Naughty Flicks

Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenu(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — We can’t help ourselves. We see (or imagine) patterns everywhere we look. It’s how we evolved. If your distant ancestors hadn’t been in the prediction business, you wouldn’t be reading this right now. The ones who couldn’t read the signs didn’t live long enough to pass on their genes, and the line that led to you would have ended long ago. For most of human history, survival depended on prediction. Dark clouds meant rain, a certain berry meant a sick stomach, and rustling grass might be wind or might be a predator. The brain evolved as a prediction machine, constantly forecasting what comes next and rewarding itself with dopamine when it’s right. Pattern detection is also cheap, and a brain that burns about a fifth of the body’s energy can’t treat every moment as brand new. So it compresses the world into rules. But a prediction machine has a built-in bias. Missing a real pattern, like ignoring the rustle that was a tiger, could be fatal, while seeing a false one costs only a little adrenaline. So evolution tuned us to flinch first and ask questions later. We see faces in clouds and meaning in streaks, and the urge only gets stronger when we feel a loss of control. Markets are a prediction machine’s playground, and its trap. When a new threat appears, like AI eating whole categories of software and data businesses, investors don’t wait for proof. They sell the rustle in the grass. Sometimes the tiger is real. Sometimes it’s wind, and the stock that flinches goes on to recover. Today’s name is one that flinched. On Thursdays we use this column to highlight a single name. Today it’s Moody’s (MCO) , which rates the debt of companies and governments and sells risk data and analytics to banks and insurers. Last week we showed you MSCI (MSCI) , a data and index provider that got caught in the same AI sell-off earlier this year and is now back at all-time highs. Moody’s fell more than 19% by mid February, bottomed near $402, and spent most of the year stuck in a wide range. Now it’s pressing on the top of that range. One holder didn’t flinch. Berkshire Hathaway has owned Moody’s since 2000, and its latest 13F (for the quarter ended June 30) shows about 24.7 million shares, worth roughly $11 billion, with the share count unchanged from the prior quarter. Through the AI sell-off, Berkshire neither sold nor added. Sean will explain why the data underneath this business matters more in an AI world. I’ll be back with the chart. Best Stock Spotlight: Moody’s Corp. (MCO) Sean — The underlying data is what makes Moody’s essential for a world dominated by AI. The LLM models are only as good as what they can pull from, and most of Moody’s data can’t be scraped from public sources. CEO Rob Fauber said on the Q3 call that customers are plugging Moody’s research directly into their own AI platforms. MCP users (Model Context Protocol — this is how AI gets its data from approved sources) have more than quadrupled in three months and usage is up more than tenfold . Analysts using it are reaching three times more content per day. He also said “AI is amplifying the value of the trusted data insights.” If AI really is going to change the world like most think it is, the underlying data will become a resource for companies. Data for the LLMs is akin to oil for engines. It does not work without it. We wrote about MSCI last week, and Moody’s is a great comp. Both sell proprietary data and analytics to the same asset managers, banks and insurers. They also got hit by the same AI scare earlier this year. One big difference, and you’ll see it in the technical chart below, is that MSCI is up 14% year to date, while Moody’s is flat. That AI scare started when Anthropic’s legal plug-in set off a selloff across software and information services. Ratings agencies, data providers and index providers all fell 5% or more intraday. By February 18, Moody’s was down more than 19% for the year, and it eventually hit a 52-week low of $402. It has since recovered to $514.53, up 10% in the past month and about 6% below its 52-week high of $547, giving it a spot on our list. Moody’s has two businesses. Moody’s Investors Service is the credit ratings agency, which brought in $1.09 billion of Q3 revenue on roughly $1.7 trillion of rated debt issuance. Moody’s Analytics brought in $936 million and sells credit risk, insurance catastrophe models and KYC (Know Your Customer) compliance data to banks and insurers. It is 99% recurring revenue with $3.7 billion in ARR. Is 99% good? Moody’s reported Q3 earnings on Oct. 21. Revenue rose 1% to $2.02 billion and adjusted EPS rose 6% to $4.14, both short of consensus, as rated issuance fell 2% and high yield and leveraged loans pulled back. The positives were investment-grade issuance up 16% and AI-related issuance running at about 4x last year. First-time rating mandates rose 40%, the highest quarterly total in five years, and Analytics ARR grew 8%. Management maintained full-year adjusted EPS guidance of $16.50 to $17. The next earnings report will be in 2027, landing in mid February. Risk management Josh — Unlike MSCI, Moody’s is not in an uptrend. MSCI has already reclaimed all-time highs. Moody’s has gone sideways all year, up less than 1% since January, with a low of $402 in February and a high of $547. At about $515, it is pressing the top of that range, and a breakout may be coming. But a breakout that hasn’t happened is only a possibility. MSCI is a trend you’d be joining, while Moody’s is a setup you’d be anticipating, and setups can fail. Inside that range, the July and August highs near $520 capped two rallies. The stock poked above them on Nov. 4, closing at $528 with a high of $531, and then gave it back. The earnings day Sean described above is where the buyers showed up. Sellers pushed the stock to the mid $450s intraday on Oct. 21 and couldn’t hold it, and it closed at $481. The stock is now $515, with the 50-day at $478 and the 200-day at $466, both well below. The $547 January high is the level to clear. A close above it is the breakout. With RSI at 62, momentum has cooled from a push into the low 70s on Nov. 4 while price gave back less than 5%. The early October low washed RSI down to about 30, so the stock is approaching the top of the range from a reset reading. It has room to make the run at $547 without starting from a stretched reading. Traders can use $475 as their stop. That’s the late October low, and the 50-day at $478 sits right on top of it. That’s not an accident. A close below it puts the stock back under the 50-day and below everything it built since earnings. That’s the cheapest way to learn whether this trade works. Investors can anchor to $455, the October 21st earnings-day low. Sellers took the stock there and buyers took it right back, with the 200-day at $466 sitting just above. A weekly close below $455 and the October advance has failed. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. 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