5 Turnaround Stocks for October 2023, According to AI
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In Ancient Greece, legal rulings were often decided by juries of up to 1,501 dikastai – private citizens appointed by the courts. These groups were enormous to ensure no one could select jurors for their own trial.
The system worked… or at least well enough to find its way into modern times. Today, most common-law systems use randomly selected jurors to decide cases. And those that don’t will often rely on panels of judges to make important decisions. Even my local county fair uses a team of panelists to decide the best apple pie, rather than rely on an executive decision.
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Machine learning algorithms often use the same technique. These “ensemble methods” work by asking the same questions to multiple systems, and then combining all the responses into a single consensus answer. That means if one algorithm comes to the wrong conclusion (for example, one judge believes that I burned my apple pie), the others should theoretically come to a better decision.
The system works. Stacking, voting, bagging, and boosting are now essential in everything from fraud detection to medicine. Technicians routinely feed hospital MRIs into multiple detection algorithms to make sure no cancer gets missed. And credit card transactions are analyzed several times over to detect fraud. Perhaps someday we’ll find AI helping judge apple pies at the county fair.
The same process also works for stock-picking. My own MarketMasterAI system uses two neural networks running on different datasets to make decisions. And now, Louis Navellier and the TradeSmith team are working together to bring you an even more powerful system that combines up-to-the-minute trade data with longer-term financials.
It’s a system that combines the best of worlds – Louis’ long-term view with TradeSmith’s shorter-term tactical trading. And on Thursday, October 12, at 7 p.m. Eastern, Louis will be hosting a special AI Breakthrough event to show us how he’s combining TradeSmith’s “New Intelligence” with his own approach in order to find the best opportunities. Click here to reserve your spot.
And this week, that combined system has flagged five turnaround stocks that look set to surge this month.
5 Turnaround Stocks for October 2023: Genworth (GNW)
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Genworth Financial (NYSE:GNW) has long been a cautionary tale for value investors. Previous underwriters at this GE Capital spinoff misjudged how much long-term healthcare would eventually cost, and so Genworth’s stock has traded below book value ever since the 2007-08 financial crisis. The insurer didn’t budget enough assets to cover its liabilities.
Nevertheless, that doesn’t make Genworth worthless. The Richmond, Virginia-based company still has a thriving mortgage insurance business that earned almost $600 million in operating income last year. InvestorPlace.com writer Will Ashworth also points out this week that Moody’s is beginning to see significant improvements. In July, the credit ratings agency upgraded Genworth’s senior unsecured debt from B1 to Ba2 – only two notches below investment grade. Genworth’s publicly traded subsidiary Enact Holdings (NASDAQ:ACT) is also worth more than its parent, creating a potential arbitrage opportunity.
Now, Louis’ stock-ranking system and TradeSmith’s New Intelligence both agree that these improving figures are too good to ignore. TradeSmith’s system believes this A-grade insurer has a 14.5% upside over the next month. And though Genworth’s shares trade at their highest price-to-book valuation since 2014, history tells us that these improving figures predict even better numbers ahead.
2. Energizer (ENR)
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Shares of Energizer Holdings (NYSE:ENR) have typically traded at a discount – a fact InvestorPlace.com writer John Blankenhorn noted in August:
Energizer … offers a dividend, which at current prices sits at 3.24%, over twice the average of the S&P. So while revenue may not be growing, Energizer is exceptionally valuable for a dividend investor. The bottom line is that cost cutting, stability, and a good dividend make Energizer a wise battery pick to buy.
Ordinarily, that would make Energizer as interesting as watching a lithium-ion battery charge. Between 2015 and the start of this year, shares rose just 1.5%.
But a recent 20% collapse in Energizer’s stock price now creates a rare buying opportunity for this blue-chip stock. Shares trade for 10 times forward earnings, over a third lower than historical averages. Given Energizer’s recent push into EV chargers and solar systems, further growth could soon materialize.
TradeSmith’s New Intelligence agrees that this B-graded stock will see a quick turnaround. According to the system, the sudden pullback in this blue-chip stock means that shares should recover 8.5% over the next month.
Analysts also remain relatively upbeat on Energizer’s prospects – an important consideration for Louis’ longer-term system. Earnings per share are expected to grow 10% per year through 2025, and share buybacks could help boost that figure even further. Though Energizer’s shares look scary today, two quant/AI systems are now recommending investors buy the dip.
3. James Hardie Industries (JHX)
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James Hardie Industries (NYSE:JHX) is the world’s No. 1 producer of high-performance fiber cement and gypsum. Its high-grade siding and exterior trim are typically found on luxury homes as a replacement for wood and vinyl.
