Can Stocks Picked by Artificial Intelligence Beat the Market? 3 Stocks to Watch

stock picks by artificial intelligence stocks to watch

(Image credit: Getty Images)

last updated 6 September 2023

Artificial intelligence leveraging the raw power of Big Data might just be the edge tactical investors and traders need to navigate an increasingly uncertain market.

Rising interest rates, elevated inflation and fears of recession have stocks climbing a wall of worry as we approach the final quarter of 2023. Although the S&P 500 has enjoyed a terrific run for the year-to-date, the month of September has historically gone against market participants.

"The Fed’s hawkish policy toward rate hikes to curb sticky inflation, combined with the tech sector’s AI revolution has pushed stocks higher and higher in 2023," writes Kevin Philip, partner at Bel Air Investment Advisors. "The question is – how will they fare this month during the year’s historically worst period for stocks?"

Stock picks by artificial intelligence

Artificial intelligence (AI), machine learning and big data are hardly new to the world of stock picking. But, traditionally, they've been available only to institutional investors with deep pockets.

Danelfin is trying to change all that. The financial technology firm's AI-driven analytics platform aims to level the playing field, giving regular folks access to institutional-level technology. The platform, which offers both free and premium plans, uses artificial intelligence to analyze more than 900 fundamental, technical and sentiment data points per day for all U.S.-listed shares and 600 stocks listed in Europe.

After churning through 10,000 daily indicators, Danelfin's algos produce a series of scores. The AI Score, which ranges from 1 to 10, indicates a stock's probability of beating the market over the next three months, or roughly 60 trading sessions. (Higher scores are better.) Danelfin also assesses stocks' volatility and their potential for nasty drawdowns. Stocks with superior Low Risk Scores should help tactical investors and traders sleep better at night.

The last step is to combine AI Score with Low Risk Score to suss out stocks that offer not only the highest probability for short-term outperformance, but also the lowest risk of loss.

Below please find three stocks to watch, based on Danelfin's AI platform awarding them the highest AI Risk/Reward Scores as of September 5. For good measure, we also took a look at what Wall Street analysts have to say about these names' prospects over the next 12 months or so.

And remember: We're talking about the probability of a stock beating the market over the next few months or so, not days, and not years. That means the platform is pointing to the best stocks to buy for tactical investors and traders, not necessarily long-term investors.

Disclaimer

Share prices and other market data are as of September 5. AI Scores and rankings are courtesy of Danelfin as of September 5. Analysts' consensus recommendations and other data are courtesy of S&P Global Market Intelligence, unless otherwise noted.

1/3

McKesson

Market value: $55.0 billion
AI Score: 7.0
Low Risk Score: 9.0
AI Risk/Reward Score: 8.0

Shares in McKesson (MCK) are lagging the broader market by a wide margin in 2023, but signals picked up by Danelfin's AI platform say MCK is poised for outperformance over the next three months.

True, MCK's AI Score of 7.0 out of 10 could be more bullish, but a near-perfect Low Risk score makes a compelling case for McKesson's risk-reward profile. Recall that September is historically the worst month of the year for stocks. Names that tend to hold up better when everything is selling off make sense in a seasonally weak period for equities.

As a defensive healthcare stock, McKesson could be expected to outperform under such weak market conditions. Notably, Danelfin's algos surfaced MCK as a top risk-reward play for traders and tactical investors at this early point in September.

Wall Street analysts, who typically look a year ahead and more, are bullish on McKesson as a longer term holding, too. Of the 16 analysts covering MCK surveyed by S&P Global Market Intelligence, nine call it a Strong Buy, three say Buy, three have it at Hold and one rates it at Sell. That works out to a consensus recommendation of Buy, with high conviction.

Hershey

Market value: $43.1 billion
AI Score: 7.0
Low Risk Score: 9.0
AI Risk/Reward Score: 8.0

Hershey (HSY) is another defensive dividend-payer that Danelfin's AI algos say is set to beat the broader market over the next three months or so. If September lives up to its historical billing of being a down month for equities, it wouldn't be unusual at all to see a consumer staples stock like Hershey outperform.

But Danelfin's AI platform sees fundamental, technical and sentiment indicators lining up favorably for HSY in the shorter term too. Four consecutive weeks of very high scores for technical signals, three weeks of near-perfect sentiment readings and steady, positive readings on fundamentals should allow HSY to beat the S&P 500 over the next few months. At the same time, shares are at very little risk of suffering a nasty drawdown, per Danelfin.

As fitting as Hershey stock might be for traders and tacticians, investors might want to think twice. HSY is off about 8% so far in 2023, and the Street is staying mainly on the sidelines when it comes to the stock's prospects over the next 12 to 18 months.

Indeed, of the 21 analysts issuing opinions on Hershey surveyed by S&P Global Market Intelligence, three call HSY a Strong Buy, four say Buy, 13 have it at Hold and one slaps a rare Strong Sell rating on the name. That works out to a consensus recommendation of Hold.

W.W. Grainger

Market value: $34.7 billion
AI Score: 9.0
Low Risk Score: 7.0
AI Risk/Reward Score: 8.0

Anyone who is a fan of dividend stocks you can count on for dependable dividend growth is probably already well acquainted with W.W. Grainger (GWW). This member of the S&P 500 Dividend Aristocrats index has increased its dividend for 51 consecutive years and counting.

Thanks in part to those regular and rising payouts, shares in GWW are a long-time market beater. That's not really news, though. What's more interesting is that GWW is poised to beat the market with a minimum of risk over the next three months, per Danelfin's AI platform.

An AI Risk/Reward score of 8.0 suggests that GWW will outperform the broader market over the shorter term – and will do so with comparatively low risk. Ten straight weeks of near perfect scores for fundamentals, eight consecutive weeks of high sentiment indicators and technical signals that have been in an uptrend since early August all bode well for GWW as we close out the third quarter, per Danelfin's assessment.

Those with longer horizons should know that the Street gives GWW a consensus recommendation of Hold. Of the 18 analysts covering the stock, four call it a Strong Buy, 12 have it at Hold and two slap Strong Sell ratings on the name.