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By Dan Burrows
last updated
Artificial intelligence (AI) leveraging the raw power of Big Data might just be the edge tactical investors and traders need to navigate an increasingly uncertain market.
Stocks are off to a rocky start in 2024 as market participants grapple with expectations for interest rate cuts, geopolitical uncertainty and the possibility of recession later this year, among other concerns.
"There are unmistakable signs that momentum in the economy is downshifting, and cracks are beginning to appear in the household sector," writes Jay Bryson, chief economist at Wells Fargo Economics.
Suffice to say retail traders can use all the help they can get. That's where Danelfin comes in.
Stock picks by artificial intelligence
AI, machine learning and big data are hardly new to the world of stock picking. But, traditionally, they've been available only to institutional investors with deep pockets.
Danelfin is trying to change all that. The financial technology firm's AI-driven analytics platform aims to level the playing field, giving regular folks access to institutional-level technology. The platform, which offers both free and premium plans, uses artificial intelligence to analyze more than 900 fundamental, technical and sentiment data points per day for all U.S.-listed shares and 600 stocks listed in Europe.
After churning through 10,000 daily indicators, Danelfin's algos produce a series of scores. The AI Score, which ranges from 1 to 10, indicates a stock's probability of beating the market over the next three months, or roughly 60 trading sessions. (Higher scores are better.) Danelfin also assesses stocks' volatility and their potential for nasty drawdowns. Stocks with superior Low Risk Scores should help tactical investors and traders sleep better at night.
The last step is to combine AI Score with Low Risk Score to suss out stocks that offer not only the highest probability for short-term outperformance, but also the lowest risk of loss.
Below please find three stocks to watch, based on Danelfin's AI platform awarding them the highest AI Risk/Reward Scores as of January 11. For good measure, we also took a look at what Wall Street analysts have to say about these names' prospects over the next 12 months or so.
And remember: We're talking about the probability of a stock beating the market over the next few months or so, not days, and not years. That means the platform is pointing to the best stocks to buy for tactical investors and traders, not necessarily long-term investors.
Disclaimer
Share prices and other market data are as of January 12. AI Scores and rankings are courtesy of Danelfin as of January 11. Analysts' consensus recommendations and other data are courtesy of S&P Global Market Intelligence, unless otherwise noted.
1/3
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Autozone
- Market value: $44.2 billion
- AI Score: 9.0
- Low Risk Score: 6.0
- AI Risk/Reward Score: 7.5
Autozone's (AZO) price chart might be a source of frustration for investors these days, but it's flashing some enticing news for traders. According to Danelfin, AZO stock is set to beat the market over the next three months with a minimum of downside risk.
Shares in the auto parts and accessories retailer boast a near-perfect AI Score of 9, per Danelfin's algos, supported by equally high scores for fundamentals and technical indicators. If there's an obvious blemish on AZO's profile, it's that readings for sentiment fell to a neutral score of 5 from a positive mark of 7 over the past month.
Interestingly, Danelfin has a pretty good track record with AZO stock, correctly identifying past three-month buy signals more than 72% of the time.
Wall Street has long been bullish on AZO stock as a long-term holding, and shares in the auto parts and accessories retailer have more than rewarded that faith. Not only has AZO stock beaten the S&P 500 by wide margins over the past three, five, 10, 15 and 20 years, but it has almost doubled the return of the broader market during its time as a publicly traded company.
Sadly, the more recent past hasn't been quite as remunerative for Autozone shareholders. AZO stock missed out on 2023's remarkable rally in equities and is now lagging the broader market by about 15 percentage points over the past 52 weeks.
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2/3
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UnitedHealth Group
- Market value: $481.1 billion
- AI Score: 8.0
- Low Risk Score: 8.0
- AI Risk/Reward Score: 8.0
UnitedHealth Group (UNH) typically ranks near the top of the list of analysts' favorite Dow Jones stocks, and well it should. The nation's largest health insurer by revenue and market value has been a buy-and-hold investor's best friend, beating the broader market by wide margins over the past three, five, 10, 15 and 20 years. Heck, over its entire life as a publicly traded company, UNH has outperformed the by 14 percentage points.
Alas, UNH – as defensive a blue chip dividend stock as they come – didn't participate in 2023's epic equity returns. While the broader market rose 24% on a price basis last year, UNH stock was essentially flat.
Happily for UNH bulls, Danelfin's algos expect the healthcare sector stalwart to deliver market-beating results over the next three months, and with a minimum of risk.Encouraging developments include sentiment readings that have improved to 8 from a neutral rating of 5 over the past three months, as well as rising scores for fundamentals.
It's also worth noting that Danelfin has a good track record with UNH stock. When the fintech's algo's have caught buy signals for UNH in the past, shares have outperformed the broader market over the following three months almost 70% of the time.
As attractive as UNH might look as a trade, Wall Street likes it even more as a long-term bet. Of the 25 analysts issuing opinions on the stock surveyed by S&P Global Market Intelligence, 16 rate it at Strong Buy, five say Buy, three call it a Hold and one says it's a Strong Sell. That works out to a consensus recommendation of Buy, with high conviction.
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3/3
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W.W. Grainger
- Market value: $41.5 billion
- AI Score: 9.0
- Low Risk Score: 7.0
- AI Risk/Reward Score: 8.0
Anyone who is a fan of dividend stocks you can count on for dependable dividend growth is probably already well acquainted with W.W. Grainger (GWW). This member of the S&P 500 Dividend Aristocrats index has increased its dividend for 52 consecutive years and counting.
Thanks in part to those regular and rising payouts, shares in GWW are a long-time market beater. That's not really news, though. What's more interesting is that GWW is poised to beat the market with a minimum of risk over the next three months, per Danelfin's AI platform.
An AI Risk/Reward score of 8.0 suggests that GWW will outperform the broader market over the shorter term – and will do so with comparatively low risk. The stock boasts a near-perfect score for fundamentals going back to April 2022. Meanwhile, readings of technical strength vaulted to 9 from 6 over the past month. Such action bodes well for the GWW's price performance in the nearer term, per Danelfin's assessment.
Be that as it may, folks with longer horizons should know that the Street gives GWW a consensus recommendation of Hold. Of the 16 analysts covering the stock, three call it a Strong Buy, 11 have it at Hold and two slap Sell ratings on the name.
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Dan Burrows
Senior Investing Writer, Kiplinger.com
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily– Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
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