Can AI Beat the Market? 10 Stocks to Watch
An artificial intelligence (AI) system identifying high-potential equities has been sharp in the past. Here are its 10 top stocks to watch over the next few months.
Artificial intelligence leveraging the raw power of Big Data might just be the edge tactical investors and traders need to navigate one of the crazier market environments in recent memory.
After all, stocks are off to an historically bad start in 2022. Rampant inflation, rising interest rates and the war in Ukraine are just some of the factors driving share prices down and volatility up.
At times like this, it's fair to say market participants need all the help they can get finding stocks to watch.
AI, machine learning and Big Data are hardly new to the world of stock picking. But, traditionally, they've been available only to institutional investors with deep pockets.
Danelfin is trying to change all that. The financial technology firm's AI-driven analytics platform aims to level the playing field, giving regular folks access to institutional-level technology.
The platform, which offers both free and premium plans, uses AI to analyze more than 900 fundamental, technical and sentiment data points per day for 1,000 U.S.-listed shares and 600 stocks listed in Europe.
After churning through 10,000 daily indicators, Danelfin's algos produce a series of scores. The AI Score, which ranges from 1 to 10, indicates a stock's probability of beating the market over the next 30 to 90 trading sessions. (Higher scores are better.)
Danelfin also assesses stocks' volatility and their potential for nasty drawdowns. Stocks with superior Low Risk Scores should help tactical investors and traders sleep better at night.
The last step is to combine AI Score with Low Risk Score to suss out stocks that offer not only the highest probability for short-term outperformance, but also the lowest risk of loss.
If nothing else, Danelfin's system has certainly earned its keep in the early going of 2022. The fintech's top 10 stock picks generated a price return of -0.35% from Jan. 14 (the last time we highlighted Danelfin's picks) through March 11. That clobbered the S&P 500, which fell 9.8% over the same span.
Here are 10 stocks to watch, based on Danelfin's AI platform awarding them the highest AI Risk/Reward Scores as of March 12. For good measure, we also took a look at what Wall Street analysts have to say about these names' prospects over the next 12 months or so.
And remember: We're talking about the probability of a stock beating the market over the next few months or so, not days, and not years. That means the platform is pointing to the best stocks to buy for tactical investors and traders, not necessarily long-term investors.
Share prices and other market data as of March 16. AI Scores and rankings courtesy of Danelfin as of March 12. Analysts' consensus recommendations and other data courtesy of S&P Global Market Intelligence, unless otherwise noted.
10. Microsoft
- Market value: $2.21 trillion
- AI Score: 10.0
- Low Risk Score: 9.0
- AI Risk/Reward Score: 9.5
Microsoft (MSFT, $294.39) is one of the top stocks to watch because it offers a highly desirable combination of short-term outperformance with limited downside risk, according to Danelfin's AI platform.
MSFT gets above-average scores for fundamentals, technicals and sentiment, per Danelfin, all of which support its perfect 10 AI score. The strong AI score suggests shares in the cloud-computing giant will beat the broader market over the next 30 to 90 trading sessions.
At the same time, investors can take comfort in the stock's near-perfect Low Risk score. That means MSFT should deliver short-term outperformance with less volatility.
Longer-term investors will also like the fact that the software giant is Wall Street's highest-rated name in the Dow Jones Industrial Average. Indeed, MSFT scores a consensus recommendation of Strong Buy, per S&P Global Market Intelligence.
"Strong commercial cloud revenue and gross margin growth and expense discipline should lead to accelerating operating profit and free cash flow generation in coming quarters," notes Stifel analyst Brad Reback, who rates the stock at Buy.
MSFT also happens to be hedge funds' top blue-chip stock to buy.
Shares are off 12.5% for the year-to-date, trailing the S&P 500 by about 4 percentage points. If Danelfin's algos are correct, MSFT is set to close that gap soon.
9. Apple
- Market value: $2.60 trillion
- AI Score: 10.0
- Low Risk Score: 9.0
- AI Risk/Reward Score: 9.5
Apple (AAPL, $159.59), the world's largest company by market capitalization and another one of hedge funds' top blue-chip stocks to buy, is set for its own run of market-beating returns.
And that's with relative downside protection to boot.
Apple's perfect AI Score rests on especially high marks for fundamentals and sentiment, with an above-average reading for technical signals also lifting its outlook – making it an interesting pick among the top stocks to watch.
Jittery tacticians and traders will probably be more interested in AAPL's near-perfect Low Risk Score, however. Historically, Apple stock tends to be more volatile than the broader market. It usually outperforms the S&P 500 when the index is rising, and underperforms when everything is selling off.
But whichever way the market goes, Danelfin's algos expect AAPL to generate superior risk-adjusted returns over the next few months.
The Street, which tends to look ahead by about 12 months, loves Apple stock too, giving it a consensus recommendation of Buy with high conviction. Speaking for the bulls, Argus Research analyst Jim Kelleher (Buy) writes "AAPL's so-so performance for the past year mainly reflects sector rotation, not any misfires in Apple's leadership franchises."
