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Daniel Snyder: Hello, everyone. I’m Daniel Snyder from Seeking Alpha. Thank you so much for taking the time to hang out with us for this hour. Today, we have a special treat, and the market conditions have just worked in our favor for this. I don’t know if you’ve seen the headlines. I’ve been watching them all day. What’s going on with OpenAI versus NVIDIA? The pledge of a $100 billion investment, is it up in the air? How does that go into this AI space? So, it’s very timely as of right now, especially at the beginning of the year, that we go through some Top AI stocks with none other than Steven Cress, our VP of Quantitative Strategy here at Seeking Alpha. But before we dive into conversation to get his picks today, let’s go ahead and get a quick legal disclaimer out of the way.
Steven Cress: Our favorite. You got this?
DS: Yeah. We are not advising you personally concerning the nature, potential, value, or suitability of any particular security. You alone are solely responsible for determining whether any investment, security, strategy, or any product or service is appropriate or suitable for you based on your investment objectives and personal and financial situation.
This presentation is for information purposes only. Content is presented as of the date published or indicated and may be superseded by future events. It represents my opinions and Steven Cress’ opinions, which may not reflect the views of Seeking Alpha as a whole.
Past performance is no guarantee of future results. Seeking Alpha is not a licensed securities dealer, broker, US investment adviser, or investment bank. Alright.
SC: Well done, Daniel.
DS: Thank you so much, Steve. Steve, what’s going on? Well, let’s give the – for the people that don’t know who you are, mind giving us a little brief history of how you got to where you are today?
SC: Yeah. Absolutely. So, I am the Head of Quantitative Strategy at Seeking Alpha, and I am the creator of our Quant system. So, when you look at Seeking Alpha Premium or PRO and you see a number of Factor Grades and Quant Ratings, that was developed by myself. And I’ve been doing it for quite a while. I’ve been in the investment world for well over 30 years. The bulk of my career was spent at Morgan Stanley where I worked for 13 years, and I ran a proprietary trading desk in quantitative strategies. I was also the head of International at Northern Trust Global Investments. I was also the founder of a quant hedge fund and the founder of a quant fintech company that was purchased by Seeking Alpha, a little over six years ago, and that is what has brought me here today. And it has been a tremendous ride. We’ve developed some terrific products with the Quant system, with our Dividend Grades, with ETF Grades, with REIT Grades, with two wonderful products, Alpha Picks and PQP, which have had fantastic performance. So, it’s been a great journey, Daniel.
DS: Not to mention, we are thrilled to have you here, and we’ve been doing over our, like, a 100 webinars together, and we have had some great picks along the way. So, I’m super excited for today. I hope everybody watching this as well.
SC: Alright. So, a little bit about what we’re going to cover today. We’re going to do a snapshot on the market and AI, and what a day to be doing it. A lot of the stocks are getting crushed, but it just so happens a few that we like are actually doing well today. So, in the face of many of the large AI stocks getting slaughtered, we have a number of our stocks actually doing quite well. So, we’re going to cover that. We’re going to cover Why Quant, and of course, we’re going to unveil our Top 10 AI Stocks for 2026.
So, a little bit about the snapshot of where we are in the market right now. It is A Tale of Two Cities. We saw a lot of volatility in January with the market up, down, up, down, and ending up fairly flat on the month. So, we’ve had geopolitical events, Black Swan events. The market had fair amount of volatility with Greenland, with Venezuela, Middle East tensions. Obviously, the tariff threats, whenever those come around, they get heated, Definitely has a negative impact on the market. And rare minerals doing incredibly well and then falling off and the de-dollarization occurring.
Within a one-month period, we’ve seen a rotation to safe haven stocks. We’ve seen a rotation back to tech stocks and a rotation back to safe haven. We have seen material stocks, gold, silver, commodities, shoot to moon, only to really pull back heavily last Friday as it looked like people were rotating out of that. And again, back and forth today, those are doing quite well.
We also had a second wave of AI adoption occur. If you recall, during a period last year, I believe we’re in the third or fourth quarter, a lot of the AI stocks really sold off sharply. There were just tremendous fears of over-valuation and that many of these stocks were stretched, only to find early in January that some of them started to rebound. But today, we find ourselves in a situation where the Nasdaq at one point was almost off 2% being led down by technology and AI stocks as were are a number of fears from what Daniel mentioned with NVIDIA and the investment that they might or may not be making, as well as some DeepSeek fears, which are reoccurring with a new company that really led to the sell off today.
We’ve also had the Fed. So, going into the third and fourth quarter of last year, many investors strongly believed that we would see a consistent number of rate cuts occur going into 2026, only to have the Fed really step back from their belief and highlighting that inflation indeed was stickier than they expected. And the reason why they took rates down last year, had more to do with the labor market and uncertainty there, and it looks like there is a little bit more certainty in labor.
So, lots of uncertainty, of course, then Trump announcing who the new Fed Chief will be, and the belief is that he will be taking rates down leading to a lot of volatility with the dollar. So, markets are just all over the place. And certainly seeing that with safe-haven rotations, with gold and silver near record highs, and then AI stocks and many technology stocks selling-off today.
A little bit about the broad market rallies and safe-havens. So, a quick picture. If you look on the right hand side, you’ll see sector performance. This was taken as of today. So, it shows you, if you look in the far right side, what the sectors have done for the month. So, you could see energy and consumer staples and basic materials as the top three sectors. And then the bottom, four sectors being technology, healthcare, utilities, and financial services.
And oddly enough, utilities have always been a safe-haven area, but over the last two years, with the energy demand coming from data centers, utilities feel like the new technology stocks in a way. So, it’s not surprising to see the utility sector sell-off with the technology sector. So, what are we seeing?
