Stock predictions by AI (artificial intelligence) are becoming more popular with investors.
More actively managed ETFs are launching driven by AI. Three examples are QRAFT AI-Enhanced U.S. Large Cap Momentum ETF (NYSEARCA:AMOM), AI Powered Equity ETF (NYSEARCA:AIEQ) and BTD Capital ETF (NYSE:DIP).
I recently discussed DIP. The ETF uses artificial intelligence to exploit dips in a stock’s share price. It quickly buys shares on a dip and sells them shortly after when the share price has recovered. It turns a majority of the holdings daily.
While that increases trading fees, it’s an excellent way to take the emotions out of buying on the dip.
To simplify things, I’ll select the top holding of each of the three ETFs.
Eli Lilly (LLY)
Eli Lilly (NYSE:LLY) is the largest holding of AMOM with an 8.58% weighting. No other healthcare companies are in the top 10 holdings.
LLY stock is having an excellent year, up more than 55% in 2023 and 431% over the past five years, 8x the return of the S&P 500.
The company is developing an injectable drug, tirzepatide, in late-stage clinical trials. The experimental drug, according to studies released in July, helped patients lose 26% of their weight on average. Of all the late-stage clinical trials for weight-loss drugs, Eli Lilly’s weight loss is the highest, giving investors a reason to buy its shares.
Tirzepatide is currently sold under the Mounjaro name in the U.S. It is approved for use as a treatment for diabetes. The company applied to the Food and Drug Administration (FDA) in June for use in chronic weight management.
“‘The findings of the trial ‘reinforce that obesity should be regarded like other chronic diseases where chronic therapy may be needed to maintain treatment benefits,’ Dr. Jeff Emmick, Eli Lilly’s senior vice president of product development, said in a statement,” CNBC reported.
While weight-loss drugs are all the rage, Eli Lilly has plenty of other drugs in the pipeline to keep the cash rolling in. In August, it raised its earnings per share guidance for the year to $9.80 at the midpoint, $1.02 higher than its previous outlook.
It currently trades at a high 58x earnings.
Spotify Technology (SPOT)
Spotify Technology (NYSE:SPOT) is the largest holding of AIEQ with a 7.56% weighting. It uses IBM’s Watson computer to do all of the legwork.
“Analyzing millions of data points across news, social media, industry and analyst reports, financial statements on over 6,000 U.S. companies, technical, macro, market data and more,” states AIEQ’s website.
Watson identifies the 30 to 200 companies with the greatest appreciation potential over the next 12 months. It currently has 91 holdings.
Spotify’s shares have almost doubled in 2023, up 99%, although it’s down considerably from its all-time high of $387.44 in February 2021.
The music streaming and podcast platform reported a surprise quarterly profit on Oct. 24, its first profit in a year and a half. It did this by cutting costs and raising prices for its monthly services. What sent the shares flying higher was that analysts expected a loss. Instead, it beat the estimate by 250%.
Equally important, it had 226 million premium subscribers at the end of September, two million higher than the consensus estimate. Its monthly active users (MAUs) were 574 million, 1.9 million higher than analyst expectations. As a result of the increase in MAUs, ad revenue rose 16% over Q3 2023.
Spotify is solidifying its position in music streaming.
Kroger (KR)
Kroger (NYSE:KR) is the largest holding of DIP with a 4.17% weighting.
As I said in my article about DIP, you want to take the top holding with a grain of salt. It turns its portfolio at a significant rate by getting in and out of stocks that have taken a bit of a dip. It doesn’t necessarily reflect the long-term potential of a name.
That said, Kroger is one of the largest grocery stores in the world with 2,719 supermarkets, annual 2022 sales of $148.3 billion, and doing business in 35 states and the District of Columbia.
Interestingly, as its factbook points out, just 24% of its sales are perishable items. The rest of its sales have a longer shelf life, reducing its waste and saving money.
A year ago, Kroger announced it would buy Albertsons (NYSE:ACI) for $24.6 billion. The deal puts the merged entity into 48 states and DC, employing more than 710,000 people at nearly 5,000 stores.
One year later, the merger continues to face stiff opposition from state officials, unions and consumer groups; you name it, they’re against it. The Federal Trade Commission has not approved the deal despite a plan to divest more than 400 stores to appease regulators.
With or without Albertsons, Kroger should continue to generate significant profits from its existing business.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
