Halftime Report: Momentum Stocks Moving Higher – February 6, 2025

Introduction

In this episode of CNBC's Halftime Report, host Scott Wapner delves deep into the dynamics of momentum stocks that are currently surging in the market. Joined by industry experts Josh Brown, Joe Terranova, Stephanie Link, and Surat Sethi, the panel dissects the factors driving these stocks to new heights, explores sector-specific trends, and offers strategic insights for investors looking to capitalize on the prevailing market momentum.

Momentum in the Market

Scott Wapner opens the discussion by highlighting the impressive performance of momentum Exchange-Traded Funds (ETFs) that have reached new all-time highs. Notable mentions include the MTUM ETF, which is also witnessing significant gains.

Insights from Joe Terranova

Joe Terranova provides a foundational understanding of momentum's success in bull markets. He emphasizes that "in a bull market you are going to see that investors are going to pay a premium for where they could Find confidence, confidence reflected in strong technicals" (02:21). Terranova explains that the rise of algorithmic funds, which prioritize price movements, further amplifies momentum factors. He also posits that momentum can serve as a leading indicator for market inflection points, referencing how momentum peaked in November 2021 before the market downturn.

Perspectives from Josh Brown

Josh Brown shares his strategy for selecting momentum stocks across a diverse array of industries, avoiding dependence on specific themes. "There's the range of industries and sectors... it's all over the map. There's no specific theme...you don't have to just be an expert or key on, on one or two themes," he notes (03:27). Brown underscores the advantage of this approach, allowing investors to benefit from momentum without being confined to particular sectors, thereby capturing growth from varied market segments.

Stephanie Link on Financials

Stephanie Link spotlights CrowdStrike as a prime example of a momentum stock recovering robustly. She highlights the company's impressive growth metrics: "This company is going to grow revenues at about 30% and earnings about 40%. ... retention is about 98%..." (05:22). Link argues that cybersecurity, much like artificial intelligence, is a burgeoning field with significant growth potential, positioning CrowdStrike as a leader in an expanding industry.

Surat Sethi on the Financial Sector

Surat Sethi provides a comprehensive overview of the financial sector's momentum, noting its broad-based strength beyond just asset management firms. "You've got a combination of not just price but earnings and cash flow... what is the true valuation for these?" (07:00). Sethi emphasizes that financial companies are benefiting from positive interest rates, a steeper yield curve, and robust lending activities, making the sector a cornerstone of the current momentum-driven market.

Semiconductor Sector: Rotation into Equipment

The discussion shifts to the semiconductor industry, where a notable rotation from chip manufacturers to equipment producers is underway. Josh Brown points out, "Semi equipment is on fire. KLA up 20%, AMAT up 11..." (10:51), highlighting the stellar performance of companies like KLA and Applied Materials. Joe Terranova echoes this sentiment, noting that while semiconductor stocks like Nvidia and AMD face short-term challenges, the equipment segment is booming due to increased demand for manufacturing tools essential for chip production.

Stock Specifics: Broadcom and Nvidia

Broadcom emerges as a focal point, with Stephanie Link detailing its diversified revenue streams and strong free cash flow: "it has a diversified total revenue mix between a software and some of the cyclical end markets that haven't seen a recovery just yet and their free cash flow is enormous," she explains (12:56). Meanwhile, Nvidia is discussed in the context of its substantial year-over-year gains and ongoing demand fueled by AI advancements, although concerns about overvaluation persist.

Interaction with Al Michaels: Stock Picks and Super Bowl Insights

In a special segment, sports broadcasting legend Al Michaels joins the panel to discuss stock picks and the upcoming Super Bowl. Josh Brown presents Moody's (MCO) as a new recommendation, stating, "This company sits in the sweetest of sweet spots... I'd like to put you down for a thousand shares just to get to know each other," (35:35). The conversation seamlessly blends sports insights with investment strategies, emphasizing Moody's dual role in investor services and AI-driven data analytics.

Spin-offs: Honeywell's Strategic Split

The panel examines Honeywell's announcement to spin off into three separate companies: Automation, Materials, and Aerospace. Stephanie Link provides historical context, noting that past spin-offs like GE Renova have significantly outperformed the market: "spinoffs tend to outperform the market by 10.2% two years after completion," (43:28). Link advocates for spin-offs, highlighting that they allow both the parent and new entities to focus on their core strengths, often leading to enhanced growth and profitability.

Final Trades and Strategic Recommendations

As the episode draws to a close, each expert shares their final stock recommendations and strategic moves:

• Stephanie Link endorses Boeing and Oracle, citing their strong market positions and growth prospects.

• Josh Brown maintains a long position in Uber, commending its strategic positioning in autonomous vehicles: "this company is the best positioned autonomous vehicle player. I think it's better positioned, quite frankly, than Waymo or Tesla," (21:28).

• Joe Terranova and Surat Sethi reinforce the strengths of the financial sector and the importance of maintaining diversified investments across momentum-driven industries.

Conclusion

This episode of Halftime Report offers a comprehensive analysis of current momentum stocks, sector-specific trends, and strategic investment insights. The panel underscores the importance of diversified momentum investing, the shifting dynamics within key sectors like financials and semiconductors, and the potential opportunities arising from corporate spin-offs. For investors looking to navigate the fast-paced market, the expert advice provided offers valuable guidance to harness the power of momentum and capitalize on emerging trends.

Notable Quotes:

• Joe Terranova (02:21): "In a bull market you are going to see that investors are going to pay a premium for where they could Find confidence, confidence reflected in strong technicals."

• Josh Brown (03:27): "There's the range of industries and sectors... it's all over the map. There's no specific theme...you don't have to just be an expert or key on, on one or two themes."

• Stephanie Link (05:22): "This company is going to grow revenues at about 30% and earnings about 40%. ... retention is about 98%..."

• Surat Sethi (07:00): "You've got a combination of not just price but earnings and cash flow... what is the true valuation for these?"

• Josh Brown (10:51): "Semi equipment is on fire. KLA up 20%, AMAT up 11..."

• Josh Brown (35:35): "This company sits in the sweetest of sweet spots... I'd like to put you down for a thousand shares just to get to know each other."

• Stephanie Link (43:28): "spinoffs tend to outperform the market by 10.2% two years after completion."

Disclaimer: All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC, NBCUniversal, or its affiliates. The content is for informational purposes only and should not be construed as financial advice.