The energy sector rose to dominance in January supported by rising oil and gas prices that were driven by geopolitical events and a lot, a lot of cold weather all over the United States. Whether you’re in Louisiana or Michigan or Minnesota, just lots of cold sustained weather leading to higher energy prices. After lagging in 2025, consumer staples actually notched their best January in over a decade as investors rotated into the defensive inelastic demands sectors, and that was largely based on some consumer confidence numbers being lower than expected.
And then, of course, we saw on Friday, there was a surprise sell-off in gold and silver, which has performed so well over the last couple of years, and this occurred as President Trump’s Fed Chair nomination was announced, and that strengthened the dollar and shifted expectations towards a less dovish policy stance. So, those are some of the factors behind really just these volatile markets that we’ve been seeing.
What’s happening with AI? Well, the demand for AI has not stopped. Global AI markets are expected to reach $3 trillion by 2033. Of course, this is fueled by many of the Magnificent 7 stocks and big tech companies in general and booming data center demand. AI adoption is growing at an unprecedented rate. ChatGPT has over 1 billion active users for a company that barely was in existence a few years ago. That is just an incredible number. And it says even here, highlighting just two years ago, they only had 200 million and now it is 1 billion active monthly users, and that just continues to go up.
So, demand for AI infrastructure has outpaced supply of critical technologies, including memory chips, and that’s why so many of these chip companies have been performing well, and advanced knowledge hardware. AI leaders and infrastructure builders are well-positioned to gain from this powerful megatrend that is reshaping the global economy. And we’re now, this year, really, in 2025 and going into this year, we’re seeing AI spread out from really the Magnificent 7 to all different kinds of industries and sectors, whether it’s healthcare or automotive or industrial stocks. We’re seeing AI all over the place, digital media, advertising, and everyday individuals such as myself and Daniel are using AI in many ways.
So, it has really been on fire, and it is just the beginning stages. If you look on this chart on the right hand side, you could see the Artificial Intelligence market size from 2023, forecasted out to 2033, and is growing by leaps and bounds.
DS: It’s exactly what we want, Steve. We want to see that broadening happen and get rid of this concentration feel for all of us in the market. So, that’s why I’m also excited about your picks today is they’re not the names that people typically think of right now around AI. It’s the companies that are utilizing AI in certain parts of the supply chain.
SC: Really, I think there’s just, like, one or two stocks that people might expect to be AI stocks, and the others are really, definitely broadening out. So, here’s a robust earnings offset to the valuation fears that have occurred, especially as we saw last year. Many of the stocks sold-off in the AI segment due to those overvaluation fears and stretch valuations. And you could see here what’s happening with earnings.
So, if you look at the right hand side here, the purple line is the global AI and technology ETF, and then underneath that is the State Street, well-known S&P 500 ETF known as SPY, owned in many portfolios throughout the world. And you could see what the performance is, almost a double in AI, compared to the S&P 500. And, certainly, I would really, I can’t give any guarantees, but just based on the sheer demand, I would expect this type of performance to continue in the years ahead.
AI stocks have outperformed in the past year, and it’s been led by the chipmakers, hyperscalers, and EV manufacturers. We have seen an easing in interest rates and stable economic backdrops to help sustain investor appetite and overcome some of those valuation fears. And we’ve seen positive investor sentiment toward the AI theme and robust corporate earnings, help drive momentum even though that brief pullback occurred.
As I mentioned in early January, many of these AI stocks came back. And we wrote an article basically to buy the dip in these AI stocks, and that performed quite well buying on that dip, of course, until today. But I am happy to say a lot of those stocks that we did recommend to buy on that dip are actually trading well today.
So, this is from the Wall Street Journal. If you’re an avid reader of that, you’d probably see this on the front page today. So, I thought it was very timely for our AI market snapshot today for many of those stocks that are selling off, and I have the title afterwards, When Fear Pays. So, new worries about the threat posed to new AI tools to software companies sparked a slump in technology shares that intensified today. And we could see that the data provider stocks and private fund managers dropped after the Anthropic – Daniel, you’re going to have to help me with that one. I think I’m talking too much today.
DS: Anthropic, which is backed by…
SC: Yes. Helping to lead the Nasdaq down about 2% today. And if you recall about a year ago, I think we had DeepSeek, which was a technology that required far less energy. And, boy, the stocks got crushed for about a two-week period during that day only to see them recover massively.
So, why Quant? We know that AI is a very strong theme. We know there’s a lot of demand for artificial intelligence. We know there’s a lot of demand for energy and for the data centers, but why use Quant to do it? Well, Quant is really a combination of fundamental analysis and advanced computer processing that is not so different than AI. In fact, you could say, Quant was really an early version of AI, and I’m proud to say that I’ve been at this for a very long time.
It’s a data driven process. It’s just the way artificial intelligence is. And in Quantitative Investing, we use data, math, and algorithms to identify investment opportunities. And mostly, we actually weigh probabilities against the factors that we measure, and we look back historically to see which metrics are the most predictive factors. So, it’s really very similar to artificial intelligence, and sometimes these Quant systems learn on their own. Sometimes we refer that that often as a dynamic Quant system or a fixed Quant system. The benefit with a fixed Quant system is the odds are actually in the favor of the fixed Quant systems where you’re looking for diversification of factors, which is what we actually do.
So, we look for value, profitability, growth, positive EPS revisions on the part of analysts, and momentum. And these are fundamental factors that actually many analysts look at as well that work at Morgan Stanley or Goldman Sachs, Merrill Lynch. So, we assess those factors. But unlike an individual analyst, they can only, they’re really only capable of maybe covering 15 or 20 stocks. They have to write articles on these stocks. Chances are they might be able to update each stock twice a month. And often, you could take a look at a research report from an analyst that’s two months old. And from my vantage point, reading an analyst research report from two months ago is like reading a newspaper article from two months ago and making investment decision.
The beauty of Quant is that we actually update our data every single day. So, our Quant system goes through balance sheets, cash flow statements, income statements, and hundreds of metrics, and we basically score each of these metrics for a company, compared to its sector. And it gets refreshed every day between 4 o’clock and 6 o’clock, so that is a fresh directional recommendation. So, when you see that Quant Strong Buy, you know it’s based on data that was measured that day and not on a research report that was written two or three weeks ago.
