eyeQ: 10 actionable trading signals for week beginning 19 August 2024
Experts at eyeQ use AI and their own smart machine to generate actionable trading signals. Here, they highlight 10 UK shares and 10 overseas stocks either cheap or expensive given current macro conditions.
19th August 2024 09:30
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 |
74% | 488.99p | -11.69% | |
77% | 73.77p | -11.10% | |
68% | 8186.50p | -9.65% | |
78% | 237.67p | -2.97% | |
71% | 59.66p | -2.17% | |
79% | 931.92p | 3.63% | |
86% | 3012.00p | 4.72% | |
72% | 12397.79p | 5.82% | |
81% | 595.59p | 10.64% | |
73% | 518.89p | 17.64% | |
Source: eyeQ. Long Term tactical models. Data correct as at 16 August 2024.
Intercontinental Hotels (IHG)
Recession fears hit travel and holiday plans. And this is why Holiday Inn owner InterContinental Hotels Group (LSE:IHG) has been struggling of late. Those fears are understandable but aren’t backed up by the data. At least not yet.
Whenever we get an equity market crash like we’ve just seen, investors need to be asking themselves a couple of critical questions:
- Was the crash a result of something fundamental (the economy slowing) or about market dynamics (crowded positioning, a shift in liquidity conditions)?
- If the latter, then how long does it last? If a long time, then there is very real danger the damage in financial markets spills over into the real economy. If only short-lived, then it remains an issue for markets and investors, but it doesn’t impact consumers and companies in “real life”.
Thus far, the August crash looks more like a short-lived event that impacted financial markets only, not the real economy.
And that’s the message from eyeQ’s model for IHG too. Model value has now bounced back and erased the early August declines. The stock price hasn’t. Hence it screens as 9.65% cheap, a gap that’s big enough to have triggered a bullish signal.
International Top 10 | |||
Company | Macro Relevance | Model Value | Fair Value Gap |
67% | €149.41 | -9.22% | |
67% | $286.87 | -9.16% | |
78% | $151.15 | -6.70% | |
69% | $185.09 | -4.22% | |
72% | $368.37 | -2.30% | |
74% | $486.67 | 1.27% | |
85% | $239.76 | 1.87% | |
80% | $133.62 | 3.04% | |
84% | $46.56 | 4.86% | |
77% | $61.77 | 9.09% | |
Source: eyeQ. Long Term tactical models. Data correct as at 16 August 2024
Home Depot (HD)
The Home Depot Inc (NYSE:HD) reported earnings last week. The results were broadly in line, but the stock was downgraded by several analysts who focused on comments from the CEO suggesting the cost-of-living crisis is increasingly hurting consumer spending. These kinds of anecdotes feed the recent narrative that the US economy is slowing; a narrative that fuelled the recent equity market wobble.
But eyeQ model value for the DIY behemoth has risen 17.2% in the last two weeks. Model value is now above the levels we saw before the early August equity market slump, i.e. in aggregate, macro conditions have improved. The failure of the stock to follow suit leaves it 2.30% cheap on our models.
This idea won’t suit those believing in an imminent recession, but could be an opportunity for anyone who thinks the US consumer and US economy just keep on motoring.
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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.
Please note that our article on this investment should not be considered to be a regular publication.
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