Fiber cement is a surprisingly wide-moat business. Since 2021, the Irish company has averaged a 20% operating margin and 16% net margins – some of the best figures in the construction materials industry.
That’s because James Hardie has masterfully used advertising and partnerships with builders, architects, and distributors to engage end customers. If you’re in the market for a high-end home, then chances are good you’ll know of James Hardie. It’s a similar reason why paint companies like Sherwin-Williams (NYSE:SHW) enjoy such fat margins – customers are willing to pay a premium for a brand they trust.
The recent upswing in homebuilding stocks has since put James Hardie’s stock on both Louis’ and TradeSmith’s radars. The company was upgraded from a C in July to a B grade after a strong earnings report, and TradeSmith’s system believes that shares will rise another 6.3% this month.
Louis and his staff once called James Hardie a “direct play in a very hot niche” for its success in high-end homes. The recent analyst upgrades to this company now suggest that its 20% pullback is a golden opportunity to buy.
4. Nerdy (NRDY)
Source: Shutterstock
Nerdy (NYSE:NRDY) has seen traffic to its flagship Varsity Tutors website surge this fall, according to data from tracking service SimilarWeb. September’s viewership figures were up 22%.
This is important to Nerdy, a firm that generates revenues by connecting learners with paid expert tutors. The company typically sees a summer slowdown in traffic, and an early fall surge is essential for helping the company hit its targets.
This reacceleration now puts the tutoring firm on the upper end of both Louis’ and TradeSmith’s systems. The B-graded stock is expected to gain 11% over the next month as seasonal strength begins to pick back up. Analysts expect the company to grow revenues by 21.5% this year and 30% the next.
Ian Cooper at InvestorPlace.com notes that, since May 2022, the company’s CEO has invested more than $30 million of his own money into his company. Insiders now own roughly a third of all outstanding shares – a positive sign for long-term holders.
Of course, there are some risks involved with buying shares. Nerdy remains solidly unprofitable, and analysts don’t expect the St. Louis-based firm to break even until at least 2026. Revenue growth also slowed after the Covid-19 pandemic, when many schools moved to optional grading – and an unusually strong labor market in Q4 2023 could reduce demand for learning.
But Nerdy has undergone significant restructuring, and strong Q2 results suggest that growth is finally reaccelerating. Long-term investors should take note – AI algorithms are suggesting that now could be a good entry point.
5. Fidelity National Finance (FNF)
Source: viewimage / Shutterstock.com
Fidelity National Financial (NYSE:FNF) is a 176-year-old firm that provides title insurance for homeowners. The company saw a surge of activity in 2021, but then struggled the following year as homebuying slowed down. Its shares would tumble from $53 to the mid-$30 range.
Fortunately, TradeSmith’s New Intelligence system foresees a turnaround happening in the next month. The system predicts shares could rise as high as $41.34 in a month, a 6% upside.
Louis’ stock-picking system has also recently upgraded FNF from a C to a B after some significant analyst upgrades. Since August, the average EPS estimate has been revised up 8%, a bullish sign of greater gains to come.
That said, Fidelity could face headwinds going into 2024. Rising mortgage rates and low housing inventory means that existing home sales in August hit a level even lower than during the Covid-19 pandemic.
Nevertheless, there was a reason why Fidelity National Financial was previously featured on a list of Louis’ top dividend stocks to buy forever. The company pays a generous 45-cent quarterly dividend – a 4.6% dividend yield – and its large market share means the company has better data on property ownership than its rivals. FNF hold roughly a third of the total U.S. title insurance market, according to the American Land Title Association. Though home sales have slowed this quarter, investors should see this pullback as an opportunity to buy, rather than one to sell.
The Wisdom of Crowds, AI Edition
In 2005, New Yorker magazine columnist James Surowiecki published The Wisdom of Crowds, a book that examined how large groups of nonexperts often outperform individual experts. In one story, Surowiecki noted how British scientist Francis Galton found that the best guess for the weight of an ox at a county fair was the average of all 787 submissions. If herding can be avoided, crowds often make better decisions than the top experts.
The same concept is also true for machine learning. In one study of image-recognition software, researchers found that a 12-algorithm system boosted accuracy from 92.18% to a stunning 98.89%. This was especially notable because no single algorithm was particularly accurate. As long as the errors are uncorrelated, the averaged final answer will be better than any individual contributor.
The results can get even better when you combine strong algorithms together. Louis will reveal much more on how that all works on Thursday, October 12, at 7 p.m. Eastern, during his AI Breakthrough event. Click here to sign up.
Until then, our friends at TradeSmith are offering free access to the New Intelligence. In fact, right now, you can use it on Louis’ 25 top-graded stocks… but only till October 12. Just reserve your spot for his event now… and see how it works.
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.
Tom 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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