So, what we do is we take these factors that we analyze. We add the power of computer processing, which gives us the ability to look at thousands in stocks instead of just a dozen. And through that computer processing, we could refresh our screens and our data pools on a daily basis. And that’s why Quant is such a powerful tool.
And we have a very good track record at it. This is looking at the last five years, and our system actually goes back to 2010 in terms of its back-test, but the reason why I like to show this five year data is, we’ve been up and running for five years, so it actually shows the simulated trades that have occurred.
So, this is not an ETF or a mutual fund that you’re looking at. This is actually not an investable product, but the reason why I’m showing you this is, we take every single Strong Buy that we have, and we measure the performance on those Strong Buys every single day, compared to the S&P 500 and to Wall Street analysts Strong Buys as well. So, this bottle that we have, it’s refreshed on a daily basis.
And you could see over the last five years that our Quant Strong Buys are up 203% versus Wall Street analysts up only 17% and the S&P 500 up 67% for the same five years. So, again, refreshing all of them on a daily basis. Now, with Quant, there’s anywhere from 350 to 400 stocks that are Strong Buys. So, that’s why I’m saying this is not investable, but it’s really for the purpose of showing this is to demonstrate how our methodology and strategy works.
So, focusing on those five core characteristics that I mentioned of value, growth, profitability, momentum, and EPS revisions, and looking to see for each company comparing the underlying metrics that fall within those investment characteristics, compared to a sector median, we’re able to sift the strong companies from the weak companies and has panned out to be a very good strategy.
So, getting into our Top 10 AI Stocks for 2026, how did I pick the stocks? Well, I am not a professional AI money manager. However, there are four very, very large ETFs. And what we did is, we took all the stocks in those four large ETFs, and we loaded them up into the Seeking Alpha Quant model. So, the reason why I did that is, I wanted stocks that clearly were identified as AI stocks.
So, our process was the Seeking Alpha system selected 10 stocks that were well-positioned to ride the AI boom. These stocks, as I mentioned, were picked from the four largest AI Robotic ETFs as measured by assets under management. Within those ETFs, professional managers vet the process, ensuring that holdings are aligned with the AI theme. We then ran the stocks from the ETFs through our Seeking Alpha Quant system. This list was created by screening the holdings from these major AI focused ETFs, and the Quant system then separates the strong from the weak by comparing hundreds of metrics for each stock and grades them against their sector peers across those factors that I had mentioned. And that is how we were able to identify our favorite Seeking Alpha Quant Strong Buys that were AI stocks, and it did a great job.
So, looking at it from a top down basis, our Top 10 AI stocks have a Forward revenue growth rate of 38% and a Forward EPS growth rate of 99%. So, what does Forward mean? What we do is, we look at analyst estimates, and we take the consensus of the estimates for each of those companies, and we’re taking the average here. So, looking at analyst estimates, so it’s forward-looking. As I mentioned, the Forward revenue growth rate is 38%, and the Forward EPS growth rate is 99%. And if you compare that to the S&P 500, the S&P 500 has a revenue growth rate of only 6% and an EPS growth rate of 10.6%. And we stripped out the Mag 7 stocks. They have a revenue growth rate of 17% and an EPS growth rate of 20%. So, our Top 10 AI stocks have far, far superior growth to both the S&P 500 and the Mag 7.
So, without further ado, we’re going to get into that list, Daniel.
DS: Let’s do it.
SC: Okay. So, we’re looking at Lumentum Holdings, ticker symbol, LITE. Quite a large company with a market cap of around $27 billion. Obviously, a Quant Strong Buy. This is in the IT sector, obviously, and it ranks 2 out of 535 stocks in the IT sector. But more importantly, within the Communications Equipment Industry, it ranks number 1 out of 38. Now, I don’t want you to be scared by this. The stock has had quite a run over the last 52-weeks. It is up 402%, but if you look to the right side, you will see the factor grade cards. Remember, these factors are sector relative.
So, compared to the sector you’re seeing for valuation, it’s a D+. It is rich, but a little bit better in terms of valuation framework now than it was three months ago when it was a D. Not quite as attractive as it was six months ago when it had a B rating. Nevertheless, the growth is still an A+ for this company. We have seen an improvement in the profitability to a C- grade from a D+ grade, but momentum is A+, and analyst positive revisions are a B+. Not quite as strong as the A six months ago, but still extremely positive. This is one of the largest laser and optical networking suppliers to hyperscalers, and it supports AI data centers and cloud infrastructure applications.
The growth rate of this company, it’s a 61% EPS Forward long-term growth rate. That’s a three to five-year CAGR versus the IT sector at a growth rate of just 16%. So, the long-term growth for this company is far, far higher than the overall sector. Forward operating cash flow growth is 203%, compared to the sector at 14%. And from a valuation perspective, one of my favorite ratios is the PEG ratio where it combines P/E and growth together. And the PEG on this was 1.1x, putting it at about a 30% discount to the sector. So, even though on the conventional metrics, it’s fairly expensive, if you look at it from a P/E and growth point combined, it is actually fairly attractive.
DS: Steve, if I can real quick, it is worth mentioning. I know some people are jumping in the chat here as well mentioning it. They just announced earnings about 15 minutes ago, beat on the top and bottom line, stocks up 10% after hours.
SC: Give me a high-five, Daniel. You heard it here on Seeking Alpha first.
DS: They are doing great, this company is.
SC: That is awesome. That is really good news. And I think, this is a wonderful opportunity because a lot of these stocks are down today, but I think we’ll find pretty consistently over the next couple of quarters that there will be both top and bottom line results. And that’s when you know we’re looking for companies with good fundamentals. The companies are doing well. They’re earning money. Their revenues are strong. So, you have to use this fear and negative sentiment that comes out at periods like this and make a choice and say, am I going to go with fundamentals, or am I going to let fear drive the market? Or am I going to take advantage of that fear and use fear as an opportunity? And I always tell people to use fear as an opportunity.
