eyeQ: a bullish signal for two undervalued stocks
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. It’s now found a sector with multiple tailwinds.
4th December 2024 11:13
Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Taylor Wimpey
Macro Relevance: 68%
Model Value: 153.22p
Fair Value Gap: -19.4% discount to model value
Persimmon
Macro Relevance: 65%
Model Value: 1539.98p
Fair Value Gap: -23.2% discount to model value
Data correct as at 4 December 2024. Please click glossary for explanation of terms. Long-term strategic model.
In recent weeks, eyeQ has noted a few times that UK homebuilders have started to potentially offer value.
In the case of Taylor Wimpey (LSE:TW.), we first flagged it as looking cheap in the first week of November. However, eyeQ model value was also falling at the time, so there was no official signal. Now, though, things have changed - eyeQ model value bottomed on 28 November and has subsequently bounced 6.5% to stand at 153.22p currently.
The spot price has stopped falling but has yet to enjoy any bounce. That divergence leaves the stock 19.4% cheap to the overall macro environment. eyeQ now has a bullish signal.
On 19 November we got a bullish signal on Persimmon (LSE:PSN), which we flagged here with the health warning that the uptick in eyeQ model value had only taken place over a three-day period. That’s sufficient for professional investors who are actively watching this stuff (and our sister company Quant Insight’s signals) but, we cautioned, retail investors might want to wait and watch a little longer.
It’s the same pattern again. eyeQ model value is rising (macro conditions are improving), but the stock has yet to respond. It now screens as 23.2% cheap on our models and, again, we have a bullish signal.
At a minimum, eyeQ is flagging that a lot of bad news is now priced into these homebuilders. And, with macro conditions improving, the more risk-adventurous [investor] might feel the worst of the bad vibes around the Budget are behind us and the big-picture stuff such as growth, inflation and the Bank of England are starting to become a tailwind for the sector once again.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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