil and gas. Equipment. 20.74%. Not oil and gas services. Oil and gas equipment. Like literally the pipes that they stick into. I don't know how it works.

57:48Downtown Josh Brown:So it should not come as a surprise that we have a lot of these types of stocks on our best stocks in the market list. And I want to show you a few. I pitched Exxon on the show at about 118. The stock's down 144. It's gone absolutely vertical. Up 4 % today. Chevron looks great too. The past earnings report, highest annual upstream production in over 40 years, record refinery throughput, full-year earnings,$28.8 billion, would be$30.1 billion unless you exclude some small items. But a 20 % CAGR back to 2019. These stocks were sitting there for, look at this chart, years and years and years, and nobody wanted them.

58:35Downtown Josh Brown:and then all of a sudden, this is why technical analysis. Do you see what went on here since the start of this year? Bigger the base, higher in space. But you had this retest of the 50 and it acted as a springboard. And this stock never looked back. So you have an all-time high in December, right at the end of the year, which is when we started talking about it here on the show. Then it falls to start the year, retest the 50. The buyers come in like hungry hippos. It never looks back. And then they beat earnings, raise guidance, and it's just off to the races. I pitched Devin Energy on TV today, and I bought the stock also.

59:19Downtown Josh Brown:Natural gas and exploration company, 2.5 % dividend yield. The last time they reported earnings, returned$400 million to shareholders between dividends and buybacks. They retired half a billion dollars worth of debt ahead of schedule. and they have shrunk their share count by 13 % over the last five years. Here's a very, very simple situation, as Sean outlined for our readers at CNBC Pro. Their breakeven level to produce is$45, and WTI is$63. You don't really have to know a lot about business to understand why the situation has changed. And I bring this stock up because it's been in a downtrend since 2022.

1:00:06Downtown Josh Brown:So basically, this is one of these stocks that nobody wanted, just like Exxon, for years and years, just in this steady grind lower. And then one day it stopped going down. And then all of a sudden, the buyers were validated because the earnings started coming in stronger than expected. So they're going to report in two weeks. I don't know what's in the report. I don't know how it'll be reacted to. But I'm long the name with a stop loss. It's a trade. It's not a long-term investment. But higher lows on down days will be your tell that the trend is intact, would be the way I'd think about it. A couple more.

1:00:43Downtown Josh Brown:Here's Targa Resources. This is pipeline. This is pipeline. So this is not exploration. This is less to do with the price of natural gas. It's more about the demand. And any time we get a really tough winter, obviously demand goes up, and the pipeline and transmission companies do better. only a 2 % dividend yield here it's not a great income play it was an MLP 10 years ago they converted to a C-corp so no more K-1s they're talking about 22 % EBIT dog growth for the coming quarter they report in two weeks as well put the chart back up we wrote this up it's very simple your 50 days is your trailing stop it's about 183 ish it's as plain as day you don't want to be low in the stock below there It doesn't mean you can't ever buy it again.

1:01:33Downtown Josh Brown:It just means you have to wait for it to set back up again. That's a pretty well-defined risk-reward. Sure is. Yeah, slightly overbought because the sector's in favor, RSI 73. All right, so you want to give it a minute, let it cool off. But these are the stocks people are going into as they sell Oracle. I'm going to show you Grainger. They sell tools and equipment. I don't really care. They returned a billion and a half dollars to shareholders last year via dividends and share repurchases. I don't care because the only thing worth saying on this is AI doesn't replace shovels or whatever it is.

1:02:12Downtown Josh Brown:So they reported today, stock had a huge rally up 6%. Is it a little bit overbought short term? Sure. But again, these are the stocks that are in favor this year.

1:02:22Michael Batnick:This is why the market is so much fun. Imagine 12 months ago, we're like, okay, in a year, we're gonna be talking about the fact that people want anything but AI stocks. We were complaining about it. Yeah.

1:02:32Downtown Josh Brown:We were yelling about it.

1:02:33Michael Batnick:It was boring. It was boring. It was like, there was nothing else to talk about.

1:02:37Downtown Josh Brown:Last one. Wait till I tell you this one. Corteva, CTVA. If memory serves me, this was spun out of a big chemical company or maybe Monsanto. This might be the spun out seed business of Monsanto. Anyway, here's the deal. this is like half pesticide, half seeds. So it's an agriculture play. They just raised their guidance. They're talking about 6 % growth for 2026. So it's not like explosive growth. It's seeds. Oh, they're a shower.

1:03:14Michael Batnick:You know I'm a seed investor.

1:03:16Downtown Josh Brown:I like it. Enough said. Chart back on. They took out the 200-day moving average around 68, and it never looked back. And so where's the next breakout? Look at the chart. At 75, above 75 on good volume, are there any sellers left? Probably not. In the best stocks in the market list, Michael, I have 13 total energy tickers. Baker Hughes, ConocoPhillips, Chevron, Devin Energy, Fang, Hal, KMI, PSX, SLB, Targa, which we just did, Valero, which we've talked about a million times, Williams, ExxonMobil, which we just talked about. I'm not saying like flip the whole book into energy. I'm just saying like if you're around with Atlassian right now, like that's not what's that's not what's popping in the streets.

1:04:08Downtown Josh Brown:So anyway, that's why I make the case. What do you think?

1:04:11Michael Batnick:I love it. Well done. Really good. Good stuff. Okay. Are you buying Cortif? It's just math. Josh, I am not ready to reveal it yet. I'm not buying individual names right now. I'm not about that life. I'm letting the work do the work for me. Okay, I've got a mystery chart.

1:04:29Downtown Josh Brown:I'm not saying shit. Jesus. This huge decline at the end of 22 tells me it was a pandemic darling that broke. I don't know, DocuSign?

1:04:44Michael Batnick:We spoke about it today.

1:04:46Downtown Josh Brown:Oh, we did? Yeah. did i say nice things about it oh it's paypal yeah there you go all right well i got a little assist from the chat to be honest the chat who who said uh uh michael marist gave me paypal jay minter biff greebles gave me paypal taking care of this yeah thank you guys that's my secret weapon

1:05:14Michael Batnick:love you chat this whole time this whole time put the chart back up this is now on my list

1:05:19Downtown Josh Brown:of the worst stocks i've ever met do you know i have that list i informally keep do you know that no i love it though we should talk more about it the worst stocks i've ever met so it can't just be like oh here's a stock that went to zero it has to be a stock that i have become acquainted with over the years do you understand to be this is one of the worst stocks i've ever met like top easily top 20 and i'm doing this for 30 years it is so bad just bad for so many reasons but we we don't have time today all right guys that's it animal spirits tomorrow morning with michael and ben all new ask the compound later that day on friday we have another uh another edition of the compound and friends with a new friend someone we've never talked to before super excited about it and we appreciate everybody who joined us for the live once again shout out to the chat thanks to everyone for listening we'll talk to you soon

1:06:58Michael Batnick:We'll see you next time.

1:07:05Michael Batnick:Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place.