5 Under-The-Radar Growth Stocks to Buy Immediately, According to AI
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In last week’s newsletter, I introduced the concept of “ensemble learning,” the AI version of voting for the right answer. By stringing together multiple artificial intelligence systems, software engineers can often create a more accurate final answer.
It’s much like the wisdom of crowds. Humans are often better at guessing outcomes when their answers are averaged, as any Las Vegas bookkeeper knows. (We know, for instance, that the San Jose Sharks and Columbus Blue Jackets have the longest odds of reaching the NHL playoffs.) This truth has been used to help determine everything from sports betting odds to who should win the next Oscar.
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Machine learning works the same way. Ask 20 image-recognition algorithms to identify a picture of a cat, and even if one system accidentally says “horse,” the other 19 can correct it. Much like humans, machines make better decisions when multiple independent algorithms work together.
That’s why Louis Navellier’s AI Breakthrough event last week was so groundbreaking. By combining Louis’ long-term investing algorithms with TradeSmith’s tactical New Intelligence AI system, the pair have managed to create an ensemble learning method to pick stocks from both a fundamental and technical toolkit.
This week, the writers at InvestorPlace.com – our free news site – and I explore another five stocks recommended by both systems. And these under-the-radar growth stocks are some of the best deals I’ve personally seen in quite a while.
Archrock (AROC)
Source: OlegRi / Shutterstock
Archrock (NYSE:AROC) is America’s largest third-party supplier of natural gas compression services. It’s an essential service that helps transport natural gas from wellheads to pipelines and beyond. Older wells are particularly reliant on Archrock’s services, since reservoir pressures tend to fall with age; unpressurized gas eventually has trouble reaching collection points. Compression services are also used in refineries, petrochemical plants, and in liquefying natural gas for export.
That means demand for compression services has surged in recent years. According to industry data, North American drillers have been reluctant to increase well counts, preferring instead to extract more hydrocarbons from existing wells. A rise in U.S. natural gas exports has further increased demand.
That’s turned Archrock into a near-hypergrowth company. Earnings per share (EPS) are expected to rise 124% this year, and see another 29% jump in fiscal 2024. Analysts have also been raising their estimates – a highly bullish sign. EPS estimates for fiscal 2024 have more than doubled this year as producers double down on aging wells.
That’s now awarded the Houston-based firm an A grade in Louis’ Portfolio Grader system, and a 14.8% expected one-month upside on TradeSmith’s New Intelligence models. That suggests investors should buy in before the seasonal fourth-quarter surge in natural gas prices.
Of course, investors will eventually want to sell their stakes. Natural gas prices are expected to come back to Earth in the second quarter of 2024, and Archrock’s enormous margins won’t stay high forever. Energy is a cyclical industry where lean years have always followed boom times. But for investors seeking a growth stock to ride through the end of the year, Louis and TradeSmith have found one of the best growth stories in the industry today.
Rover (ROVR)
Source: rafapress / Shutterstock.com
Rover Group (NASDAQ:ROVR) runs an online marketplace for pet-care services, from dog-walking to house-sitting and everything in between. It’s a business that creates natural network effects, since more providers draw in more customers, and so on.
Back in March, InvestorPlace.com writer Josh Enomoto chose Rover as one of his top penny stocks for 2023.
In my view, ROVR enjoys one of the best narratives among penny stocks. With more people being recalled back to the office, the need for pet care will likely spike. Enter Rover. Better yet, we’re not just uselessly pontificating here. Recently, Rover’s strong earnings report called attention to its big profits and sizable bookings.
It was a prescient call. Since then, a surge of return-to-office mandates have sent shares of the “Uber for pet care” up 60%. Busy office workers have flocked to Rover’s marketplace services, and the company has seen growth surge. Analysts expect revenues to surge 30% this year and 20% annually through at least 2026. The company is also expected to turn profitable this year.
That’s helped Rover’s score rise from a D last year to a solid B in Louis’ system. A profitable 2023 will likely push shares into the “A” range.
Furthermore, a recent pause in Rover’s rise has now turned TradeSmith’s New Intelligence rating bullish. The system predicts that the stock will soon resume its upward trend and could rise as high as $7.83 within a month, a 14.5% upside. As office workers increasingly find themselves returning to the office, Rover will be there to take care of the pets at home.
Bain Capital Specialty Finance (BCSF)
Source: Kevin McGovern / Shutterstock.com
Bain Capital Specialty Finance (NYSE:BCSF) is perhaps one of the strangest “growth” companies to make this list. The middle-market financing company invests in the debts of medium-sized firms, which is ordinarily a quiet business that generates consistent bond-like returns.
