Take The Antidote to AI Anxiety With These High-Quality Stocks
Editor’s Note: Markets will be closed this Friday, April 3, for the Good Friday holiday. The TradeSmith offices, as well as our Customer Service line, will be closed as well. We’ll be back for business as usual on Monday, April 6.
We hope you enjoy the long weekend!
AI anxiety has a firm hold on the stock market these days.
Stocks in sector after sector have been laid low in recent weeks, due to fears of overnight AI-induced obsolescence. The list of victims includes…
- Software,
- Financial Services,
- Data Services,
- Cybersecurity,
- Transport & Logistics,
- And the Legal & Consulting sectors, among others.
The nightmare scenario goes something like this: Artificial intelligence models and their AI-powered agents will continue to improve, until they reach a level where they suddenly and rapidly disrupt companies in these industries.
Overnight, these new developments transform these companies from innovative, high-margin businesses into lumbering dinosaurs… with stocks headed to the graveyard.
Now, this nightmare may come true for some stocks, and those companies that are no longer on the cutting edge of consistent improvement.
After all, businesses that don’t possess a durable competitive advantage typically suffer from the laws of “creative destruction.”
But AI is not going to creatively destroy all the stocks in all of these sectors overnight, either. And that means the AI-induced panic sending these stock prices plunging is an opportunity… if you know where to look, anyway.
There is a simple antidote to this AI obsolescence anxiety, as well as the market volatility we’ve seen in recent weeks. And it just so happens to be my favorite investment style: Quality!
AI-Proof Your Portfolio With Quality Stocks
High-quality stocks tend to have “wide moats” – durable competitive advantages over other potential competitors – defending their “castles” of business from competitive threats. And this includes threats from potential AI disruption.
Often, this moat takes the form of an advantage of scale. This is especially true for companies that have dominant market share in a particular industry.
Other types of moats can include large and loyal customer bases, or very unique products or services provided by the company.
Whatever form that moat takes, the high-quality stocks that possess them also share superior financial metrics — metrics that can help you spot their quality from a mile away. And that’s where our TradeSmith Business Quality Score (BQS) comes in handy.
BQS is a unique metric TradeSmith created to find high-quality stocks with growing earnings, financial strength, high profit margins, and safety.
In other words, stocks that enjoy durable competitive advantages that are poised to endure.
BQS considers the critical traits of stocks proven to outperform the market over the long run, including:
- Growth in sales, earnings, cash flow, and high returns on equity and assets,
- Profitability compared to both its own history and compared to other stocks,
- Safety in the form of low debt, minimal risk, and low volatility,
- And Payouts – how profits get reinvested to enrich shareholders and grow the business.
Our BQS ranks every stock from zero (lowest quality) to 100 (highest). Stocks with a BQS of 80 to 100 are considered high-quality.
Using BQS as the key filter, our powerful TradeSmith Screener tool can help you find quality stocks that are unlikely to get disrupted by AI-anxiety!
Combine Quality and Timing For A Winning Screener!
Today, I’ve created a screener with a few simple filters that search for healthy, high-quality stocks that have pulled back recently due to AI anxiety.
And to increase my conviction that these stocks should rebound soon, I also included several of our Trade Cycles timing filters to power up this screener even further.
Our Trade Cycles filters are designed to uncover stocks that are now – or soon will be (next 60 days) – in a Valley turn area, with a medium to very high conviction level.
Just as nature follows repeating seasonal patterns, so do financial markets. Our Cycles filters help you anticipate potential turning points for stocks, ETFs, or indexes.
You can see at a glance when a stock is at or near a Cycle Peak (high) or Valley (low), which indicates a change in trend. A stock in a Valley turn area is likely to move higher.
To build this screener for yourself, simply log into your TradeSmith Finance platform to get started. Click on Invest from the main menu, then click on the Screener tab in the sub menu.
