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eyeQ: rates heading lower, so check this cheap stock

Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. This is what it tells us about this small-cap share.

1st August 2024 09:38

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

Foxtons

Trading signal: long-term strategic model
Model value:74p
Fair Value Gap: -11% discount to model value
Model relevance: 77% 

Data correct as at 31 July 2024. Please click glossary for explanation of terms.

UK 10-year gilt yields have dropped from 4.4% earlier this month to 4%, the UK 2-year yield has similarly dropped 0.4% - highly suggestive of upcoming rate cuts by the Bank of England.

There are various drivers for this, both domestic and international. The Labour Party has surprised by being more prudent on handling budgetary matters than expected, witness the tight control on spending. We are also seeing continued economic problems in China with the government there keen to export their way out by pushing down global prices and interest rates.

And, of course, the US Federal Reserve gave a strong signal at Wednesday’s meeting that the beginning of a cutting cycle is near, with the speed of cuts determined by data such as employment figures due out on 2 August.   

Foxtons Group (LSE:FOXT) has a terrible history as a stock. It came to the market 10 years ago at close to £3 and dropped steadily by more than 90% to under 30p towards the end of 2022 before picking over the last year to 67p now.

As an estate agent, Foxtons’ business is driven by housing transactions, and these should be helped by lower interest rates as mortgages become more affordable. Rightmove suggests that agreed sales are picking up, the latest monthly data on sales is up 15% versus last year. Five-year fixed mortgage rates are now below 5% compared to over 6% a year ago, and there may be room for them to fall further.  

The eyeQ machine is suggesting here that Foxtons is trading cheap to model by approximately 11%. See the chart below. The machine also tells us that Foxtons stock is sensitive to Bank rate cuts and lower inflation while wanting a stronger UK economy. The model momentum for Foxtons is strong and the cheapness to model is quite big compared to history.  

Foxtons eyeQ graph

Source: eyeQ. Past performance is not a guide to future performance. 

Useful terminology:

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 (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

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.

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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    The Big PictureETFsUK shares

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