Alright. Our number two stock. Now, this one is fairly well-known. Micron Technology, ticker symbol MU. Super, super huge company at $466 billion. Obviously a Quant Strong Buy. And this actually ranks as our number 1 company in the IT Sector out of 535. And then, of course, within the semiconductor industry, it also ranks number 1 out of 69. This stock has really performed great for us.
You could see over the last 52-two weeks, it’s up 387%. If you look to the right side, you could see really, around July 25, maybe even a little bit before, we start to see some of the metrics convert. And often with Quant, it gets measured on a daily basis. So, it’s not like you could say definitively the data is great, and it’s always going to be great. Data changes every single day with every single trade. Okay? Every P/E ratio constantly changes. So, sometimes when these companies and we’re looking at them as Holds, they’re mispriced, and then the Strong Buys will appear. We recommend companies because they’re mispriced. And sometimes it’ll teeter back and forth, but then pretty solid starting in July. You could see it was consistently a Strong Buy, and it stayed a Strong Buy, and the stock has done incredibly well. Let’s actually dive into the platform.
DS: I was going to say, while you’re jumping over the platform, I want to highlight this as well because I think this is a great case when people always ask us about buying at or near all-time highs for specific stocks. For anybody that joined us on our Top Stocks event here at the beginning of January, you’ll know that Micron was actually one of the names in as well, where the share price was about $312 a share, I believe, on that day. Since then, in the last month, this stock is already up north of 30%. So, the power of Quant, the power of following fundamentals in the market is just a testament here as well.
SC: Up 32% in the last four weeks, Daniel. So, spot on with that. And you could see, I guess, in the last five days, it’s down about 4%. Could be a good buying opportunity. We look at the valuation. We could see it’s a B- now. Despite the company in the six-month period being up 290%, the valuation framework is actually more attractive now than it was six months ago. So, I’m going to click on valuation, and we’re going to take a look at some of the underlying metrics. We could see the trailing P/E was expensive, but the Forward P/E is an A-. That’s amazing. On a Forward P/E basis, okay, this company trades at a P/E multiple 13x versus the sector 24x. It is literally at a 45% discount to the sector. And then if we….
DS: How about that PEG ratio though, Steve?
SC: Yeah. That’s exactly what I was going to go to. A+ for PEG. Again, these letter grades give you an instant characterization of where the company stands versus the sector. So, you don’t even necessarily have to look at the absolute metrics. You could just look at that A+, and you’ll know right away it’s much better than sector, but we are transparent. So, you could see the PEG is 0.26. For the sector, the PEG is 1.61, putting it at an 84% discount to the sector. So, that is a very, very attractive valuation framework.
If we were to look at growth. This is a straight A report card. The Forward revenue growth and this is, I actually rarely see this, especially with the Mag 7 stocks. And this isn’t a Mag 7, but the Forward revenue growth rate is actually higher than the year-over-year growth rate, so that’s a wonderful sign. Forward revenue growth is 55%, compared to the sector at a mere 8.65%. And if we look at EPS Forward growth rate, it’s at 222% versus the sector at 14%. So, absolutely crushing it in terms of growth, excellent valuation framework, excellent profitability framework, and analyst, very positive.
We’re clicking on the revisions here, and we could see that in the last 90 days, 31 analysts have taken their earnings estimates up and zero have taken it down. And that’s for the fiscal year. For the upcoming quarter, if we look up here to the upper right hand side, so this is for the fiscal year. This is for the quarter. For the upcoming quarter, 25 analysts have taken their estimate up. Zero have taken it down. What an opportunity. Stock’s down 4.2%. It’s a discount. You’re basically almost getting 5% off on the stock today. Take us back to our presentation.
We’ll enlarge the slideshow for those who are on their phones. Okay. Third company is Ciena, ticker symbol CIEN, has a market cap of about $35 billion. This ranks 5 out of 535 stocks in IT. And within Communications Equipment, it ranks 2 out of 38. This is another optical networking provider, which provides AI connectivity across hyperscalers and data centers and global cloud footprints. It is the right business at the right time.
How do we know that? Their long-term growth rate is estimated to be 44% versus the sector at 16%, and the ROE growth. So, ROE is a great profitability metric, but we actually like to look at ROE growth. The ROE growth for the company is 45% compared to the sector at a mere 2% ROE growth rate. And the PEG, 1.07, putting it at a 32% discount to the sector. You could see the stock has definitely done quite well over the last year. And if we look at the valuation now, it’s almost the same as it was six months ago. And the growth is at an A-.
Profitability has actually improved to B from C+, but this is what I really love on Ciena. The analyst revisions has improved to an A- from an F six months ago. So, where there was very little confidence in the company’s earnings six months ago, all the analysts are on board now, and this company, of course, has probably been coming out with great results.
Going on to stock number four. Now, this may surprise a lot of people. General Motors. Many people just think about this company making trucks and cars. They don’t think about it as a technology company, but the truth of the matter is, many cars today have 2,000 to 3,000 semiconductors in it, compared to your phone, which may have four or five semiconductors in it. So, automobiles are literally driving chip, just big chips all over the place with it. So, I don’t know any other way to say it. I wish I was a little bit more eloquent, but there are a lot of semiconductors inside cars.
And, of course, General Motors is moving fast in the world of AI with autonomous driving in many of their vehicles. So, and they’re making a big movement to hands-free driving as well. Obviously, you must know that they are the largest U.S. automaker, and they’re really leveraging AI to enhance their vehicle connectivity. Over the last year, the stock is up 76%, but if you look at the valuation, it’s almost in the same place as it was six months ago. It’s a B. So, definitely superior to the rest of the sector with that B valuation, and the growth of the company has improved dramatically. So, the growth versus the sector is an A- versus six months ago where it was a D+. So, growth is really emerging for General Motors. Obviously, very profitable with that A+, and analysts are continuing to take their estimates up for this company. So, the revision grade being a B+ now versus a C+ just six months ago.