Here’s a list of filters I used to build today’s screener:
- Health Indicator: Set to find Green and Yellow Zone stocks, which are healthy…
- Business Quality Score: Set to “> 80,” for the top 20% of stocks ranked by quality…
- Cycle Turn Area: Set to “Valley…”
- Cycle Period: Set to “Composite Cycle…”
- Cycle Conviction: Looking for Very High, High & Medium conviction cycles…
- Days to Cycle Start: Set to search for cycles in the next 0 to 60 days…
- And One Month Change: Set to “<0%.”
But you don’t have to limit yourself to just these filters. Simply click on the blue + Add Filter button to add more proprietary TradeSmith indicators, or customize your screener with other fundamental, valuation, and market classification filters of your choice.
Note: This screener uses Trade Cycles filters exclusive to members with Trade Cycles and TradeSmith Platinum subscriptions. If you don’t have access to some of these screeners – and would like to – please call us at 888-623-0858 to find out how.
When I ran this screener yesterday with the filters above, I got 30 results. That’s a good starter list for additional research.
Due to space limitations here, the top 10 results are shown below sorted by BQS, with the highest quality stocks at top:
Two companies with business moats make the cut: Rayonier (RYN) and Airbnb (ABNB).
RYN is a REIT that manages nearly 3 million acres of prime timberland, making it an asset-rich business. Could AI impact its business?
I doubt it. AI can’t plant and harvest trees… at least not yet.
As for ABNB, it’s a technology company, so AI could be a threat.
But its business has a big moat and high castle walls, thanks to a user base of 275 million members that made half a billion bookings last year alone.
For my money, these stocks are among many in these results unfairly victimized by AI-anxiety and the stocks are on sale, which spells opportunity.
And here’s another way to sort the results, to zero in on other stocks that have fallen due to AI-fueled market anxiety.
We know all the stocks that made the cut for this Screener are quality (top 20% BQS), so another way to sort is by 1-Month Change, by clicking on this column to sort by performance:
Here, we see the 10 high-quality stocks that have fallen the hardest over the past month, perhaps due to misguided AI anxiety.
And sure enough, another blue-chip name makes the cut: American Express (AXP).
Will AmEx get disrupted by AI? Probably not. After all, AXP is an established business in one of the world’s oldest professions.
…No, not that one. I mean money lending!
And the company has a wide moat: With 141 million loyal customers who see their Amex card as a status symbol, I’m sure people will continue to say “Don’t leave home without it” for years to come.
I’ll be holding on to my own AmEx card, that’s for sure!
If anything, AXP can harness AI to improve its business by targeting more credit-worthy customers, leading to smaller losses – and higher profit margins.
Mike Burnick’s Bottom Line: AI-fueled anxiety has hit plenty of stocks and sectors hard in recent weeks, and that includes a number of high-quality stocks that have perhaps been unfairly tarnished.
These quality stocks are well-positioned to recover and defend from potential AI disruptions – and today’s screener is a great way to find those potentially winning stocks that are on sale due to overblown AI fears.
Good investing,
Mike Burnick
Senior Analyst, TradeSmith
P.S. As Wall Street panics over a potential AI-fueled extinction event in the market, stocks across multiple sectors are plunging – and volatility is climbing by the day.
With today’s screener, we found a number of stocks that could bounce back once investors learn to manage their anxiety… but that doesn’t mean every stock is guaranteed to survive the AI revolution.
In fact, it’s possible that even the major tech stocks at the center of the AI market could come tumbling down…
That’s why I’ve been keeping a close eye on the latest research from Jeff Clark, my friend and Team TradeSmith colleague, over at Delta Report.
Jeff is a seasoned trader, and a market expert with an incredible defensive record: He called – and protected his network from – the 2022 Tech Collapse, the 2008 Financial Crisis, and even the late-90s Dot-Com Crash… and now he’s sounding the alarm on a new threat to the market.
He suggests that the market is running headlong towards a breaking point that could see portfolios cut in half – a crisis that could come as soon as April 29, 2026.
That’s why he’s gone live for a special event, to get the word out before things get rocky.