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
"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 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 |
77% | 173.10p | -28.32% | |
67% | 771.15p | -5.35% | |
68% | 247.31p | -1.56% | |
69% | 77.32p | -0.55% | |
77% | 227.79p | -0.35% | |
79% | 456.47p | 0.25% | |
85% | 2694.18p | 2.81% | |
78% | 1065.19p | 4.38% | |
71% | 49.83p | 8.96% | |
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 |
82% | €145.52 | -13.46% | |
72% | $52.16 | -9.94% | |
68% | €443.72 | -8.21% | |
70% | $41.52 | -7.00% | |
74% | $60.17 | -3.48% | |
83% | $152.92 | 5.72% | |
90% | $92.53 | 7.37% | |
75% | $119.56 | 9.65% | |
69% | $16.73 | 10.13% | |
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.
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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.
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