Quant Ratings Updated on 87 Stocks Dear Reader, We’re finally in the last week of August… and thank goodness for that.
August is historically characterized by light trading volume and some seasonal shenanigans, but I had hoped that this August would buck the historical trend and be a fairly positive month for the market.
The reality is there were plenty of reasons for broader market strength. Inflation was cooling off, the Federal Reserve was becoming more dovish, the U.S. economy was bouncing back, and second-quarter earnings results were coming in much better than analysts had anticipated.
But given that the S&P 500, Dow and NASDAQ are all down sharply for the month, that’s clearly not the case.
Instead, investors were once again subjected to seasonal shenanigans. The latest shenanigans are “zero day options,” which expire the same day they’re opened. As a result, they can cause sharp selloffs or short-covering rallies. Amazingly, zero day options now account for 43% of all options, up from only 6% in 2017.
This essentially means that the “tail likes to wag the dog” as hedge funds and other active investors rush for cover. Internally, we like to call the option gyrations “Skynet” after the Terminator movies when artificial intelligence (AI) takes over the world.
Citadel’s trading algorithms also worked against the market. Their algorithms are largely based on “mean reversion,” which means that what is up can suddenly be down. Case in point: the post-earnings reaction to NVIDIA Corporation’s (NVDA) stunning record results last Wednesday.
As I discussed last week, NVIDIA’s second-quarter earnings surged 429% year-over-year to $2.70 per share, up from $0.51 per share in the second quarter of fiscal year 2023. The consensus estimate called for earnings of $2.09 per share, so NVIDIA beat estimates by 29.2%.
Total second-quarter revenue increased 101% year-over-year to $13.51 billion – a new record for the company. Analysts only expected revenue of $10.3 billion.
The stock surged in after-hours trading on Wednesday, and then Thursday morning the stock jumped 6.6% at the open and lifted the broader market along with it.
But when the mean reversion algorithms kicked in, NVDA reversed course. The stock ended the day about flat and the major indices pulled back as well. This Week’s Ratings Changes Given NVIDIA’s blowout earnings, the company continues to hold an A-rating in Portfolio Grader. However, following last week’s volatility, I decided to revise my Portfolio Grader recommendations for 87 other big blue chips. Of the 87 stocks, 30 were downgraded from a B-rating (Buy) to a C-rating (Hold), and 11 were downgraded from a C-rating to a D-rating (Sell).
I’ve listed the first 10 stocks that were downgraded from a B-rating to a C-rating below, but you can find the full list – including the stocks’ Fundamental and Quantitative Grades – here.
Chances are that you have at least one of these stocks in your portfolio, so you may want to give this list a skim and act accordingly. | | | ABNB | Airbnb, Inc. Class A | C | | APA | APA Corporation | C | | ARCC | Ares Capital Corporation | C | | BEKE | KE Holdings, Inc. Sponsored ADR Class A | C | | BHP | BHP Group Ltd Sponsored American Depositary Receipt Repr 2 Shs | C | | BIDU | Baidu Inc Sponsored ADR Class A | C | | BURL | Burlington Stores, Inc. | C | | CNHI | CNH Industrial NV | C | | CNQ | Canadian Natural Resources Limited | C | | COP | ConocoPhillips | C | If you’re searching for good stocks to buy, then look no further than my Accelerated Profits Buy List, which is chock-full of fundamentally superior stocks. My Accelerated Profits stocks have superior forecasted sales (21.9%) and earnings growth (49.6%), as well as a strong earnings surprise history (19%). In comparison, according to FactSet, second-quarter S&P 500 earnings declined 5.2% and sales increased a measly 0.6%. The average earnings surprise is 7.2% and the average sales surprise is 1.6%.
If you’re wondering how I find such strong stocks, it all boils down to my revolutionary piece of software.
It’s called Computational Risk-Integrated System for Income Stability, or “C.R.I.S.I.S. Cash” for short.
At its core, C.R.I.S.I.S. Cash uses a series of artificial intelligence (AI) algorithms to constantly scour massive amounts of data looking for patterns. Many of these patterns are nonlinear, meaning you’re not going to be able to see them with the naked eye. But the more data you feed it, the more patterns it can spot.
And my C.R.I.S.I.S. Cash system just spotted a new stock with major upside potential. I’ll release the full details – ticker symbol and all – on Thursday after the market closes.
So, if you want to learn more about C.R.I.S.I.S. Cash and how to access the new pick and my full Accelerated Profits Buy List, click here.
(If you are already an Accelerated Profits member, you can log in here.) Sincerely, |
| Louis Navellier
Editor, Market 360
P.S. Unless you’ve been living under a rock, you’ve seen how generative AI softwares like ChatGPT are exploding in popularity… And threatening to decimate many professions including: graphic design, computer programming and law.
But AI will have another victim… and, unfortunately, nobody sees it coming.
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The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
BHP Group Ltd Sponsored American Depositary Receipt Repr 2 Shs (BHP), ConocoPhillips (COP) and NVIDIA Corporation (NVDA) |
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