August 19, 2023 – Well into the dog days of summer, August has thrown cold water on July’s surge in speculative stocks.
While last month’s speculative fervour saw the Goldman Sachs Most Shorted Index surge +17%, the swift change in stock market sentiment in August has seen a complete reversal, with the most shorted index down -18% month-to-date. The warm weather and vacation-level trading volumes may have led to rational moves between overvalued and undervalued securities. The U.S. 10 Year Treasury yield breaking out above 4.25%, its highest level since 2007, has not helped support the case for long-duration equities.
In any event, AlphaRank’s Top Stocks provides investors with evidence-based stock ideas, both long and short, to capitalize on the current trends in the market.
OUTPERFORM: BRP Inc. (DOO) is a leading Canadian company specializing in designing, manufacturing, and distributing power sports vehicles and propulsion systems. DOO produces recreational products such as snowmobiles, watercraft, all-terrain vehicles (ATVs), and roadsters under well-known brands, including Ski-Doo, Sea-Doo, Can-Am, and Rotax. With a track record of introducing popular and innovative products, a diversified portfolio across various recreational segments, and a focus on capturing a broad audience of outdoor enthusiasts, DOO has the potential to deliver steady growth and maintain a competitive edge in the power sports industry, making it a potentially worthwhile choice for investors seeking exposure to this sector. Given its attractive valuation of 6.2x EBITDA and a strong quality ranking due to its 50%+ return on capital, Accelerate’s predictive model believes it may outperform in the near term. (Disclosure: Long DOO in ATSX).
UNDERPERFORM: Rigetti Computing (RGTI) is a quantum computing company that focuses on developing and providing access to quantum computing hardware and software solutions. RGTI aims to build practical and scalable quantum computers to solve complex problems beyond the capabilities of classical computers. While Rigetti’s technology holds promise for revolutionary advancements in computation, its stock price may underperform for several reasons. Quantum computing is still in its early stages, with significant technical challenges to overcome before achieving commercial viability. The field is highly competitive, with other major players like IBM, Alphabet (Google), and startups like IonQ also vying for leadership. As such, there’s substantial uncertainty about which companies will ultimately succeed in bringing quantum computing to market, potentially leading to volatile stock performance. Moreover, quantum computing’s practical applications remain primarily theoretical, and it’s uncertain when or how it will achieve mainstream adoption, making it a relatively risky investment proposition. From a quantitative perspective, RGTI’s operating losses, expected to continue to the foreseeable future, combined with a challenging technical setup, with its share price down -64% over the past year, are some of several reasons to expect the stock to underperform in the near term.
AlphaRank Top Stocks represents Accelerate’s predictive equity ranking powered by proven drivers of return. Stocks with the highest AlphaRank are expected to outperform, while stocks with the lowest AlphaRank are anticipated to underperform. AlphaRank assigns a numeric value to each security from zero (bottom-ranked) to 100 (top-ranked) based on selected predictive factors. All Canadian and U.S. stocks priced above $1.50 per share and $100 million in market capitalization are evaluated. In both the Accelerate Absolute Return Hedge Fund (TSX: HDGE) and the Accelerate Enhanced Canadian Benchmark Alternative Fund (TSX: ATSX), Accelerate funds may be long many top-ranked stocks and short many bottom-ranked stocks. See AccelerateShares.com for more information.
