Housebuilder Bellway PLC (LON:BWY) has been rated as the best UK stock to beat the rest of the market in the first six months of 2021, according to an artificial intelligence (AI) algorithm developed by a Spanish investment firm.
Speaking to Proactive, Tomás Esteva, the founder and chief executive of Danel Capital, said that as of January 11, FTSE 250 Bellway had “35 different features” that made it stand out among the rest of the stocks on the UK market in the eyes of the algorithm, particularly its receipt of 11 ‘buy’ ratings from analysts in the past 18 months which he said gave the stock “potential upside of +50%”.
Esteva also highlighted that another plus factor for Bellway was its 180 days among the STOXX 600, an index comprised of 600 European firms that make up 90% of the total stock market capitalisation across the continent.
Aside from Bellway, other UK stocks chosen the by the AI as top performers for the coming months include Holiday Inn owner Intercontinental Hotels Group PLC (LON:IHG), aircraft engine maker Rolls-Royce Holdings PLC (LON:RR.) and mining giant Anglo American PLC (LON:AAL).
In addition to analyst ratings, Esteva said the firm’s AI looks at 10,000 features for each stock per day to run its calculations, which in turn are based on “more than 900 fundamental, technical, and sentiment indicators”.
“We try to get a holistic view of the stocks, taking into account as much information as possible that can impact stock prices. Our AI algorithm automatically generates hundreds of decision trees to come up with the probability for each stock to outperform its market”, the CEO said, adding that since January 2018 stocks rated at either 9 or 10 by the algorithm, its two highest ratings, have achieved yearly average returns of just around 8.4%, more than double the STOXX 600 benchmark.
The AI’s success is even more pronounced for US stocks, where shares rated at 9 or 10 have achieved yearly average returns of 25.9% since January 2017, with the algorithm singling out the US-listed shares of cruise firm Carnival Corp (NYSE:CCL) as the top pick among US stocks for the next six months, followed by real estate firm EPR Properties (NYSE:EPR) and searching and analysis software firm Splunk Inc (NASDAQ:SPLK).
However, Esteva said that neither the UK nor the US markets as a whole are the ones investors should look to for the highest upside in the first half of this year, instead highlighting that the French market has 11 stocks ranked among Danel’s top 50 European stocks, compared to just 8 from the UK.
Looking ahead, the CEO said that in more general terms the firm’s AI is seeing companies that have been “very punished by COVID-19” including airlines, restaurants, hoteliers and oil companies as “the emerging stars of 2021, or at least for the first half of the year”.
While the data analysed by Danel’s AI algorithm may lead some to believe electronic stock picking will be the future, the topic remains controversial among the trading community.
Some have argued that while AI-powered systems are able to process larger amounts of market and financial data than humans, elements of the market such as the impact of distressed firms and those with small market caps can unbalance markets and indices in a way that some algorithms cannot account for effectively.