eyeQ: AstraZeneca shares and a tactical entry point
interactive investor has teamed up with experts at eyeQ who use artificial intelligence and their own smart machine to generate actionable trading signals. Their model currently shows AstraZeneca could be about to get interesting.
7th February 2024 10:04
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
Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
AstraZeneca
Trading signal: strategic long-term
Model value:10,759.71p
Fair Value Gap (premium/discount to Model Value): -2.7%
Model relevance: 66%
Data correct as at 7 February 2024. Please click glossary for explanation of terms.
AstraZeneca (LSE:AZN) reports its full-year and fourth-quarter results on Thursday, but let's not fixate solely on results. Macro conditions are back in the spotlight.
For the last year, eyeQ’s macro relevance figure for Astra has been low – this tells investors that company news mattered more than macro conditions.
But now macro relevance is at 66% - when relevance is above 65% our research suggests the stock is being driven by macro factors.
Put another way, investors can no longer focus exclusively on company fundamentals – they need to be aware of the big picture stuff like economic growth, inflation, the Bank of England etc.
So, what is the macro perspective?
Despite the recent sell-off, model value held steady through January, leaving AstraZeneca 2.7% undervalued in macro terms, according to our smart machine. While not a massive Fair Value Gap, it's approaching interesting levels.
In fact, our smart machine shows that when our Astra shares fall more than 4% below eyeQ model value, we have ourselves an efficient signal.
Since 2009 there have been 41 occasions when the pharmaceutical company has had high macro relevance and been that cheap on our models. So, crudely, such an opportunity occurs nearly three times a year.
And using that level as a buy-the-dip signal has an 86% hit rate. That simply means 8.6 times out of 10, the signal made money. On average it took four weeks to make 3.4%.
We’re not there yet but one to watch. Should earnings disappoint and prompt a sell-off, then we could see a tactical entry point.
Useful terminology:
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 (macro) 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
The Long Term 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.
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