So, I recently caught up with Jan Szilagyi, the CEO of Toggle. Its system uses AI to pick the stocks based on quantitative analysis and machine learning. Toggle has about a hundred institutional clients with $185 billion under management, as well as 70,000 retail investors, says Szilagyi, a former quant trader at Stan Druckenmiller’s Duquesne Capital.
“The system looks for assets that look so stretched, so cheap or expensive, that the odds are skewed in favor of a move in one direction,” he says.
Toggle analyzes dozens of data points — from valuations and analyst expectations, to fundamentals and technical factors like price momentum and relative strength.
The group with the most stretched valuations to the downside at the moment? Homebuilders and related retailers. He cites Lennar LEN, -2.65%, PulteGroup PHM, -2.88%, Toll Brothers TOL, -3.34%, Home Depot HD, -2.91% and Lowe’s LOW, -2.75%. “All five, from the system’s point of view, look skewed to move higher,” he says. They are beaten down because rising mortgage rates have reduced housing affordability. But investors are also dumping them because of recession fears. In recessions, people lose jobs and incomes, which makes them less likely to qualify for mortgages, or even want to.
So, if I am right and there is no recession, homebuilders will benefit nicely as this risk gets taken off the table. “The system’s working assumption is no recession,” says Szilagyi.
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