A Market-Beating Idea for Every Kind of Investor
In This Digest:
- TradeSmith’s mission is simple, but hard
- How our most crucial tool keeps the ideas flowing
- This AI play has a top-tier Quantum Score
- A top defensive play if you’re worried about the economy
- A great trade the next 21 days (or less)
This is TradeSmith’s guiding light…
Our mission here at TradeSmith is simple to understand… a worthy challenge for us to execute… and easy for you to take part in.
We want to prove that technology and software are the best path for everyday investors like you looking for returns that can reliably beat the market.
We take great care in making our mission a reality. We invest millions in our research. We employ dozens of software engineers, data scientists, and analysts whose sole purpose is achieving this ideal. And because of that, our purpose-built technology underpins everything we do.
No matter what kind of investor you are, there’s a place for you at TradeSmith to pursue your own ideas… while also learning about ours.
The products of our investment are twofold:
- Our powerful, easy-to-use investment software – You can come to TradeSmith with your own ideas and find a wealth of screening methods, metrics, and tools to help you refine them.
- Our rigorously tested strategies – These give you clear entry and exit points, timeframes to trade, and data to back up their performance.
With this approach, our firm serves investors of all stripes. But for today, let’s look at three common groups…
- If you’re all-in bullish on AI, we have a way for you to find the best new ideas to profit.
- If you’re a cautious investor wary of rising inflation, we have tools to help you protect your wealth.
- If you’re a short-term trader, we have world-class tools for you as well.
The best way to access these tools is through our Screener…
It helps you slice and dice the thousands of stocks in our database using every proprietary strategy you’ve signed up for.
If you’re a subscriber with access to the Screener, I’ll bet money that you don’t know its full capabilities. Especially if you’re one of our Platinum members who has access to everything we put out, now and in the future.
Today, I’m going to show you just how robust the Screener can be by designing three unique views of the market for each type of user I described above.
I’ll have something for the bulls… something for those tilting cautious… and something for the quick-hit traders.
Let’s start with our AI bulls…
It’s hard to argue with the AI bull market.
AI is a breakthrough technology on the scale of – and probably surpassing – the internet. It has the potential to unlock massive productivity across many areas of the economy… and power a revolution in robotics.
A few key companies have run away with the gains so far.
Chipmaker king Nvidia (NVDA) is the posterchild. It’s up more than 1,000% over the last three years as it provided the “picks and shovels” of the AI gold rush.
Other companies are applying AI technology to their businesses, like data analytics and software company Palantir (PLTR). That stock is also up close to 1,000% in the last three years.
Chasing these trades is not for the faint of heart. Palantir, for instance, trades at 539 times its trailing 12-month earnings. For every dollar you put into Palantir stock, you’re getting back less than a quarter of a penny in earnings.
That makes NVDA’s multiple of 48 seem tame.
So it’s sensible to want to find those little-known, high-quality AI stocks that have solid momentum… and are at least cheaper than NVDA.
We can set up a screen for that.
With our Screener, I set up a few key filters to pull out U.S. listed stocks across various technology sectors – financials, biotech, software, semiconductors, defense, and more.
I then screened for stocks with:
- Less than three years of trading history
- That are up over the last year
- With a P/E ratio less than 48 (where NVDA is trading)
- With a market cap of at least $300 million – our lower bound for small-cap stocks
That filters the thousands of stocks in our database down to just 20 results. Here are the top five, sorted by market cap.
Notice I included a column for Jason Bodner’s Quantum Score. That’s a proprietary TradeSmith indicator that combines the most impactful factors for stock performance – high business growth rates, strong technical momentum, and large buying volumes.
The higher the Quantum Score on a 0-100 scale, the better the stock.
Of the stocks above, Nextracker (NXT) has the highest Quantum Score at 97.1. This $10.3 billion solar power tracking company stands out from the group with a perfect 100 on its Technical score and a 92.9 on fundamentals.
And yes, Nextracker is involved in AI applications. In late July, the company announced it invested $40 million to use AI-powered robots in the field as part of its solar tracking services.
That’s just one of countless examples of how to harness TradeSmith’s systems to find great ideas in the AI space.
But what if you’re more cautious?
It takes all types to make a market. For every willing buyer there must be a willing seller.
Lately the market seems to be wanting bad news (on the economy) as good news (for rate cuts to juice stock prices). For example, the employment data is down 911,000 jobs in the 12 months before March 2025.
