eyeQ: 10 actionable trading signals for week beginning 20 January 2025

"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ

• Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary

This series of weekly articles uses eyeQ’s smart machine to highlight 10 stocks whose share price trades at either a discount or premium to eyeQ’s Model Value price (where macro conditions say the share 'should' trade).

A minus figure in these tables indicates a share trading below eyeQ’s Model Value, implying they are ‘cheap’ versus macro conditions. A plus figure screens as rich because the current share price is above eyeQ’s Model Value.

All companies must have a model relevance above 65%, which means the macro environment is critical and any valuation signals carry strong weight.

Here are definitions of terms used in the analysis:

Model value

Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.

Model relevance

How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.

Fair Value Gap (FVG)

The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.

Long Term model

This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.

UK Top 10

Source: eyeQ. Long Term tactical models. Data correct as at 19 January 2025.

Metro Bank

For most UK stocks, 2024 ended on a whimper, with most commentary blaming the Budget's tax announcements. Metro Bank Holdings (LSE:MTRO) was an exception. It rallied nearly 30% in November, and even though it gave back some gains in December, it still was an outlier with its strong Q4 performance.

Part of the reason for that was an upgrade in the firm's credit rating by Fitch, which made positive noises about its business transformation and profit outlook.

From a macro perspective, it's a slightly different story. The November/December rally was justified by Metro's defensive properties. Current patterns show it's OK with weaker economic growth and a “risk-off” mood in markets.

But that combination now means that eyeQ's model value is falling. Macro conditions were consistent with a stock price of 96.68p at the end of last year. Today, fair value sits at just 73.86p.

And Metro Bank has not fully reacted to this shift, so it sits 19.1% rich to the broad macro environment. That's not quite sufficient to trigger a bearish signal, but this is not a stock with great risk-reward right now.

International Top 10

Source: eyeQ. Long Term tactical models. Data correct as at 19 January 2025.

Johnson & Johnson

The pharma titan lost about 7% in 2024, underperforming the broader S&P 500. The lacklustre performance was due to declining Covid-19 vaccine sales, increased competition from its peers and falling Remicade revenue.

Last week, Johnson & Johnson (NYSE:JNJ) acquired Intra-Cellular Therapies Inc (NASDAQ:ITCI), a biopharma company focused on treating central nervous system disorders, for $14.6 billion (£11.9 billion). Could this turn things around for the firm?

EyeQ smart machine isn’t too enthusiastic about JNJ. Macro conditions have been deteriorating since October; the eyeQ model value has fallen nearly 12% in that time. Model value is possibly trying to form a bottom but there's no firm evidence yet that the macro environment is definitively improving. 

Moreover, the stock sits 2% rich to model after the latest bounce on the ITCI takeover news. That's not enough for an official bearish signal but, as with Metro Bank in the UK, this is not a name we'd be looking to increase exposure to at this point.