In June, I introduced five stocks that AI predicted could double a portfolio in a year. Here’s how they’ve done in the first month.
- Applied Digital (NASDAQ:APLD). +8.8%
- Fastly (NYSE:FSLY). +16%
- Mobileye (NASDAQ:MBLY). 12.3%
- FiscalNote Holdings (NYSE:NOTE) +4.4%
- Cloudflare (NYSE:NET). +4%
On average, the stocks have risen 9.1%, an incredible 184% annualized rate of return!
These picks were among the top 20 companies chosen by Predictive Alpha Prime, a machine-learning system designed by our sister company, TradeSmith. The list was then narrowed to five top picks through old-fashioned security analysis.
This dual human/machine approach is effective. The Predictive Alpha Prime system considers millions of data points spanning over a hundred parameters — far more than any human can handle. The distilled price predictions are then used to inform final buy decisions.
The automated part is fast. AI recommendations are published daily for TradeSmith subscribers, and holding periods are limited to one month. Keeping up with the machine can be a full-time job.
Introducing MarketMaster AI
Nevertheless, investors seeking a more deliberate buy-and-hold approach now have an option. Over the past several months, I’ve developed a new machine-learning system called MarketMaster AI that combines fundamental data with the technical and economic signals that power Predictive Alpha Prime’s short-term predictions. It also considers earnings estimates by top Wall Street analysts, a proven source of outperformance.
The results are incredible. An investor who followed the system would have seen 2X higher returns in A+ stocks compared to F-graded ones, using relatively low turnover. The deep learning neural network also improves over time — a significant advantage of machine-learning systems.
Today, MarketMaster AI believes that a handful of blue-chip stocks will outperform the market by 15%-16% over the next six months. Compounding that rate would eventually double a portfolio’s value by 2027. Here are the picks.
5 Blue Chip Stocks AI Thinks You Should Buy Immediately: Mastercard (MA)
Score: A+ | Expected 6-Month Return: 16.1%
Mastercard (NYSE:MA) tops the list of MarketMaster AI’s stocks to buy.
Three reasons suggest why a breakout is underway.
- Competition. Mastercard has quietly been trouncing competitors. Since 2021, quarterly margins at the firm have risen 3.8% to 58.3, compared to a 4.5% decline at Visa (NYSE:V) and 2.5% at PayPal (NASDAQ:PYPL).
- Travel. The firm has greater exposure to cross-border transactions than its rivals. This lucrative business tends to grow even faster during peak travel periods, and recent airline earnings reports point to a rapidly improving market.
- Macroeconomics. Mastercard is riding a wave of positive macroeconomic news. The Federal Reserve of Atlanta now expects a 5% increase in U.S. economic growth this coming quarter, and the IMF has similarly upped its estimates for worldwide GDP expansion.
The company’s successes over PayPal are particularly notable. On Aug. 2, shares of PayPal collapsed 17% after management revealed a decline in the number of users. Competition from Apple Pay and buy-now, pay-later is beginning to show.
Meanwhile, Mastercard is quietly grinding ahead. On July 27, the credit card company announced solid profits and an impressive 14% increase in dollar volumes transacted. High-margin cross-border volumes surged 24%. Shares also remain reasonably priced, with the stock trailing the broader market by 2% this year. MarketMaster AI projects that the stock should rise to $460 by early 2024.
Nike (NKE)
Score: A+ | Expected 6-Month Return: 15.1%
It’s been a tough two years for Nike (NYSE:NKE), the world’s largest athletic-wear firm by market capitalization. Shares fell 30% in 2022, and have dropped 10% already this year.
Nevertheless, MarketMaster AI sees a turnaround in the works. According to historical data, high-earning companies tend to become compelling “buy-the-dip” stocks once prices fall low enough. And recent price action means Nike could soon move toward $135 per share, its justified value calculated by a 3-stage DCF model.
Nike’s competitive advantage remains intact. Return on capital invested — one of the most critical factors for long-term returns — is expected to stay north of 30% in fiscal 2024, over three times higher than the average S&P 500 firm. And growth is expected to continue its uninterrupted run. According to analysts, sales to China alone should increase by $1 billion this year.
Unforced errors at rival firms have also helped. Adidas (OTCMKTS:ADDYY) still projects almost $500 million in losses this year from abandoning its Yeezy brand of sneakers; the impact of losing a prime label will resonate far longer. And Gap (NYSE:GPS) has now churned through four CEOs since 2020.
Nike’s e-commerce efforts are another noteworthy factor. The company now sells $12.6 billion annually through its e-commerce platform, reducing its dependence on the lower-margin wholesale market. Analysts expect operating earnings to grow between 12% to 15% through 2026.
