The AI ‘Wannabe’ Stocks Have Arrived
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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 saying 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 the grocery store Kroger Co. (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 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.
Kroger’s Real Business
AI can help Kroger improve its understanding of what customers want, find substitute products, and create an overall better 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 (ROE), return on assets (ROA), 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 versus the overall market.
✅ Payout: This metric measures how much of what a company earns benefits shareholders via dividends, net share buybacks, and debt repayment.
✅ 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 versus 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 to its history and all other stocks in our database. They then 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 sub-par 57 🚨
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 $46.65 on Monday, An-E released a “Neutral” rating on Kroger and projects the stock price will drop a little over 1% by July 25:
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).
Bottom line: 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.