eyeQ: this FTSE 100 miner is grabbing attention
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. It says miners are cheap amid concerns about China.
5th September 2024 12:52
by Huw Roberts from eyeQ
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"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
Antofagasta
Trading signal: long-term strategic model
Macro Relevance: 78%
Model Value: 2,065.91p
Fair Value Gap: -21.17% discount to model value
Data correct as at 5 September 2024. Please click glossary for explanation of terms.
Another day, another fall for the FTSE 100’s mining stocks. Commodity markets are struggling with crude oil erasing all 2024’s gains and iron ore at its lowest levels in almost two years. The most common explanation for this is China. A weak economy and no signs of the authorities being able to rescue things is resulting in commodity traders fearing Chinese demand will be weak.
Miners like Rio Tinto Registered Shares (LSE:RIO), Anglo American (LSE:AAL) and Glencore (LSE:GLEN) are among the worst-performing stocks of late.
On eyeQ’s smart machine they all screen as cheap to overall macro conditions, with the standout being Antofagasta (LSE:ANTO) where the share price sits 21% below our model value. There’s no official bullish signal yet because model value has been falling.
Remember our Fair Value Gap highlights a dislocation – a stock price trading rich or cheap versus where the stock “should” trade given overall macro conditions. But macro momentum is important too - a stock can be cheap but if macro conditions are getting worse, then a cheap valuation alone is not sufficient to buy the dip.
What we want to see is cheap valuation AND an improving macro environment. What we can say right now is that a lot of bad news has been discounted in Antofagasta’s share price. Now we need to see the orange line in the chart below bottom out and ideally turn higher.
That needs commodity markets to stabilise, but our model also shows it needs economic growth to remain resilient, plus healthy credit markets, liquidity and risk appetite. And some of those are happening which is why our model value hasn’t fallen as far as the market. Monitoring all the different moving parts isn’t easy but that’s what eyeQ delivers for you.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
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 (macro) 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.
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