That suggests that Nike could rise 15.1% over the next six months, and then potentially another 10% after that to return to its $135 justified value.
Coca-Cola (KO)
Score: A+ | Expected 6-Month Return: 15%
Coca-Cola (NYSE:KO) is a fascinating case where technical factors outweigh bottom-up valuation. To MarketMaster AI, it doesn’t matter that shares of the 131-year-old beverage firm trade at 23 times forward earnings — 17% higher than historical averages. Nor does it care that my 3-stage discounted cash flow (DCF) model shows that shares are fully valued.
Instead, MarketMaster AI only considers what its training data says. And the technical data suggests that Coca-Cola is due for a 9.8% bump over the next six months.
A similar pattern appeared in June 2020 after shares of Coke’s parent dropped from the $60 level into the mid-$40 range. The stock would rise 15% over the next three months. The same happened in Nov. 2021 and Sept. 2022. Each time the beverage maker has fallen in price, its consistent cash flows and strong brand equity quickly helped shares recover.
We’re facing the same situation again, with Coca-Cola trading at its most attractive valuation since Oct. 2022. If you’ve ever wanted to buy Coca-Cola as a tactical holding, AI tells us that now is the ideal time.
ResMed (RMD)
Score: A+ | Expected 6-Month Return: 14.9%
ResMed (NYSE:RMD) is one of the two leading players in the obstructive sleep apnea (OSA) market. The firm produces cloud-connected devices to help people with the condition and shares 80% of the market with Philips.
The result is an extraordinarily profitable firm that is expected to generate a 24% free cash flow yield in 2024.
The company’s stock also shares elements of past winners. Analysts have been nudging their earnings estimates up for the past six months, which is a highly bullish signal for more significant gains ahead. ResMed also continues to grow at a relatively fast clip. Analysts expect revenues to rise 10% this year.
These factors suggest that this month’s 16% price decline was a significant overreaction to lower-than-expected Q4 earnings. Fourth-quarter profits of $1.56 a share missed analysts estimates by only 4 cents, and mid-cycle earnings estimates remain unchanged. Revenues still grew 23% on a constant currency basis, driven by a 34% increase in software-as-a-service revenue.
That’s likely why MarketMaster AI believes that ResMed’s shares will quickly recover. History tells us that enormous market reactions to relatively small earnings misses tend to reverse themselves soon after.
Autodesk (ADSK)
Score: A+ | Expected 6-Month Return: 14.8%
Finally, MarketMaster AI selected Autodesk (NASDAQ:ADSK) this week as a company to buy and hold.
Autodesk is the global leader in computer-aided design (CAD) software. Its products are used in everything from architecture to video game design, and the firm now runs almost entirely on a recurring revenue model. These recurring subscription revenues are far more stable than one-off sales and help build a dependable, low-cost source of revenue growth.
That’s excellent news for Autodesk. Analysts expect double-digit revenue growth through 2026, which should help net income rise from $1.1 billion in 2022 to over $2 billion.
Autodesk also maintains its dominant position thanks to its ability to reinvest into research and development. A quarter of all revenues are plowed back into R&D, a rate that far exceeds most major software firms.
Most importantly, MarketMaster AI believes these fundamental factors historically signal an upcoming breakout. Shares of Autodesk have underperformed the tech-heavy Nasdaq Composite Index by 25% this year, making it one of the few high-quality tech firms that have yet to break upwards.
The Shift Toward Blue-Chip Stocks
MarketMaster AI doesn’t typically recommend blue-chip stocks. In January 2023, the system recommended far smaller firms on average.
- Rite Aid (NYSE:RAD). Near-bankrupt drugstore chain.
- Cadence Design Systems (NASDAQ:CDNS). $60-billion computational software firm.
- Manhattan Associates (NASDAQ:MANH). Global supply chain company.
- Synopsis (NASDAQ:SNPS). Electronic design automation company.
- Paycom (NYSE:PAYC). Blue-chip human resource software firm.
- Chipotle (NYSE:CMG). Mexican restaurant chain.
- PROG Holdings (NYSE:PRG). Fintech payment options.
Nevertheless, these seven stocks returned 32% in six months, doubling the return of the S&P 500! Six out of seven companies saw shares go up.
That’s what makes the recent pivot to blue-chip companies so interesting. According to MarketMaster AI, these stock market laggards are now the best picks on the market. Indeed, the Dow Jones Industrial Average Index of blue-chip stocks is only up 6.5% year to date. Though these firms might not seem as exciting as rocketing AI chip stocks, history (and AI) tells us that blue-chip stocks are now the best investments that investors can make for incredible returns.
As of this writing, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.