However, rising rates have quickly turned Bain Capital into a high-growth company. The Boston-based firm relies almost exclusively on floating rate loans, so every 1% increase in interest rates will immediately add $10.1 million to the company’s annual run rate. Analysts expect Bain Capital to grow its topline by 34% this year, and for EPS to surge 20%, where it will stay through fiscal 2024.
That’s put BSCF on multiple radars. Louis’ Portfolio Grader system recently awarded Bain Capital an A grade for strong growth figures and positive analyst earnings revisions. And TradeSmith’s AI system now believes that greater gains are coming. The New Intelligence system gives Bain a 12.2% upside in a month.
The company’s valuations are also reasonable. Bain Capital trades at a 7X forward P/E ratio with a generous 11.0% dividend yield. Josh Enomoto, at InvestorPlace.com, once called Bain’s approach a way for investors to benefit from early stage businesses that have tons of potential but not much capital backing. With shares trading at 17% below their IPO price, investors now have a margin of safety too.
Talkspace (TALK)
Source: Ben__Stevens / Shutterstock.com
It’s been a tough several years for Talkspace (NASDAQ:TALK), an online therapy company that went public in 2021. The initial excitement over telemedicine was quickly replaced with concerns over profitability. By the start of this year, the New York-based firm was losing 67 cents for every $1 of revenue and had lost 94% of its original market value. The company scored score a rock-bottom F on Louis’ stock-grading system.
Nevertheless, a change in corporate strategy has quietly put Talkspace back on a path for growth. In Q2, the company announced its revenues had jumped 19.4% year over year, and net losses had narrowed from $23 million to $4.7 million. Wall Street analysts now expect 2025 revenues to hit $226 million, a 24% compound growth rate.
These figures were driven by a corporate pivot to working directly with health plans – which saw a stunning 135.3% surge in Q2 revenues – and abandon its less profitable direct-to-consumer business. It turns out it’s far easier to sell online psychotherapy services when insurers pay for it.
This strategic change means Louis’ system now awards Talkspace a solid B grade for its improving fortunes, a vast improvement since January. And this week, TradeSmith’s New Intelligence joins Louis in recommending shares of the stock. According to the AI system, investors can expect a 15% return on Talkspace’s shares over the next 21 trading days. Though the telehealth firm has seen a terrible start on public markets, its willingness to adapt to the American healthcare system has now put the firm back on solid footing.
Cantaloupe (CTLP)
Source: Shutterstock
Cantaloupe (NASDAQ:CTLP) is a specialized payments processor that helps “self-service” locations collect payments. The company powers over a million active such locations, including vending machines, EV charging stations, and car washes.
Growth at the company has recently surged as more people begin eating away from home. The company’s acquisition of micro-market provider Three Square Market (self-service convenience stores) has also opened new markets.
Analysts expect Cantaloupe’s net income to hit $8.8 million this fiscal year, up from zero last year, and for the figure to double yearly through fiscal 2026. That makes it one of the fastest-growing tech firms on U.S. stock exchanges.
Several insiders have also recently bought shares, including Cantaloupe’s CEO and a director. Studies show that these transactions are some of the most dependable signals of greater gains to come. The typical corporate insider outperforms the market by over 6% per year when transacting stock in their companies.
Together, that suggests that this A-rated stock could rise 20% over the next month, as TradeSmith’s New Intelligence system predicts. Cantaloupe has seen enormous successes with bolt-on acquisitions, and the company’s management believes they can reach profitability this year. Given bullish insider transactions, their wallets seem to think that, too.
The Best of Both Worlds
In 2021, a group of Indian researchers wanted to tackle a thorny problem:
How could courts predict which first-time offenders would recommit crimes?
It’s an important issue. Many first-time offenders are young, and imprisoning these people can make it more likely for them to commit crimes in the future. In many cases, it’s best to let these young offenders go free.
However, algorithms for predicting recidivism are weak at best. Most classifiers only achieve a 70% accuracy rate, which means 30% of criminals are misclassified.
To tackle this issue, the team of researchers turned to ensemble learning and combined the results of six different algorithms into a single output. By averaging the answer of six relatively inaccurate classifiers, the researchers lowered the error rate to just 12% – an enormous improvement over base rates.
The same technique is why “stacking” stock-picking systems work so well. Some algorithms, like Louis’ stock-picking system, aim to find strong long-term performers. Meanwhile, TradeSmith’s AI focuses on day-to-day movements, making it ideal for traders seeking the right entry points.
Together, they add up to AI Advantage. To create his newest subscription service, Louis worked with the software engineers at TradeSmith, who spent thousands of man-hours designing the New Intelligence.
TradeSmith’s AI system looks at 120 different factors, updated overnight, which amounts to a billion data points at any given moment. And when it makes a mistake, it’s programmed to learn and correct for that going forward.
Louis created a free presentation all about how his new AI Advantage product can help investors profit. You can access this free presentation right here.
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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