The analyst adds that AAPL's current levels make it a good time for investors to "establish or dollar-cost average into positions."
8. Johnson & Johnson
- Market value: $458.9 billion
- AI Score: 10.0
- Low Risk Score: 10.0
- AI Risk/Reward Score: 10.0
Johnson & Johnson (JNJ, $174.52), like all the remaining stocks on this list, gets perfect scores across the board. If you're looking for short-term outperformance and a decent night's sleep over the next few months, this healthcare stalwart is a great place to start.
JNJ is a classic defensive dividend-growth stock and a solid core holding for just about any buy-and-hold portfolio. It also happens to be ready to generate even more market-beating returns as we cross over into Q2, according to Danelfin's AI assessment.
Anyone familiar with JNJ knows that it typically trades with significantly less volatility than the S&P 500. They probably also know that this Dow stock has increased its dividend annually for almost 60 years. Perhaps they're even aware that JNJ is a hedge-fund favorite.
Less obvious is that JNJ, with a perfect 10 AI Score, looks about to add to its impressive 2022 gains. Shares are up 2% for the year-to-date, beating the broader market by 10.6 percentage points.
And now rapidly improving daily sentiment readings are pushing Danelfin's algos to predict even more upside – with less risk – ahead.
7. Bristol Myers Squibb
- Market value: $151.8 billion
- AI Score: 10.0
- Low Risk Score: 10.0
- AI Risk/Reward Score: 10.0
Bristol Myers Squibb (BMY, $69.66) historically trades with uncommonly low volatility. Indeed, it can sort of be thought of as about 50% less volatile than the S&P 500. That means BMY tends to lag a lot in up markets, but also outperform by a lot in down ones.
If nothing else, those tendencies have come through in a big way so far in 2022. Shares in the pharmaceutical giant are up a whopping 11.7% for the year-to-date. That beats the (negative) S&P 500 by 20 percentage points.
Strong and stable scores of 8 out of 10 points for fundamentals and technicals form part of AI's bullish outlook, as does a score of 7 for sentiment. The latter reading has been in a daily uptrend through mid-March, by the way.
Wall Street analysts, who typically look about 12 months ahead, are likewise optimistic about Bristol Myers Squibb. Shares receive a consensus recommendation of Buy, per S&P Global Market Intelligence, albeit with somewhat mixed conviction.
The bottom line for tacticians and traders? Danelfin's algos predict BMY to widen its lead over the S&P 500 over the next few months, all while carrying relatively low downside risk – making it one of the best stocks to watch going forward.
6. AT&T
- Market value: $165.6 billion
- AI Score: 10.0
- Low Risk Score: 10.0
- AI Risk/Reward Score: 10.0
Telecommunications stocks are known more for their defensive characteristics than hot price performance, but AT&T (T, $23.19) promises to offer plenty of both in the months ahead, Danelfin reckons.
T has perfect marks for outperformance and downside risk over the next 30 to 90 trading days, which is why it is on this list of the top stocks to watch. High readings for fundamental factors, as well as solid technical and sentiment indicators, bolster AI's bullish outlook.
Although Danelfin's view of T's short-term prospects is quite bright, the Street's longer term view is more mixed. Six analysts rate T at Strong Buy, five say Buy, 14 have it at Hold and two slap rare Strong Sell calls on the shares. That works out to a consensus recommendation of Hold, according to S&P Global Market Intelligence.
Some analysts say T's divestitures of media assets WarnerMedia and DirecTV bode well for tactical investors and traders – but longer-term issues will weigh on returns.
"The stock is inexpensive on a sum of the parts basis and should do well short term from the spinout of media," writes Oppenheimer analyst Timothy Horan, who rates T at Perform (Hold). He remains "skeptical," however, of plans to raise prices and cut costs amid "major new disruptive competition and expense pressures."
5. PepsiCo
- Market value: $220.9 billion
- AI Score: 10.0
- Low Risk Score: 10.0
- AI Risk/Reward Score: 10.0
Consumer staples stocks like PepsiCo (PEP, $159.70) tend to hold up better when inflation is running hot. Although PEP stock is indeed slightly outperforming the broader market so far this year, it's still solidly in the red.
Happily for tacticians and traders, PepsiCo stock should at the very least expand its lead, and perhaps even generate alpha from current levels, as we move from Q1 to Q2.
The stock has certainly been a big market beater over the not-too-distant past. PEP leads the S&P 500 by about 10 percentage points on a price basis over the last 52 weeks. And now three straight weeks of 8 out of 10 points for fundamentals, a sharp, multi-month upswing in technicals, and a dramatic improvement in sentiment since late 2021 have PEP poised for market-beating returns with limited downside risk, Danelfin's algos say.
The Street, taking a longer view, likes PEP at current levels too. Analysts' consensus recommendation stands at Buy. And their average price target of $179.05 gives shares implied upside of about 12% in the next 12 months or so.
"PepsiCo is a stock we continue to like due to its above-average growth profile and beverage/food and snack diversification, which it has benefited from throughout the pandemic," writes CFRA Research analyst Garrett Nelson (Buy).
