TradeSmith Snippets for February 13
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In TradeSmith Snippets, we’re here to tell you what really matters and help you overcome that analysis paralysis. We run these ideas through our proprietary trading tools as well as our experts’ proprietary tools to give you actionable information, spotlighting places to make money and the potholes that can wipe out that money.
All while doing it in a format that maximizes your time.
There’s a lot to go over, so let’s jump right in.
Snippet No. 1: Keep This in Mind During AI Mania
OverviewPrices for artificial intelligence (AI) stocks in 2023 are soaring:
- C3.ai Inc. (AI): 113%
- SoundHound AI Inc. (SOUN): 217%
- BigBear.ai Holdings Inc. (BBAI) 578%
The launching of ChatGPT, an AI platform that can do everything from write a 300-word report about George Washington to fix errors in lines of computer code, has quickly captured everyone’s collective imagination.
Chatbots and AI aren’t anything new, but the more humanlike responses from ChatGPT show how quickly the technology is advancing.
Companies with “AI” in their names are benefiting from this renewed interest.
The TradeSmith Takeaway
Quantum Edge Pro Editor Jason Bodner puts his own computers to work every day at 2 a.m., retrieving the latest data so that his algorithms can start their number-crunching — and generate his proprietary Quantum Scores for more than 6,000 stocks.
The Quantum Score “sweet spot” is typically in the 80s.
- C3.ai Quantum Score: 65.5. Not bad on its face — but Jason’s analysis shows us that there’s a cause for some caution here. C3.ai is clearly the best of the three tiny ventures in terms of Jason’s Quantum Score. But the Quantum Score is made up of two other metrics — one based on fundamentals (the company’s finances) and the other on technicals (the strength of the stock). And a low Fundamental Score of 45.8 (thanks to poor earnings growth, low profit margins, and other factors) gives Jason real pause. C3.ai is not yet a profitable company.
- SoundHound AI Quantum Score: 39.7. SOUN has been public less than a year, so we don’t even have four quarterly reports of data yet. The stock nearly doubled to $15 after it debuted last April, but it quickly lost two-thirds of its value and has remained under $5 since last summer.
- BigBear.ai Quantum Score: 46.6. This stock has popped the most lately, but it was literally a penny stock (trading under $1) until a month ago. Its Fundamental Score is a paltry 12.5. BigBear is still losing money, and its four quarterly reports as a public company have disappointed Wall Street.
While Jason isn’t recommending these particular stocks to his Quantum Edge Pro members, that doesn’t mean he thinks AI investments should be avoided altogether. He believes that at this early stage of the new AI boom, the companies worth investing in are the deep-pocketed ones that can develop the technology and incorporate it into their products quickly.
One of those companies is Microsoft Inc. (MSFT), which he likes for the long haul — a lot. If you want to invest in AI, MSFT is on the top of his list.
Snippet No. 2: A U.S.-Based Semiconductor Supply Partnership
OverviewGeneral Motors Co. (GM) and Globalfoundries Inc. (GFS) inked a deal for GFS to supply GM with semiconductors manufactured in New York.
The Breakdown
GM has dealt with supply-chain issues and semiconductor shortages for over two years.
Even though those problems may be in the rearview mirror for the most part, GM is wisely making sure it won’t have issues getting the parts it needs in the future.
It’s also a move that will help GM keep up with the growing demand for electric vehicles (EVs).
The TradeSmith Takeaway
The United States is on a mission to become the global hub of semiconductor production, which we’ve shared is a long-term trend to watch.
Having a manufacturing center in New York allows GM to get the parts it needs faster and more reliably while allowing GFS to add a car-manufacturing juggernaut to its client list. But when it comes to which company may be worth an investment, according to TradeSmith’s Health Indicator, only one makes the cut.
GM is in our Red Zone, making it a stock to stay away from. But GFS is sitting in our Green Zone, meaning it is in a healthy state and considered to be a “buy.”
Semiconductors are such a vital component of the electronics that we purchase that the industry is expected to grow in value from $573.44 billion in 2022 to $1.38 trillion by 2029. And with GFS, you can tap into that growth.
It has a diversified revenue source, supplying customers in a range of markets, including the automotive, communications infrastructure, and personal computing markets.
This means that if there is a slowdown in any particular segment, GFS still has plenty of other segments that could offset those losses.
The company grew its revenue by 22% in Q3 2022, and it also reported record gross, operating, and net profits.
Snippet No. 3: Crowning Dividend Aristocrats
OverviewJ.M. Smucker Co. (SJM), C.H. Robinson Worldwide (CHRW), and Nordson Corp. (NDSN) are the newest members of the Dividend Aristocrats.
The Breakdown
If regular dividend stocks offer a feeling of security, Dividend Aristocrats offer that feeling on overdrive.
To earn the title of “Dividend Aristocrat,” a company must:
- Be part of the S&P 500 — a symbol of prestige because investors use the S&P 500 as a benchmark for the health of the overall stock market.
- Pay and raise its dividend for 25 straight years — a sign of commitment from the company as well as financial health.
- Have a minimum market cap of $3 billion — a sign that a company has an established business with a long operating history.
- Have average daily trading volumes of at least $5 million — ensuring that there are people who would want to buy your shares if a time comes when you’d want to sell them.
Even with the market off to a hot start this year and tech laggards from 2022 starting to show signs of life, Senior Analyst Mike Burnick reminds us that we can’t rely on market upturns alone to generate income from our investments.
Mike says, “The stock market moves in volatile and unexpected ways. That means you simply cannot count on rising stock prices alone to bail you out. You have to find ways to make the market pay you, and collecting dividends is a great way to do that.”
Of course, not all dividend stocks are created equally, especially if you run them through our proprietary investment tools.
Mike can walk you through the risk of investing in SJM, CHRW, and NDSN, as well as which companies our Health Indicator says are considered buys, by clicking here.