Interactive Investor

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

We've teamed up with experts at eyeQ whose AI and own smart machine generate actionable trading signals. Here, they highlight 10 UK shares and 10 overseas stocks either cheap or expensive given current macro conditions.

1st July 2024 12:41

by Huw Roberts from eyeQ

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"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

This 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, single 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

Company

Macro Relevance

Model Value

Fair Value Gap

Centrica (LSE:CNA)

77%

173.10p

-28.32%

Wetherspoon (J D) (LSE:JDW)

67%

771.15p

-5.35%

Grainger (LSE:GRI)

68%

247.31p

-1.56%

Jupiter Fund Management (LSE:JUP)

69%

77.32p

-0.55%

Legal & General Group (LSE:LGEN)

77%

227.79p

-0.35%

easyJet (LSE:EZJ)

79%

456.47p

0.25%

Greggs (LSE:GRG)

85%

2694.18p

2.81%

Savills (LSE:SVS)

78%

1065.19p

4.38%

Lloyds Banking Group (LSE:LLOY)

71%

49.83p

8.96%

Barclays (LSE:BARC)

78%

187.50p

10.24%

Source: eyeQ. Long Term tactical models. Data correct as at 1 July 2024.

On Thursday the UK votes, and the polls still point to a Labour government. Among financial analysts the consensus is this will be a net positive for markets. The perceived winners are most likely UK banks, homebuilders and grocers; the losers energy and water companies.

Looking at eyeQ’s weekly snapshot of UK stocks with the biggest Fair Value Gaps (difference between our model value and the current share price), we can see the markets have, to a fair degree, already moved to price this in. Several of the potential winners screen as rich relative to macro conditions.

Two banks (Lloyds Banking Group (LSE:LLOY) and Barclays (LSE:BARC)) have rallied further than macro fundamentals currently justify. Ditto Savills (LSE:SVS) the estate agent and Greggs (LSE:GRG) the grocer. This suggests the market has chased these stocks higher, driven by hopes of a new, more friendly political environment. The macro view is that these aren’t great levels to chase.

The other standout is Centrica (LSE:CNA) where the outlook is harder to gauge. A Labour government is likely to possibly increase taxes on traditional energy firms. But it is also likely to boost spending on green energy infrastructure. From a purely macro perspective, the stock is cheap, but extra research is needed to gauge how changing political policies will impact.

International Top 10

Company

Macro Relevance

Model Value

Fair Value Gap

Airbus SE (EURONEXT:AIR)

82%

€145.52

-13.46%

Delta Air Lines Inc (NYSE:DAL)

72%

$52.16

-9.94%

L'Oreal SA (EURONEXT:OR)

68%

€443.72

-8.21%

On Holding AG (NYSE:ONON)

70%

$41.52

-7.00%

Anheuser-Busch InBev SA/NV ADR (NYSE:BUD)

74%

$60.17

-3.48%

Advanced Micro Devices Inc (NASDAQ:AMD)

83%

$152.92

5.72%

Royal Bank of Canada (NYSE:RY)

90%

$92.53

7.37%

Dollar General Corp (NYSE:DG)

75%

$119.56

9.65%

Infosys Ltd ADR (NYSE:INFY)

69%

$16.73

10.13%

Bank of America Corp (NYSE:BAC)

86%

$35.61

10.46%

Source: eyeQ. Long Term tactical models. Data correct as at 1 July 2024.

For months now, news in the aircraft sector has been dominated by the problems at Boeing Co (NYSE:BA). And what was bad for Boeing was good for its arch-rival Airbus SE (EURONEXT:AIR).

That story shifted last week when Airbus lowered its 2024 profit outlook by 20%, prompting a 14% crash in the stock price.

That decline leaves the stock 13.5% cheap to macro conditions. It screens as the cheapest international stock on eyeQ right now.

There is a big “but” however. Model value also fell hard last week. Not because of the supply chain issues the company is facing, and which they blame for the lower guidance. But because macro conditions are deteriorating rapidly. The company is especially reliant on strong global economic growth. It is the single biggest driver of the eyeQ model.

That means the stock is especially vulnerable to the recent spate of weaker economic data which has people worried once again about a possible recession in the US and Europe. At the end of May, macro conditions were consistent, with Airbus stock trading around €169. Today that macro “target price” is €143.

Airbus is cheap on our model, a fair degree of bad news is already in the price. But we’d like to see macro conditions at least stop falling (and ideally turn higher) before the machine fires a bullish signal.

These third-party research articles are provided by eyeQ (Quant Insight). interactive investor does not make any representation as to the completeness, accuracy or timeliness of the information provided, nor do we accept any liability for any losses, costs, liabilities or expenses that may arise directly or indirectly from your use of, or reliance on, the information (except where we have acted negligently, fraudulently or in wilful default in relation to the production or distribution of the information).

The value of your investments may go down as well as up. You may not get back all the money that you invest.

Equity research is provided for information purposes only. Neither eyeQ (Quant Insight) nor interactive investor have considered your personal circumstances, and the information provided should not be considered a personal recommendation. If you are in any doubt as to the action you should take, please consult an authorised financial adviser. 

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.

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