4. AbbVie
- Market value: $67.6 billion
- AI Score: 10.0
- Low Risk Score: 10.0
- AI Risk/Reward Score: 10.0
Longtime income investors are familiar with AbbVie's (ABBV, $34.69) defensive characteristics. The pharma giant, best known for blockbuster drug Humira, is an S&P 500 Dividend Aristocrat, by virtue of having raised its dividend every year for 50 years.
But that's not the only reason AbbVie is on this list of top stocks to watch. This low-volatility defensive stalwart is also clobbering the broader market so far in 2022, and algos see more outperformance – with limited risk – ahead.
ABBV stock is up more than 15% for the year-to-date, beating the S&P 500 by almost 24 percentage points. Strong upswings in both sentiment and technical readings since late last year – not to mention reliably positive fundamental scores – indicate ABBV is only going to add to its market-beating ways, Danelfin's number-crunching says.
The Street has high conviction on the stock over the longer term, too, giving it a consensus recommendation of Buy. Of the 24 analysts issuing opinions on ABBV tracked by S&P Global Market Intelligence, 12 rate it at Strong Buy, five say Buy, six have it at Hold and one Says sell.
Bulls point to ABBV's intellectual assets as part of its appeal for anyone looking beyond the next 30 to 90 trading days.
"The current portfolio includes a growing oncology franchise anchored by Imbruvica and Venclexta, along with two growth drivers in the immunology space – Skyrizi and Rinvoq," notes Argus Research analyst David Toung (Buy).
3. CVS Health
- Market value: $140.6 billion
- AI Score: 10.0
- Low Risk Score: 10.0
- AI Risk/Reward Score: 10.0
As a pharmacy chain, pharmacy benefits manager and health insurance company, CVS Health (CVS, $107.11) has a unique profile in the healthcare sector.
Analysts love it as a long-term holding, but shares appear poised to deliver market-beating returns – with limited risk – in the shorter term too.
Shares are up 3.8% for the year-to-date in a depressed market. With a near-perfect score for fundamentals, a strong reading on technicals, and positive and rapidly improving sentiment, CVS should only add to its market-beating returns in the months ahead.
The Street, with longer horizons, is likewise bullish, giving CVS a consensus recommendation of Buy. Indeed, Jefferies equity research calls CVS a "Franchise Pick," or one of its highest-conviction, Buy-rated stocks.
"CVS has shown in the last three years its ability to pivot its strategy and execute on plans to position the company for long-term growth," writes Jefferies analyst Brian Tanquilut (Buy). "The tapering or normalization of COVID factors in 2022 will provide investors better visibility into CVS's fundamentals and its compelling long-term outlook."
2. AmerisourceBergen
- Market value: $31.5 billion
- AI Score: 10.0
- Low Risk Score: 10.0
- AI Risk/Reward Score: 10.0
Drug wholesaler AmerisourceBergen (ABC, $150.50) has a history of trading with much less volatility than the broader market. That can help investors rest easier at night.
Shares are less of an obvious vehicle for short-term outperformance, but Danelfin's data analysis says they're about to do just that.
ABC's monthly technical readings have vaulted to a score of 7 from a woeful mark of 1 at the end of last year. Sentiment and fundamentals have undergone a similar resurrection amid the market's embrace of value names in 2022.
Indeed, investors' generalized rotation away from growth to value has helped ABC rise more than 13% for the year-to-date. AI's assessment says the rally has farther to run over the next one to three months.
Wall Street is bullish on ABC's prospects farther out, as well, giving it a consensus recommendation of Buy. Tacticians and traders needn't concern themselves with valuation metrics, but investors keen on ABC will be happy to know the stock looks like a bargain.
Analysts forecast the firm to generate average annual earnings per share (EPS) growth of 11.1% over the next three to five years. And yet ABC trades at just 13 times the Street's 2023 EPS estimate.
1. Walmart
- Market value: $403.2 billion
- AI Score: 10.0
- Low Risk Score: 10.0
- AI Risk/Reward Score: 10.0
Walmart (WMT, $145.35) stock is essentially flat for the year-to-date, which you can't really quibble with in a down market. And now Danelfin's AI platform is saying shares in the world's largest retailer are ready to extend their lead in the months ahead – all while maintaining their defensive ways.
WMT gets the highest marks from Danelfin's algos for AI Score, Low Risk and AI Risk/Reward. Three straight weeks of 8 out of 10 points for fundamentals, two consecutive weeks of strong 7s for sentiment, and a recent pop in technicals to put the signal in positive territory all help make WMT one of the top stocks to watch over the next 30 to 90 trading sessions, the algos say.
Analysts are mostly bullish on the Dow stock, as well. WMT receives a consensus recommendation of Buy, with fairly high conviction. Of the 37 pros issuing opinions on the stock tracked by S&P Global Market Intelligence, 20 call it a Strong Buy, eight say Buy and nine have it at Hold.
With an average target price of $164.68, the Street gives WMT implied price upside of more than 13% in the next 12 months or so. If Danelfin's assessment is correct, a good chunk or more of that could come sooner rather than later.
