The 'AI' Wannabe Stocks Have Arrived
Editor's note: Don't be fooled by a company's false claims...
With artificial intelligence ("AI") rapidly growing right now, many companies are exploring ways to use AI to enhance their operations. But according to Keith Kaplan – CEO of our corporate affiliate TradeSmith – some companies are falsely branding themselves as "AI companies" in an effort to capitalize on this fast-moving trend...
That's why Keith believes it's critical for investors to understand how to identify legitimate AI investing opportunities in order to avoid getting burned as this technology continues to develop.
In today's Masters Series, originally from the June 28 issue of the TradeSmith Daily e-letter, Keith recaps the rapid growth of AI technology in 2023... details how companies are using AI technology to improve their production... and reveals how you can uncover investable AI opportunities...
The 'AI' Wannabe Stocks Have Arrived
From Nvidia (NVDA) turning into a $1 trillion company to the search engine Bing stealing market share from Google, 2023 has been the year of showcasing the power of artificial intelligence ("AI").
But when you have winners like Nvidia start to emerge, you're going to see more "wannabes" hot on their trail... trying to capture the attention of investors by claiming that they too are "AI companies."
It started in the first quarter of 2023, with a 77% increase of AI mentions on earnings calls.
And one of the most recent examples is grocery-store chain Kroger (KR).
The first headline is courtesy of Bloomberg, showing how quickly a company can try to tap into a new trend after just a few months...
And the one below is from a June 16 Barron's report...
To be clear, there is nothing wrong with a company exploring the ways technology can help it improve its operations and cut costs.
But as an investor, as more "AI opportunities" emerge, you want to make sure that they are in fact AI opportunities...
AI can help Kroger improve its understanding of what customers want, find substitute products, and create a better overall shopping experience.
But don't forget Kroger's core business – selling food.
It's a business that operates with razor-thin margins. And on top of that, Kroger is at the mercy of inflation, supply-chain bottlenecks, and what's being called a "chronic labor shortage" for the grocery industry.
With inflation specifically, TradeSmith senior analyst Mike Burnick even sent out a warning last year that Kroger was a stock to stay away from.
Fast-forwarding to today and putting Kroger under the TradeSmith investing microscope, we see that not much has changed.
Our Health Indicator can tell you immediately whether a stock is considered to be in a healthy and investable state, and KR is currently in our Red Zone – a warning to stay away.
We can also turn to our Business Quality Score for insight.
It rates every company based on a composite of four broad quality metrics...
- Growth: This metric measures changes in a company's finances such as sales, profit, return on equity, return on assets, and cash flow over the past five years.
- Profitability: This metric measures a company's current level of profitability relative to its assets, sales, and shareholder equity.
- Safety: This metric measures a company's financial strength (debt burden, credit risk, etc.) and its stock's historical volatility compared with the overall market.
- Payout: This metric measures how much of what a company earns benefits shareholders via dividends, net share buybacks, and debt repayment.
Our algorithms first calculate the current quality score for each stock compared with its history and all other stocks in our database. Then, they average those scores for each stock and rate the stock on a quality scale from 0 (lowest quality) to 100 (highest quality).
Kroger's Business Quality Score is a subpar 62.
Finally, with incredible computing power and AI at our fingertips, the TradeSmith team embarked on the most important research project in our company's history... one designed to ramp up your gains on stocks – while slashing the potential for risk and mistakes.
We call this incredible system An-E, which provides price predictions in our suite of Predictive Alpha services.
With a closing price of $48.71 on Wednesday, An-E released a "Neutral" rating on Kroger and projects the stock price will hit $48.85 by August 24...
Even with more AI chatter, An-E doesn't foresee that chatter offering a short-term boost to the KR stock price. (Please note that An-E is constantly analyzing data, and its projection is as of this writing.)
You're likely to see more companies call themselves "AI companies" in the future, and there will be a lot of noise to filter through.
But with our investing tools – like An-E – you can filter through the noise to find the winners and avoid the wannabes.
Enjoy your Sunday,
Keith Kaplan
Editor's note: AI just shattered one of the most important barriers in technological history. And folks who are paying attention could profit from this massive breakthrough...
That's why Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – and Retirement Millionaire editor Dr. David Eifrig recently hosted an online presentation to detail how the opportunity to use AI today could transform your wealth in 2023 – or risk you being left behind forever. Watch the full replay here...