eyeQ: 10 actionable trading signals for week beginning 1 April 2024

"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." EyeQ

• Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary

This new series of weekly articles uses eyeQ’s smart machine to highlight 10 stocks whose share price trades at either a discount or premium to eyeQ’s Model Value price (where macro conditions say the share 'should' trade).  

A minus figure in these tables indicates a share trading below eyeQ’s Model Value, implying they are ‘cheap’ versus macro conditions. A plus figure screens as rich because the current share price is above eyeQ’s Model Value.  

All companies must have a model relevance above 65%, which means the macro environment is critical and any valuation signals carry strong weight.

Here are definitions of terms used in the analysis: 

Model value

Where our smart machine calculates that any stock market index, singe stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment. 

Model relevance

How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price. 

Fair Value Gap (FVG)

The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.  

Long Term model

This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.

UK Top 10

Source: eyeQ. Long-term tactical models. Data correct as at 2 April 2024

The second quarter starts with a round of stronger economic data after a prolonged period of contraction, both US and Chinese PMIs (Purchasing Managers' Index) suggest manufacturing is expanding. As a result, the chances of a June rate cut from the Federal Reserve have fallen to just under 50:50. In January, the market was expecting six, or even seven, rate cuts in 2024 starting as soon as March. Now it’s a coin toss whether they start cutting in June. If easier Fed policy was one story driving equities higher in Q1, that narrative seems to be unwinding.

So, this week we highlight two potential bearish trade ideas for investors to consider.

Trainline

Last week Trainline (LSE:TRN) announced good news – the end of UK rail strikes helped propel domestic sales, while it continues to make strides expanding into continental Europe. As a result they announced strong revenue growth, which was followed by a raft of broker upgrades.

So, there’s been good company news from a bottom-up perspective. The picture from the top-down view is different, however. Macro conditions are flat-lining. eyeQ’s model value has moved sideways for the last month suggesting the big picture stuff such as growth and inflation are neither helping nor hindering the stock.

The result is Trainline now sits 18.6% rich to overall macro conditions. The good micro news looks fairly fully priced to us. And the macro view is that this is not one to chase.

Kraft Heinz

It’s exactly the same picture for the US package food maker The Kraft Heinz Co (NASDAQ:KHC), which has now risen for 11 consecutive days – its longest winning streak since July 2015. But once again, eyeQ model value has not justified this latest rally with overall macro conditions moving sideways. That leaves the stock 9.7% rich from a big picture perspective.

This time there’s no trading update or raft of brokers upgrades explaining the move. But there is clear momentum. If you believe US equity markets can take the strong start from Q1 and build on it in Q2, Kraft Heinz can be justified as a pure momentum play.

If, however, you fear equity markets are starting to look stretched, Kraft Heinz is another stock where a lot of good news appears to be already in the price. And, as such, it could be one that is vulnerable if we get any near-term correction.

International Top 10

Source: eyeQ. Long-term tactical models. Data correct as at 2 April 2024.