Stock number five is Taiwan Semiconductor. Ticker symbol TSM. Huge market cap of $1.46 trillion, one of the pre-eminent semiconductor companies in the world. In terms of our ranking, it’s 8 out of 535. And within Semiconductors, it ranks 2 out of 69. Stock is up about 71% over the last year. So, the valuation is a little bit more expensive, but very, very strong growth for this company. They are the world’s largest semiconductor foundry, supplying advanced AI chips to tech giants even such as NVIDIA, Apple, and AMD.
Their long-term EPS growth rate is 30%. They have an EBITDA margin of 69% versus the sector at just 11%, so extremely profitable. And then even looking at that D+ valuation grade, the PEG is at 0.77. So, it’s about a 51% discount to the sector on a PEG basis. So, Taiwan Semiconductor looking very strong.
Stock number six is Hut 8 Corp, ticker symbol, HUT. This one’s a little bit smaller, but compared to the others, but it’s still large at $6 billion. This is within the Application Software industry, and it ranks 1 out of a 176. Even though the stock has had a 160% return over the last 52-weeks, if you look at the valuation grade, it is better now. It is a B- now, compared to six months ago when it was a D. So, you’re looking at better valuation framework, compared to where it was six months ago.
Growth is a little bit slower than it was, but you’re seeing profitability increase. So, and a lot of people would be happy to see that. And this is a company we’re seeing it really go from negative earnings to positive earnings. So that is often the sweet spot for a company when they’re moving from negative earnings to positive earnings, and that’s what you’ll find with HUT. So that when you look at the growth grade, it could be a little bit misleading, but still analysts very positive on this company. And we’re looking at a Forward EBITDA growth rate of 26%. The leverage free cash flow margin is 78% versus the sector at just 11%. And, it has a 19% ROE, compared to the sector at just 7%. So, lots of interesting numbers there.
Stock number seven. This has been a long time favorite for Alpha Picks, and it is Celestica, ticker symbol CLS, with a market cap of $32 billion. It is a Quant Strong Buy. And within the electronic manufacturing service industry, it ranks number 2 out of 18 stocks. Again, last 52-weeks, the stock is up a 136%, but the valuation framework is better now than it was six months ago by an entire grade. If you look on the right at the valuation grade, you’ll see there’s a C+ now, compared to six months ago where it was a D+. And the growth has actually improved.
It now has an A grade versus an A- six months ago. And I think for Celestica, I’ll take us on to the platform, so we could take a look at it.
DS: This one’s had an interesting pullback. It’s going to be interesting to see how this pans out. And as you mentioned, everybody, I mean, we see all the time whenever this name comes up, people know that you’ve been loving on this stock for quite a while. So, it’s, let’s see what it has.
SC: It did pull back, but, it came back a little bit today. So, over the last five days, it was down 5.2%. I did write an article a couple of days ago. Some of our Top AI Stocks to buy in the dip, this was one of them, and it has started to come back a little bit. Year-to-date, the stock is up. It’s flat, really, year-to-date. If you look at over the last year, it’s up a 146%. So, stock has made a monster move over the last year. This is exactly what I was pointing out. The valuation framework now at C+ is better than it was six months ago.
So, let’s take a look at the valuation. Let’s see where it’s strong. So, the P/E rate is, for the most part, just a little bit expensive versus the sector. It’s 31x for P/E versus the sector at 24x. But, of course, if we look at PEG, it’s very attractive. And if you look at EV-to-sales and Forward EV-to-sales, it’s actually very attractive as well. Price-to-sales, very similar to EV-to-sales, very attractive as well. So, the valuation looks quite doable. When we click on growth, we see a straight A report card. Revenue growth is 36% for forward revenue growth. And if we look at EPS growth, it is 49%, crushing the sector at only 14%.
So, growth looks very strong. Valuation framework looks good. Profitability, the EBITDA margin coming in at B- is in-line with the sector, but where it really looks good is the return on equity at 40% versus the sector at just 6.68%. Return on total capital, very strong as well, in addition to return on total assets. Straight As right there.
And if we were to look at cash per share, this is one of my favorite profitability metrics. You could see it has $5.18 versus the sector at $2.38. So, cash per share is there as well. So, Celestica looking quite strong, up 4.3% today, rebounding from a little bit from those five days where it’s been off about 5%.
Back to the slideshow. Getting to stock number eight, Credo Technology Holding, ticker symbol CRDO. Another Alpha Picks stocks, Quant Strong Buy within the semiconductor industry, ranks 4 out of 69. They’re a developer of specialized microchips that powers connectivity for AI infrastructure, cloud computing, and hyperscale networks. Really, we’re very focused on AI, so many of these companies are going to appear similar to you, but these are the ones that have the strong top line growth rates, bottom line growth rates, good valuations, and that’s why we’re selecting these companies. But their businesses tends to look like a clustering effect, but we’re looking at technology. We’re looking at AI. So, that’s why so many of them are similar.
Outstanding long-term growth rate for this company and analysts are looking at a 69% EPS Forward growth rate versus the sector at 16%, and the ROE growth is a 122% versus the sector at 2%. On a PEG basis, it’s at almost a 60% discount. Again, the stock up pretty significant over the last year, maybe not as much as the others, but I’ll take a 67% return every year, year-in and year-out. And being up 67%, you could actually see the valuation framework is better now, far better now than it was six months ago. It actually had an F grade six months ago, where now it has a C- grade, and growth is just as strong at A+ now versus where it was six months ago. So, lots of good metrics there for Credo Technology.
