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Tom Yeung here with your Sunday Digest.
Last week, I revealed five stocks from Luke’s quantitative model. These high-quality firms were all counter-cyclical, so they typically hold their value during falling markets.
Since then, these companies have performed well. The five stocks have traded flat on average, despite crushing selloffs elsewhere. Shares of Nvidia Corp. (NVDA) plummeted 10% on Wednesday alone.
But what about investors seeking a bit more cyclical risk?
There are some difficulties with this approach. Decades of research show that stocks generally keep moving in a single direction, so rising stocks keep going up, and falling ones keep going down.
Some call contrarian investing like catching a falling knife; in my experience, it’s more like catching a falling piano.
Emotions also get in the way. It takes nerves of steel to buy stocks when they’ve fallen by 20% or more… and it’s tempting to cut losses whenever shares drop even further.
That’s why “buy the dip” strategies are hard to get right. My worst-performing “buy the dip” stocks from last fall, Oscar Health Inc. (OSCR), saw shares plummet 20% in the month after my recommendation. I’m not exactly proud of that.
Still, getting things right can yield phenomenal results. My same group of “buy the dip” recommendations included enough gems like these to flip overall performance solidly positive.
- Informatica Inc. (INFA): +5%
- Seagate Technology Holdings plc (STX): +10%
- Meta Platforms Inc. (META): +20%
Now, our corporate partner TradeSmith believes they’ve found a way to help longer-term investors find attractive entry points into great long-term stocks. They’ve taken some of Wall Street’s brightest and built an AI system using over 1.3 quadrillion data points.
The result is An-E (short for Analytical Engine), the top AI-powered algorithm from TradeSmith. The system is based on a short, 30-day holding period that reacts almost instantaneously to the news. That allows investors to compound gains over time.
At Wednesday’s AI Predictive Power Event, TradeSmith CEO Keith Kaplan demonstrated how to get your own forecasts and use An-E’s confidence gauge to stack the odds in your favor. He even shared a few of An-E’s latest predictions. (You can watch a replay of the event here.)
In the meantime, I’ve been given permission to share five picks from An-E as well. These are fundamentally sound stocks I’ve been watching for a long while now… and An-E is giving the green light to buy. Let’s jump in.
Three Tech Stocks to Buy
It’s been a surprisingly rough year for high-quality tech stocks. Many firms have sold off in lockstep with the “Magnificent Seven” companies, despite lacking the sky-high valuations of their larger counterparts. Others are simply falling because of investor fear.
That’s creating a rich vein of companies to buy the dip… provided you can get the timing right.
Timing is often challenging for fundamentals-focused investors. I can draw up discounted cash flow (DCF) statements, showing how companies are undervalued relative to their immense future profits. But I can’t tell you whether investor sentiment will flip positive on these firms in the next month.
Here’s where TradeSmith’s An-E system comes in. By examining short-term moves and knowing where the “smart money” is putting their chips, the AI system can determine the right moments to jump back in.
Salesforce Inc. (CRM). This blue-chip software firm has lost 20% of its value this year. Shares of Salesforce now trade at 22X forward earnings; each time it’s done that in the past five years, shares have jumped an average of 33% over the following three months.
The San Francisco-based firm is a wide-moat firm with both blue-chip and growth-like aspects. It’s Sales Cloud and Service Cloud are the gold standard in selling and servicing, and their mission-critical nature makes companies less likely to switch away. Customer retention rates are a strong 92%, and net margins typically sit in the mid-20% range.
In addition, Salesforce has been quickly expanding in Data Cloud and AI revenues, which grew 120% in its most recent quarter to $900 million in annual recurring revenue. Management is forecasting a 9% overall sales growth rate in calendar 2025 as a result.
Akamai Technologies Inc. (AKAM). This is a legacy content distribution network (CDN) firm that’s found a new life as a cybersecurity company. Shares currently trade at a stunningly low 12X forward earnings, despite analysts projecting 25% growth in earnings before interest, taxes, depreciation and amortization (EBITDA).
