4 Cheap Stocks That Could Win as the AI Trade Cools

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The analysis focuses on a "core manager" strategy, emphasizing growth with disciplined valuations to lower downside risk. The R.U.N.N. ETF is presented as an example of this strategy, having surged 1.76% on a down day and 6.36% over the month in October. The presenter explains that "core" in investment style refers to a blend of value and growth characteristics within each market cap range, fitting their strategy into the mid-cap core category. The main thesis is that while many investors focus on large-cap growth, the underinvestment in mid and small-cap companies creates opportunities. The presenter highlights the historical trend of profitable, high-quality, low-volatility stocks outperforming during market downturns. The current market, however, shows a 12x increase in passive investing inflows, with momentum at the 99.8th percentile, indicating extreme concentration in certain stocks. The S&P 500's earnings growth is noted as volatile, with some companies exhibiting "circular financing" to inflate revenue and equity, and extending depreciation schedules to boost current earnings. The analysis suggests that while immediate earnings might look high, the underlying fundamentals driven by these accounting practices are questionable, and the AI build-out, while massive, is not necessarily leading to sustainable operational earnings. The strategy advocates for focusing on companies with consistent earnings growth within the constraints of lower downside risk, rather than chasing momentum.

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