Artificial intelligence leveraging the raw power of Big Data might just be the edge tactical investors and traders need to navigate one of the toughest years in market history.
Rising interest rates, the highest inflation in four decades and mounting fears of recession have the S&P 500 mired in a bear market. At times like this, it's fair to say market participants need all the help they can get finding stocks to watch.
Artificial intelligence (AI), machine learning and big data are hardly new to the world of stock picking. But, traditionally, they've been available only to institutional investors with deep pockets.
Danelfin is trying to change all that. The financial technology firm's AI-driven analytics platform aims to level the playing field, giving regular folks access to institutional-level technology. The platform, which offers both free and premium plans, uses artificial intelligence to analyze more than 900 fundamental, technical and sentiment data points per day for 1,000 U.S.-listed shares (opens in new tab) and 600 stocks listed in Europe (opens in new tab).
After churning through 10,000 daily indicators (opens in new tab), Danelfin's algos produce a series of scores. The AI Score, which ranges from 1 to 10, indicates a stock's probability of beating the market over the next 30 to 90 trading sessions. (Higher scores are better.) Danelfin also assesses stocks' volatility and their potential for nasty drawdowns. Stocks with superior Low Risk Scores should help tactical investors and traders sleep better at night.
The last step is to combine AI Score with Low Risk Score to suss out stocks that offer not only the highest probability for short-term outperformance, but also the lowest risk of loss.
Below please find three stocks to watch, based on Danelfin's AI platform awarding them the highest AI Risk/Reward Scores as of March 20. For good measure, we also took a look at what Wall Street analysts have to say about these names' prospects over the next 12 months or so.
And remember: We're talking about the probability of a stock beating the market over the next few months or so, not days, and not years. That means the platform is pointing to the best stocks to buy for tactical investors and traders, not necessarily long-term investors.
Share prices and other market data as of March 20. AI Scores and rankings courtesy of Danelfin as of March 20. Analysts' consensus recommendations and other data courtesy of S&P Global Market Intelligence, unless otherwise noted.
Waste Management
- Market value: $63.1 billion
- AI Score: 9
- Low Risk Score: 10
- AI Risk/Reward Score: 9.5
Waste Management (WM (opens in new tab)) stock might be lagging the broader market so far this year, but signals picked up by Danelfin's AI platform say shares are poised for outperformance over the next 30 to 90 trading days.
WM stock is riding a six-week streak of near-perfect AI Scores, supported by high and stable marks for fundamental, technical and sentiment indicators. Meanwhile, a perfect 10 Low Risk score means WM stock shouldn't surprise investors with any nasty drawdowns.
Longer term investors should know that analysts, who typically look 12 to 18 months out, take a more mixed view of WM's prospects off current levels. Indeed, Wall Street gives shares a consensus recommendation of Hold, per S&P Global Market Intelligence.
And while it's true an economic downturn later this year could set the business back, bulls contend that no company in the industry is better situated for long-term success.
"We view WM as a leader in the waste management industry in navigating the evolving ton," writes Oppenheimer analyst Noah Kaye, who rates shares at Outperform (the equivalent of Buy). "We believe WM is demonstrating an impressive ability to drive higher organic growth via disciplined pricing and technology-supported customer value creation."
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PepsiCo
- Market value: $244.5 billion
- AI Score: 9.0
- Low Risk Score: 10
- AI Risk/Reward Score: 9.5
That one of the largest makers of carbonated beverages and other soft drinks should make the list of top stocks picked by AI shouldn't really come as a surprise.
As we noted some time ago, PepsiCo (PEP (opens in new tab)) and other industry peers are great stocks to own when markets are volatile and inflation is running hot. Indeed, dividends, defense and inflation protection have helped PEP stock generate a total return (price change plus dividends) of 12% over the past 52 weeks.
That beats the broader market by more than 20 percentage points, and AI says Pepsi stock isn't done generating alpha just yet.
PEP stock gets near-perfect or perfect scores across the board from Danelfin's algos, making it the runaway top stock to watch for outperformance over the next few months. Consistently high readings for fundamental, technical and sentiment indicators inform PEP's perfect score for projected outperformance.
Meanwhile, PEP has always been a low volatility stalwart. With a five-year beta of 0.59, PepsiCo stock can sort of be thought of as being about 40% less volatile than the broader market.
As popular as PEP is with AI for short-term outperformance, the Street likes its chances over the next 12 to 18 months too. Of the 23 analysts issuing opinions on PEP, six rate it at Strong Buy, five say Buy, 11 have it at Hold and one calls it a Strong Sell. That works out to a consensus recommendation of Buy, albeit it with only modeate conviction.
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Bristol-Myers Squibb
- Market value: $142.1 billion
- AI Score: 9.0
- Low Risk Score: 10
- AI Risk/Reward Score: 9.5
Bristol-Myers Squibb (BMY (opens in new tab)) happens to be one the greatest health care stocks of all time. Danelfin's algos say it's set to maintain its market-beating ways over the next few months, as well.
Nine consecutive weeks of near-perfect marks for fundamentals, a 16-week stretch of near-perfect scores for technicals and an even longer streak of almost blemish-free sentiment indicators make BMY spring-loaded for outperformance.
At the same time, a perfect Low Risk score should help traders sleep well at night.
Wall Street, which looks farther out than Danelfin's AI platform, is bullish on BMY's prospects for the rest of 2023 and beyond. Of the 25 analysts covering the stock tracked by S&P Global Market Intelligence, eight rate shares at Strong Buy, three say Buy, 13 have it at Hold and one calls it a Strong Sell. That works out to a consensus recommendation of Buy, albeit with somewhat mixed conviction.
Meanwhile, the Street's average price target of $80 gives BMY stock implied price upside of about 18% in the next 12 months or so.
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