eyeQ: shares to bet on UK consumer?
interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to analyse macro conditions and generate actionable trading signals. This time it analyses two popular stocks.
14th May 2024 11:03
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
Greggs
Trading signal: long-term strategic model
Model value: 2,825.48p
Fair Value Gap: -1.33% discount to model value
Model relevance: 83%
Data correct as at 14 May 2024. Please click glossary for explanation of terms.
Marston’s
Trading signal: long-term strategic model
Model value: 26.96p
Fair Value Gap: +20.12% premium to model value
Model relevance: 58%
Data correct as at 14 May 2024. Please click glossary for explanation of terms.
There’s been macro and micro news out of the UK this morning.
In terms of macro, Bank of England’s (BoE) chief economist Huw Pill has added to speculation that the first interest rate cut could come as soon as this summer. From a micro perspective, two consumer stocks – Greggs (LSE:GRG) and Marston's (LSE:MARS) – have provided updates on trading conditions.
Greggs saw like-for-like sales grow over 7% in Q1; Marston’s saw strong growth at the start of 2024 and gave positive guidance for the upcoming summer months. But both stocks have sold off a little after the initial positive reaction. That just reflects the fact that both have rallied hard of late.
More strategically, if we pull the two stories together - the BoE is hopefully going to cut rates, mortgage rates will fall and UK consumers should feel a little happier - does that mean consumer stocks are attractive, especially those reporting good news at the company level?
In the case of pub group Marston’s, the short answer is no. There’s a health warning in that macro relevance of 58% means company news is as important as the big picture stuff. But still the strong rally in May has taken the stock 20% above where macro conditions say it “should” be. That suggests a lot of good news is in the price and the risk-reward doesn’t advocate chasing further upside from here.
Source: eyeQ. Past performance is not a guide to future performance.
Gregg’s is a macro play - macro relevance (how confident we are in the model value) is 83% and it’s been in a macro regime for over a year now. This looks more interesting to us.
First, macro model value (where our smart machine says the stock should trade) is firmly trending higher. Big picture stuff like economic growth, inflation, and financial conditions are supportive. Second, it is slightly cheap. To be fair, the Valuation Gap (difference between model value and the current share price) is very small – just 1.33%. Not a huge discount by any standard but – unlike Marston’s - it is at least cheap to macro.
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.
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