Our number nine stock, AppLovin Corporation, a big winner in Alpha Picks. This has had a bit of a rocky year. When we put it in Alpha Picks over a year ago, this stock is up, I believe, for Alpha Picks close to 900%. So, it’s been a tremendous performer over the last couple of years, but the last year hasn’t been great for the stock. It’s up about 31%. Of course, I’d even take 31% year-in and year-out. You could see the valuation framework is pretty much, it’s a little improved versus where it was six months ago.
Growth is still very strong. And what I’ll do is, I’m actually going to go to the platform for AppLovin. So, we could take a closer look at some of the underlying metrics. So, this has actually dropped from a Strong Buy down to a Buy. And what we could do, you could even look at the timing there. You can click on the ratings part, and we’re very transparent at Seeking Alpha Quant. We show you every single day what the directional recommendation is, what the stock price, what the Quant Score is, and the five core factors that we look at. You could actually take a look at it. So, you could see what caused the weakness in the stock. And here, we saw the stock go from a Strong Buy down to a Buy. And I think that’s largely due to really the valuation grade changing from a D+, which had been pretty consistent.
Although, it’s really had a mixed year in terms of the ratings. It really teeters back and forth, and most of that has to do with the valuation grade. If we have a valuation grade of a D, the stock could be a Buy or a Strong Buy. But if it goes down to D-, as you see over here, it would default automatically to Hold. Either way, if you take a look at the company’s growth, it is an A report card. So, valuation throwing it off a little bit. Growth, very steady. Forward revenue growth is 33%, and the EPS Forward growth rate is a 146% versus the sector at 14%.
So, it is crushing it in terms of its EPS growth. Profitability looks very good for the company too. This is almost a straight A report card where you’re looking at the gross profit margins at close to 80%, EBITDA margin at 62%, return on common equity, 241%. So, this is an extremely profitable company. Cash per share at $4.92 versus the sector at $2.38. So, I really do like this company. It currently is ranked 11 out of 175, but it really teeters back and forth based on that valuation grade, but the growth is certainly there for this company.
DS: Momentum is slowing down a little bit, but the rest of it still looks pretty solid.
SC: Yeah. Yeah. The rest of it looks really, really solid. It’s just that valuation, which is teetering back and forth, but the growth is certainly there and the profitability is there. So, I continue to really like the company.
Alright. Last but not least, stock number 10, Globus Medical. Market cap in this company is only $12 billion. It is a Quant Strong Buy, and this is actually in the healthcare sector. It ranks 24 out of 971 stocks in the healthcare sector. And within the healthcare equipment industry, it ranks 4 out of 124. Over the last six months, the stock is up 68%. And if you look to the far right, you’ll see the valuation now has actually improved slightly. So, it’s a little bit cheaper than it was six months ago despite that 68% return, but growth, a full grade better coming in a B+ versus C+ six months ago. So, valuation framework, pretty much the same, but growth has improved significantly.
And what else has improved? Analysts taking their estimates up. Six months ago, it was a D- grade, so that showed a lack of confidence amongst analysts. Now, it is an A+ grade. So, analysts taking their numbers up, probably nobody taking it down. So, analysts gaining a lot of confidence with this company.
In terms of their focus, it’s a medical device maker focused on treating musculoskeletal disorders using AI and robotics to assist surgeons. That is the wave of the future in the operating rooms. It has a 22% Forward EPS growth rate versus the healthcare sector at just 8%, and the EBIT growth is 68% for this company, compared to 10% for the sector. On a PEG basis, it’s at a 14% discount.
So, that is the 10 stocks. Here’s a quick picture of all of them. And as you could see, we’re looking at mostly green grades for profitability, growth, momentum, EPS revisions. Very strong performance, but for the most part, the valuation frameworks look fairly good for these stocks. As I said earlier, the growth rates for these companies are far stronger than the Mag 7 and the S&P 500. So, really, from that standpoint, it looks good.
I’m going to take us into the platform, and I want to show you the portfolio of stocks in terms of earnings. You could actually see the Nasdaq today was down 1.43%. The S&P 500 down 0.84. These stocks were only down 0.31. So, you could see some of them, HUT, Celestica, Ciena Corporation, LITE, and General Motors were actually up today. Some of the others down, Credo, AppLovin, and Micron were down, but good diversified mix actually strongly outperforming the Nasdaq and the S&P 500. But more importantly, the reason why I want to show you this, so this is part of our portfolio tool, and there are a lot of different ways to look at the portfolio tool. You could see the ratings. You could look at a company’s growth.
So, I have the revenue growth rates and the EPS growth rates. You could see many of these are triple digit growth rates for the company. You could look at value. So, if I look at the P/E, I could get a sense of, many of them have P/Es below the market, some slightly just above the market, but what I want to highlight really was on the earnings page. If we look at the most recent announcements for these companies, you could see every single one of them surprised to the upside, beating analyst estimates for earnings per share, all 10. And from a revenue standpoint, 9 out of the 10 outperformed, and General Motors just really barely missed. $739 million is nothing compared to the billion dollar revenue company that this is. So, really, the earnings results look very, very good for these companies.
And I’ve also written an article that came out last week. So, that was the top oh, no. This was earlier in the year. Apologies. I did write an article last week, which was the Top 10 AI Stocks, so we’ll post the link on that.
Going to take us back to the slideshow.
DS: Yeah. And I want to encourage everybody. If you’re not already following Steve here on Seeking Alpha, go follow his author profile. The amount of research that him and his team put out, phenomenal. Hands down, phenomenal across different themes, like when gold’s ripping or when you’re looking at space or when you’re looking at AI. I mean, they really cover it all. So, go give Steve a follow if you haven’t already.
SC: Thank you. Appreciate it, Daniel. So, a lot of times people don’t want to wait just for, like, the Top 10 Stocks for 2026 or an article on my Top AI Stocks. In order to participate more consistently with what we’re recommending, I developed two products for Seeking Alpha. One is called Alpha Picks, and the other is called PQP. Alpha Picks was launched about 3.5 years ago. And if you look to the right side, you could actually see the performance over the last 52-weeks. Alpha Picks is up 45%, compared to the S&P up 15%. It’s absolutely crushing over the last 3.5 years, but you could see over the last year, a little bit more timely, and it’s performed very well. How does Alpha Picks work?
