eyeQ: 10 actionable trading signals for week beginning 13 May 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 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.

Source: eyeQ. Long Term tactical models. Data correct as at 13 May 2024.

JD Wetherspoon

It's time to revisit this bellwether stock. Have things changed? 

It's spring season, and that means beer gardens are open again, which is good news for Wetherspoon (J D) (LSE:JDW).

The pub company posted earnings last week and the results showed strong sales growth, with full-year profit expected to beat market expectations. 

The results brushed off fear stemming from the closure of 18 pubs at the start of the year, but this is just part of a strategy shift. Wetherspoon has been reducing its pub count since 2015, well before inflation peaked. What matters is that sales are still growing.

So is it time to buy this stock?

JDW is back in regime on eyeQ, so it's time for investor to keep an eye on big picture stuff such as the Bank of England and risk appetite.

Shares are currently trading where overall macro conditions say they should be. There’s no big Valuation Gap right now. So no signal yet from eyeQ’s smart machine; it’s more a case of watching what model value (where our smart machine says a stock should trade) does next. And there are early signs that macro conditions are starting to improve - after falling sharply in April, model value has started to edge higher more recently. One to watch.

Source: eyeQ. Long Term tactical models. Data correct as at 13 May 2024

Alibaba

All eyes will be on Chinese e-commerce and cloud giant Alibaba Group Holding Ltd ADR (NYSE:BABA) on Tuesday as they release Q4 results. The domestic e-commerce market has been experiencing headwinds, but analysts expect the firm to post modest growth.

This comes at an interesting time. The Chinese economy had a patchy recovery after the post-Covid reopening. BABA's earnings come ahead of retail sales data, which is due later this week. Meanwhile, Chinese stocks have rallied hard of late. The iShares ETF for large cap Chinese stocks (FXC) has bounced around 17.5% in the last month.

Can this rally continue? If it is the market will need to see strong earnings from the big stocks like Alibaba.

But are there macroeconomic headwinds that investors need to know about?

The macro backdrop is important for Alibaba – eyeQ’s macro relevance score is 65% so the stock is in a macro regime. The stock currently sits at 5.31% above eyeQ model value. That’s not rich enough to trigger a bearish signal, but it does suggest a fair degree of goods news is in the price. Put another way, the onus is on earnings to deliver fresh reasons for buyers to step up.