Much of its growth in cybersecurity is thanks to Akamai’s legacy CDN business, which handles roughly a quarter of the world’s internet traffic. This allows Akamai to “see” an enormous portion of the internet and stop cyberattacks before many even start. Security services now generate half of the company’s revenues.
The other growth comes from acquisitions in the cloud computing space. These efforts accelerated in 2022 with the purchase of Linode, a developer-friendly cloud infrastructure business. Cloud computing now generates around 20% of revenues.
Perhaps most interestingly, Akamai now trades so cheaply that it’s become a compelling takeover target. Its $13 billion enterprise value would be easily absorbed by larger firms, and its CDN know-how will allow potential buyers like Fortinet Inc. (FTNT) and CrowdStrike Holdings Inc. (CRWD) to better compete against Amazon.com Inc. (AMZN).
Advanced Micro Devices Inc. (AMD). Finally, An-E suggests it’s time to jump into AMD, the keenest rival to Nvidia.
AMD is one of the best-managed companies in the world. Its CEO, Lisa Su, executed such a notable turnaround that landed her the winner of 2024’s CEO of the Year Award. AMD Zen architecture performs well against Intel Corp.’s (INTC) versions, and its consumer-facing graphics processing units (GPUs) now rival Nvidia’s in speed. AMD has also succeeded in creating a crossover between GPUs and central processing units (CPUs) thanks to its 2022 acquisition of Xilinx.
The trade war between the U.S. and China has recently depressed AMD underlying value. The company expects to take a $800 million loss on export restrictions on MI308 AI chips, and AI-related revenues from China will likely head to zero in the near term. That cuts the company’s fair value closer to $125 per share.
However, the 42% selloff over the past 12 months is far too steep. AMD now trades at a wide discount to its fair value, and An-E is flagging it as a good buy.
Revisiting Two Old Picks
Last year, I named 10 stocks to my top “Buy” list for 2025. Many have done well, including defensive plays like Dollar General Corp. (DG), up 20%, and Realty Income Corp. (O), up 9%. I called these firms “Dividend Kings” for their strong cash flows and consistent payouts.
But two of my top picks have been blindsided by the new administration.
- Moderna Inc. (MRNA). The cancer vaccine developer has seen shares plummet 40% on fears that Health and Human Services leader Robert Kennedy Jr. would dismantle America’s vaccine programs.
- Celanese Corp. (CE). A 25% tariff on U.S. auto imports has triggered fears of a national slowdown in auto sales, impacting firms like Celanese that make the chemicals needed for production. Shares of CE are down 42%
Both firms were cheap… and now they’re even cheaper. Moderna has an enterprise value of just $3.1 billion – a third of what most late-stage blockbuster drugs are acquired for. It’s still on track to release findings of a promising cancer vaccine later this year.
Meanwhile, Celanese trades at 0.8X book value, its lowest point on record. That’s despite the chemical company having some of the best economics in its class because of its access to cheap natural gas. Even this strength has become no match for the recent selloff.
Fortunately, the pair now have at least 100% upside in the medium term, and 200% in the longer run. Though I admittedly mistimed my initial purchase, An-E is now seeing a far better entry point in today’s price action.
Timing the Market with AI
The wonderful thing about investing with An-E is that you can easily go back in time and see how the hundreds of predictions have fared.
And An-E has proved its worth.
Over the past month, the system has provided recommendations including:
I’m not cherry-picking numbers either. The system typically has a 60% to 70% “hit rate” on its target predictions.
On Wednesday, TradeSmith held an emergency briefing called The AI Predictive Power Event, where they covered exactly how this tech works.
And for a limited time, they’re offering a chance to rewatch the event. Whether you’re playing offense by targeting winners or defense by avoiding losers, An-E gives you the clarity you need when it matters most.
Until next week,
Tom Yeung
Market Analyst, InvestorPlace
Thomas Yeung is a market analyst and portfolio manager of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He is the former editor of Tom Yeung’s Profit & Protection, a free e-letter about investing to profit in good times and protecting gains during the bad.
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