Three overlooked stocks from a Spanish quant: 'Now is not a time everyone is going to win.'

MW Three overlooked stocks from a Spanish quant: 'Now is not a time everyone is going to win.'

By Barbara Kollmeyer

Critical information for the U.S. trading day

With the S&P 500 SPX up more than 8% so far this year, the challenge is on for stock pickers around the world to find those overlooked companies.

"We believe now is not a time everyone's going to win and that now, stock selection is becoming more and more important," Madrid-based Nicole Sophie Gómez Adenis, U.S. equities and multi-asset portfolio manager at Mapfre Asset Management, tells MarketWatch in an interview.

She arms her hunt with her university studies in physics and financial mathematics, to use quantitative analysis for that search.

"I'm looking for companies that have high-quality growth estimations that are not being considered by the market. So that means prices are not being affected as we believe they should be," she says.

And she says a lot of companies that "have this behavior are actually investing in technologies and in AI. So I do not search specifically for AI companies, but I do find that a lot of other companies that are overlooked do have AI processes and AI technologies in their backgrounds," said Adenis.

But she says investors need to see through the fact companies are quick to mention AI exposure these days. "What I think is important is that companies focus on what's the problem that they want to solve and that investing in AI techniques is really the best approach rather than traditional methods."

Important quant factors for her include what analysts are estimating for company fundamentals - revenue, profit, earnings, etc. If prospects look good, but the stock isn't performing well, that can sometimes indicate bad governance or exposure to a problematic economy. Quant processes can help view companies more clearly, by spotting sensitivities to other factors that could affect the business.

GXO Logistics $(GXO)$, "the largest pure-play contract logistics provider," is one company the firm likes for attractive valuations and growth prospects, she says. The company, whose customers have included Apple and Nike, provides order fulfillment, e-commerce and supply chain growth, and uses AI, robotics and predictive analysis, she says.

"This company is well-positioned because it has been investing in technology since nearly a decade ago. So it's a pioneer in investing in technology in warehouses," she said. "We are betting that it will be a winner against other competitors in logistics."

GXO was a spinoff of XPO $(XPO)$ and began trading in 2021. Its shares are down 16% so far in 2024.

A second holding she flags is memory-chip maker and data storage solutions group Micron Technology $(MU)$, whose shares are up nearly 40% this year (and recently upgraded by Baird).

"Now that we have artificial intelligence, this is becoming more and more important to have memory and data storage. So Micron would be the partner you need," she said. "If you have to train and test large models, you can use Micron solutions, so that's very necessary for AI machine learning, generative AI."

Stacking Micron's share performance against AI chipmaker Nvidia $(NVDA)$, "we think it has a lot to catch up," she says. The firm isn't investing in Nvidia, and she admits it probably missed an opportunity, but now see shares as too costly now for what it believes the company will do in the future.

Her last pick is a new holding, athleisure group Lululemon $(LULU)$, which she refers to as "the new sportswear titan.

"It offers technical athletic apparel for various activities like yoga, running, dancing, training and they are also providing lifestyle apparel, accessories and personal care products," she said. The company is expanding rapidly with a "clear focus on innovation and new product development," and using AI to "improve its search experience in its online store."

Shares are down 32% so far this year, on worries about activewear demand, overall consumer health and shifting trends. She said the company's valuations are "very attractive," but perhaps weighed some by exposure to China. She adds that Lululemon with its expansion, is not just counting on U.S. clients.

As for U.S. stocks overall, the manager is keeping the faith: "We do believe in the resilience of the U.S. economy and that it is well positioned for the trends that will be relevant in the future compared to other markets," she said.

She admits U.S. valuations are high and there are lots of risks on the horizons - U.S. elections, persistent inflation, sovereign debt levels and armed conflicts around the world.

"So we are positive on U.S. equities, but we have bought volatility because it's cheap insurance right now," she said.

The markets

S&P 500 futures (ES00) are slipping after the index snapped a four-session win streak, with tech (NQ00) set to lead the way south. The 10-year Treasury yield BX:TMUBMUSD10Y is back up over 4.5%, and oil prices (CL.1) are higher.

Read: The real reason why Wall Street's 'fear gauge' seems so low right now

The buzz

Disney $(DIS)$ and Warner Bros. $(WBD)$ are teaming up on a new streaming bundle - Disney+, Hulu and Max. Shares of Warner Bros are up, ahead of its earnings due this morning.

Several companies reported late late Wednesday. Arm Holdings $(ARM)$ shares are down 9% after the chip-design group's results wowed, but forecast didn't. Airbnb stock $(ABNB)$ is off 8% after a slightly disappointing sales forecast from the vacation rental platform. And Robinhood (HOOD) is climbing after forecast-beating results from the stock trading app.

Costco $(COST)$ logged another double-digit rise in e-commerce sales for April.

Pioneering gene therapy from Regeneron $(REGN)$ restored hearing for a deaf U.K. toddler.

Weekly jobless claims are coming at 8:30 a.m. San Francisco Fed President Mary Daly will speak at 2 p.m.

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Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   AMC     AMC Entertainment 
   NIO     Nio 
   ARM     Arm Holdings 
   AAPL    Apple 
   PLTR    Palantir 
   MULN    Mullen Automotive 
   AMZN    Amazon.com 

The chart

Retail participation in capital markets is facing headwinds - "risks around the sources of new money," say analysts Vanda Research. Among those, tax refunds have largely been distributed and excess pandemic savings are likely now drained. That could mean individuals lean more on existing savings and earnings in the months ahead and earnings, they say.

But if April payrolls proves correct and the labor market is worsening, watch out for another headwind, say the Vanda Researchers, offering the below chart:

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-Barbara Kollmeyer

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May 09, 2024 06:50 ET (10:50 GMT)

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