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AI Panic Is Putting Great Stocks on Sale
AI Panic Is Putting Great Stocks on Sale
Note from Senior Editor Michael Salvatore: If you’ve been watching the market lately, you’ve probably noticed that AI anxiety has taken on a life of its own.
Stocks across dozens of sectors have been punished on the premise that artificial intelligence will render entire industries obsolete – not eventually, but soon. The selloff has been indiscriminate, and in my view, more than a little overdone.
That’s exactly why I asked our Senior Analyst Mike Burnick to weigh in this week.
Mike has spent decades analyzing market cycles and identifying high-quality businesses that hold up – and bounce back – when fear takes over. If anyone can cut through the noise on this AI disruption story, it’s him.
The panic is real, but so is the opportunity. And he’s built a screener that combines two of our most powerful tools – our Business Quality Score and our Trade Cycles filters – to find high-quality stocks that have been unfairly caught in the AI anxiety crossfire.
These are names with wide moats, strong fundamentals, and the kind of durable competitive advantages that don’t evaporate overnight just because a new AI model drops.
BY MIKE BURNICK, SENIOR ANALYST, TRADESMITH
AI anxiety has a firm grip on the stock market these days.
Stocks in sector after sector have been laid low in recent weeks, due to fears of overnight AI-induced obsolescence.
The list of victims includes…
- Software
- Financial Services
- Data Services
- Cybersecurity
- Transport & Logistics
- Legal & Consulting
- Among others…
The nightmare scenario goes something like this: Artificial intelligence models and their AI-powered agents will continue to improve until they reach a level where they suddenly and rapidlydisrupt companies in these industries.
Overnight, these new developments transform the companies from innovative, high-margin businesses into lumbering dinosaurs… with stocks headed to the graveyard.
Now, this nightmare may come true for some stocks. Especially companies that are no longer on the cutting edge of consistent improvement.
But AI is not going to creatively destroy all the stocks in all of these sectors overnight, either. And that means the AI-induced panic sending these stock prices plunging is an opportunity… if you know where to look, anyway.
There is a simple antidote to this AI obsolescence anxiety, as well as the market volatility we’ve seen in recent weeks. And it just so happens to be my favorite investment style: Quality!
AI-Proof Your Portfolio With Quality Stocks
High-quality stocks tend to have “wide moats” – durable competitive advantages over other potential competitors – defending their “castles” of business from competitive threats. And this includes threats from potential AI disruption.
Often, this moat takes the form of an advantage of scale. This is especially true for companies that have dominant market share in a particular industry.
Other types of moats can include large and loyal customer bases or unique products or services.
Whatever form that moat takes, the high-quality stocks that possess them also share fundamentals. These stand out the same way, no matter what kind of business we’re dealing with.
And that’s where our TradeSmith Business Quality Score (BQS) comes in handy.
BQS is a unique metric TradeSmith created to find high-quality stocks with growing earnings, financial strength, high-profit margins, and safety.
In other words, stocks that enjoy durable competitive advantages that are poised to endure.
BQS considers the critical traits of stocks proven to outperform the market over the long run, including:
- Growth in sales, earnings, cash flow, and high returns on equity and assets,
- Profitability compared to both its own history and compared to other stocks,
- Safety in the form of low debt, minimal risk, and low volatility,
- And Payouts – how profits get reinvested to enrich shareholders and grow the business.
Our BQS ranks every stock from zero (lowest quality) to 100 (highest). Stocks with a BQS of 80 to 100 are considered high quality.
Using BQS as the key filter, our powerful TradeSmith Screener tool can help you find quality stocks that are unlikely to get disrupted by AI anxiety.
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Combine Quality and Timing for a Winning Screener
Today, I’ve created a screen with a few simple filters that searches for healthy, high-quality stocks that have pulled back recently due to AI anxiety.
And to increase my conviction that these stocks should rebound soon, I also included several of our Trade Cycles timing filters to power up this screener even further.
Our Trade Cycles filters are designed to uncover stocks that are now – or soon will be (next 60 days) – in a Valley turn area, with a medium to very high conviction level.
Just as nature follows repeating seasonal patterns, so do financial markets. Our Cycles filters help you anticipate potential turning points for stocks, ETFs, or indexes.
You can see at a glance when a stock is at or near a Cycle Peak (high) or Valley (low), which indicates a change in trend. A stock in a Valley turn area is likely to move higher.
So by combining these two elements, I built a screener that looks for:
- Stocks in the Long-Term Health Green and Yellow Zone– either a strong or cautious buy in our system.
- A Business Quality Score of 80or above, the top 20% of stocks we track.
- Stocks that are cyclically in a “Valley” phase and are set to turn higher in the next 60 days.
- And finally, stocks that are down over the last month.
When I ran this screener yesterday with the filters above, I got 30 results. That’s a good starter list for additional research.
The top 10 results are shown below sorted by BQS, with the highest quality stocks at top:
Two companies with business moats make the cut: Rayonier (RYN) and Airbnb (ABNB).
RYN is a REIT that manages nearly 3 million acres of prime timberland, making it an asset-rich business. Could AI impact its business?
I doubt it. AI can’t plant and harvest trees… at least not yet.
As for ABNB, it’s a technology company focused on travel rentals. So could AI be a threat there? Maybe.
But its business has a big moat and high castle walls, thanks to a user base of 275 million members that made half a billion bookings last year alone.
For my money, these stocks are among many in these results unfairly victimized by AI anxiety… and the stocks are on sale, which spells opportunity.
And here’s another way to sort the results, to zero in on other stocks that have fallen due to AI-fueled market anxiety.
We know all the stocks that made the cut for this Screener are quality (top 20% BQS), so another way to sort is by 1-Month Change, by clicking on this column to sort by performance:
Here, we see the 10 high-quality stocks that have fallen the hardest over the past month, perhaps due to misguided AI anxiety.
And sure enough, another blue-chip name makes the cut: American Express (AXP).
Will Amex get disrupted by AI? It’s possible. But the company’s also one of the world’s biggest credit issuers. People aren’t going to stop using their Amex cards overnight because of AI.
And that’s a wide moat: 141 million loyal customers see their Amex card as a status symbol. So I’m sure people will continue to say “Don’t leave home without it” for years to come.
I’ll be holding on to my own Amex card, that’s for sure.
If anything, AXP can harness AI to improve its business by targeting more creditworthy customers, leading to smaller losses – and higher profit margins.
AI-fueled anxiety has hit plenty of stocks and sectors hard in recent weeks, and that includes a number of high-quality stocks that have perhaps been unfairly maligned.
These quality stocks are well-positioned to recover and defend from potential AI disruptions – and today’s screener is a great way to find those potentially winning stocks that are on sale due to overblown AI fears.
Good investing,
Mike Burnick
Senior Analyst, TradeSmith