I basically provide you with our Top 2 Quant Strong Buys every month. So, on the trading date closest to the 1st and the 15th of the month, you’d receive an email. And we also post it on a platform that’s designated just for Alpha Picks, and you will get that notification of what my top stocks are. So, this is really built for long-term investors that do not want a high frequency of ideas. There’s only usually two to three trades a month that occur. That would be the Buy on the 1st and the 15th, and sometimes we’ll have a Sell.
We’re focused mostly on U.S. common stocks with a market cap above $500 million, and no stock will be below $10. So, a lot of people love Alpha Picks because the performance has been quite strong, but many of our customers, and we ran a survey for the Alpha Picks subscribers, they wanted a higher frequency of ideas, so we developed last June the PRO Quant Portfolio.
With Alpha Picks, it’s also an unlimited amount of ideas that come out. This is just a fixed number of stocks Pro Quant Portfolio. So, it’s 30 stocks that are equally weighted. However, we come out with new ideas on a weekly basis. So, as opposed to just twice a month, every week, you’ll get basically two to three ideas. And we take off a couple of restrictions. We look at U.S. stocks. We look at ADRs. We look at all market cap levels as well. So, removing those restrictions, believe it or not, that gives you more diversification.
And over time, that usually minimizes your risk and enhances and maximizes your returns. Again, we just launched this product last June, but you could see since last June, the portfolio is up 43%, compared to the S&P 500 on an equal weighted basis, up 12.61%. You’ll see a little bit of a difference on the top Alpha Picks we compare to the normalized S&P, which is on a market cap basis. But since PRO Quant Portfolio is equally weighted, we compare it to the S&P 500 equally weighted benchmark. Either way, you could see the returns are great. So, if you want a high frequency of ideas, two to three a week, I would go with PRO. If you want just two ideas a month, I would go with Alpha Picks.
And today, I thought I would show this picture being with the Nasdaq down 1.5% when I took this snapshot. The PRO Quant Portfolio was actually up over 2% today. Great diversification. This takes us beyond AI, obviously. So, you’re looking at a number of mining and mineral stocks, mostly actually gold and silver. And you could see that diversification really helped it outperform during a big down day for PQP. And Alpha Picks was up about 0.38 today, so a little less than a half a percent, but looking very good in the face of a Nasdaq down 1.62%. And we gave away a couple of the ideas that we have there, but a few of these were gold and AGX as well and CDE.
And, Daniel, I believe that is it. So, thank you very much. I’m going to go back to the slideshow and show you our Top AI…
DS: Yeah. Appreciate you giving a little…
SC: Top AI Stocks.
DS: …a little insider information there from PQP and AP. That’s awesome.
SC: Yes.
DS: Speaking of, we had a few questions coming here in the chat I wanted to address. So, specifically around Alpha Picks since you just talked about it, Timothy was asking, we’re not equity managers here at Seeking Alpha, especially ourselves. But if somebody was getting started with Alpha Picks, when they sign up for that one, how do they get started with that portfolio?
SC: Yeah. So we really don’t know, as you being an individual, what your risk tolerance is, how much capital you have. So, you really have to make that decision. Often, the guidance that I give is, you could take a look at the top most recent five recommendations. Those are typically going to be Strong Buys. So, you could look at the recent recommendations. That’s one way of entering into it. If you’re looking for more diversification and you have more capital, you could spread it out across the whole portfolio. We even provide the weights that we have for each stock. So, if you want to try to mimic the performance, you could do that by following the weights, or you could just go for all the Strong Buys and the Buys and leave out the Holds. So, there’s any number of way you can do it.
We do keep Holds in Alpha Picks for a period of 180 days. So, don’t be surprised if you go to the platform. You’ll see a fair amount of Strong Buys and Buys, but you’ll see a fair number of Holds as well. And Hold does not mean Sell. So that’s why we maintain the portfolio. Often, that valuation grade could go back and forth between a D+ and a D and a D-, and that’ll be the difference between a Strong Buy and a Hold. And other times, stocks will have surges. It’ll go to Hold, then the dust will settle, and the valuation becomes attractive again. So, we don’t take – kick stocks out right away with Alpha Picks. And as I mentioned, it is designed for long-term investors.
So, there’s really any number of ways that you could do it, or you could just read a couple articles and cherry pick which stocks you like. So, it could be all the stocks or just a couple stocks.
DS: Yeah. Alright. Thank you, Steve. Tom had a question here. I’m going to go ahead and answer for everybody because you mentioned it earlier. The Quant rating system updates every single morning between 4:00 AM to 6:00 AM, if I remember right, but that is a daily update across all of those metrics, across all those stocks, even REITs, ETFs, all of the updates every single morning. So, keep that in mind. So, hopefully, that helps you there, Tom.
Steve, question for you that comes up when we do presentations like this, specifically around Top 10 AI Stocks. Are these ranked in an order of importance, or are they just listed out as 10 ideas?
SC: Listed as 10 ideas. If you wanted to see it ranked in terms of the Quant Score, you could actually go to the portfolio tool and load it up. So, I’ve loaded up the – we have a wonderful portfolio tool. I am a portfolio junkie. So, like, I load up all the portfolios that I discuss. Then I load up other ones like China ADRs, Clean Energy, Data & Digital Centers, Drone Baskets, Indian ADRs, Israel ADRs, Japanese ADRs. I am a portfolio junkie, so I love looking at this portfolio tool because I could dive into the growth for the stocks that are listed, the performance, the health scores, the value, the profitability, but the point I’d like to make to this individual is, if you wanted to see it ranked in terms of the actual Quant ranking, you could actually see that score here. So, the highest ranked company would be Micron at 4.99 and Lite at 4.99. The lowest one is AppLovin at 4.08.