Then on Thursday we had the Consumer Price Index (CPI) report for August showing a 2.9% gain year over year, which is just 0.4% in the past month.
The August inflation report might not be “bad enough” from that perspective.
That said, there’s a case to be made that the economy is on shaky ground. So you might want to lean towards a protective strategy.
The Screener – and TradeSmith’s proprietary indicators – help you do that, too.
Let’s design a new screen that helps you pick out some quality defensive stocks that investors have been buying recently.
This simple screen picks out U.S. stocks from the S&P 500, Dow, and tech-driven Nasdaq 100 that are in the defensive Consumer Staples Select Sector SPDR Fund (XLP).
We’re also pulling up stocks that are in the Green Zone – our measure of a stock’s positive momentum based on its historical volatility. And we want stocks that are up at least 5% in the last month – showing us that investors have recently been buying these defensive names:
That’s a tighter filter set than you might expect, with only three stocks in our database matching these criteria:
These three stocks entered the Green Zone within the last three months. This shows us they’ve recently had positive enough momentum to escape the Red Zone. That’s where stocks wind up when they fall below their Risk level, which we measure by a stock’s historical volatility using our TradeSmith Volatility Quotient (VQ%).
As just one example above, food processing company Archer Daniels Midland (ADM) has a VQ% of just 20.2%. That tells us it’s a lower-risk stock – we wouldn’t expect much more than a 20% move down from its recent highs. Compare that to a stock like NVDA, which has nearly twice the VQ%: 38.2%.
If you’re worried about the state of the economy and want to lean defensive, you don’t have to settle for buying XLP. You can find the few stocks within this defensive theme that are outperforming right now – a much better bet.
Now, let’s talk to the traders…
Trading is not for the faint of heart. When you shorten your time horizon and still want to make substantial returns, that often means upping your leverage… and your risk.
The smart way to add leverage to a good trade is with options. Options are contracts that let you add leverage to trade with predetermined, limited downside.
And when you pair options with TradeSmith’s world-class trading algorithms, you have a winning match.
Let’s set up one final screen to close us out today, this time focused on finding great trades with Predictive Alpha.
Regular readers know Predictive Alpha is our AI-powered trading tool. It makes projections based on a stock’s unique price action and pinpoints the ideal length of time to trade them.
This Screener is looking for mid- and large-cap stocks that are expected to move at least 5% over the next 21 trading days according to Predictive Alpha… and whose past price projections have been accurate at least 75% of the time.
We’re left with 31 stocks out of the thousands we track. And just as before, here are the top five sorted by Prime Projection:
The fact that the top three stocks in this screen are gold stocks cannot be ignored. We covered the case for gold miners in Wednesday’s Daily. Clearly, the Predictive Alpha model has found that the gold trade has some room left to un.
For the highest target accuracy rating on this list, though, we have to focus on Bloom Energy (BE).
This hydrogen energy company has been on a tear, with shares up 135% this year. And since you’re a trader, you don’t need to sweat the eye-watering 514 P/E ratio. You just want to trade the Prime projection. It ends on Oct. 6 – just 19 trading days from now.
Predictive Alpha Prime uses our advanced Predictive Alpha AI model that identifies the ideal exit date and profit target for over 2,000 stocks based on a stock’s historical trend and price. Oct. 6 is the prime day for BE. But, as you can see, other companies have different projections.
If you want to trade this move, you can just buy BE and look to take profits around the Prime Projection date of Oct. 6. Or you could buy an at-the-money call option to benefit from any strong upside.
Users of our Predictive Alpha Options software get a more advanced view of the options strategies available, including recommended trades. Here’s a snippet from Predictive Alpha Options describing what I mean:
From there, subscribers and Platinum members can then click “Find Options” and look at a few ideas for which options to trade – down to the strike price and expiration dates, as well as the capital at risk in each trade.
If you’re already a TradeSmith member, congratulations. You know the benefits of having world-class software and technology on your side.
And if you’re not already a TradeSmith member, look out for upcoming opportunities to join us.
We regularly release new tools and strategies and give our free readers the chance to become a member of our group.
If you’re ready for full access to TradeSmith’s best software, simply call 888-576-1562 to speak with our Customer Care team and learn how to upgrade to TradeSmith Platinum.
To building wealth beyond measure,
Michael Salvatore
Editor, TradeSmith Daily