No bearing on how I listed in the presentation. I really like all of them, and that’s why they’re my Top 10 AI Stocks. So, I would definitely encourage you to buy the basket here.
DS: Alright. Let’s see here. Next one. The Quant rating system, how to use your tool to identify before they are already gone up like monsters? How do people use the Quant rating system to identify ideas before I mean, you can’t predict the future, but how do we get in before…
SC: No. I hear what they’re saying. They’re afraid to chase stocks that are up a 100% or 200% or 300%. Don’t pay attention to that. When you buy a stock, you look at it that day, and you look at that stock relative to its sector and maybe relative to its historical averages. The fact that it’s up a 100% should have no bearing of anything that momentum tells you the stock the company has been doing something right, and the stock is in the right sector. So, you should actually use that as a positive sign. Don’t ever be chased away by a stock appreciating.
And what you could do specifically is look at the valuation grade. So, if something is in the D or D- territory, you will know that it is expensive, but you can’t just look at valuation. That’s why we look at profitability and growth and momentum. Value is only one metric. You need to look at a diverse group of metrics in order to properly value a stock. So, when we look at the growth grade, okay, in a way, that’s a valuation metric because we’re looking at the growth of the company compared to the sector, and we’re identifying a company that has better growth than the sector.
That’s what you should be concerned with. Whether it’s up 10%, a 110%, or 1000% has no bearing. Look at the growth. Look at the valuation. Look at the profitability. Compare it to the sector. Compare it to its historical averages and see where it’s at. That’s how you should be making your decision.
DS: Well said. There was a question here from Thomas. It says, what could cause a stock to go from a Strong Buy to a Hold in one day?
SC: Most often, it’s attributed to the value grade. There might be a bit of a price surge, and that value grade, as the price goes up, the P/E would go up as well. That grade could drop from a D+ or a D down to D-, and that is our circuit breaker. It’s a data driven system. Same way if you were in high school or college, wherever your score comes in the class, it’s going to mean the difference between a D and a D- or an A and an A-. That’s the way the grading system works. So, that’s a data driven system, and it has proven to work very, very well.
DS: Yes. It has. Alright. This needs to be addressed as well. For Alpha Picks, if you sign up for Alpha Picks, everybody, I’m going to go ahead and clarify this, it does not also include Seeking Alpha Premium or Seeking Alpha PRO. Alpha Picks is a separate product. Do need to mention that for you as well. Alright, Steve. Back to you. About the Factor Grades, are they weighted equally when going into the Quant Rating for the stock?
SC: They are not. So, we have backtested these back to 2010, and we have learned that there are certain metrics that have a higher predictability in terms of future stock price than others. So, we like to have a diverse set of factors. So, if I go into the platform, actually, and let’s say we look at AppLovin and we look at growth or profitability, it doesn’t matter. We have a lot of underlying metrics.
We know based on our back testing, which of these metrics have a more predictive foundation to it, and we place a higher weight, but a lot of the metrics are weighted. When you look at that overall grade on top, you need to know that overall grade is not necessarily achieved. And sometimes it’s not intuitive because people will see some really strong grades and then one or two poor grades, and that overall grade might not be what they expect. It’s because they are not equally weighted.
DS: Alright. There was a great question here that came in because, you like the PEG ratio. I like the PEG ratio. They were wondering, how is the PEG number actually calculated?
SC: So, all you have to do is, we don’t give exactly what it is, but if you hover over any metric we have, we actually will show you the definition for that metric. So, here, we’re looking at the PEG ratio, which is the price-to-earnings growth ratio. It is a valuation metric for determining the relative trade-off between the price of the stock, the earnings generated per share, and the company’s expected growth rate. It is calculated by Forward non-GAAP P/E ratio divided by the EPS long-term consensus growth rate estimate, which is a three to five-year CAGR in this case.
So, the second paragraph showing you what the calculation actually is. And if you go down through any of these and you just hover over them, we have that definition for all of our metrics. So, again, we try to be as transparent as possible, not trying to hide anything. I will say, we don’t show you what the weightings are for the metrics. That is a bit proprietary. We don’t give that away, but you can see what the overall valuation grade is, and the growth grade, and you do know that leads to the overall directional recommendation.
DS: Yeah. Well said. Alright. Two more questions before we have to hop off here. I want to answer this one to Cal, who asked, when you give an Alpha Pick, does it gap up as soon as the market opens? So, Cal, interesting history for you as well. I mean, Alpha Picks, I think, were released three years ago, four years ago almost. We’re going on the fourth year. When the system was originally created, the pick was shared before market opened, and we did see a little bit of, what we call front running right before everybody. So, the Alpha Picks system actually now releases the stock idea at 12:00 PM Eastern on the first trading day of the month, as well as the fifteenth or the immediate trading day after that.
And then you have Steve and his team who also give a great webinar the same day going through the pick and the idea. So, no longer before the market opens because, obviously, we want to try to give you the best price possible. And then also, Steve, correct me if I’m wrong, but it uses the volume weighted average price for the day for the portfolio. Is that right?
SC: Yeah. And to create a fair pricing system. And so, to address this question, if a company does have a small market cap, like, around $500 million, $600 million, $700 million, and we launch that at 12 o’clock, there will be a bit of a price surge, but that’s going to happen anywhere. If you are a client of Morgan Stanley or Merrill Lynch or Goldman Sachs, if their analysts are recommending a small-cap stock, it’s going to have a little bit of a price surge. And that’s one of the reason why, to be fair, we use volume weighted average price.
If you’re dealing with a smaller stock, I often recommend to people buy it in increments, don’t buy it all at 12 o’clock. Spread it throughout that day or the following day, and you’ll typically get a much better price. For the larger companies, something that has a market cap above $5 billion, Seeking Alpha is not that big. We do not have the power of Morgan Stanley or Goldman Sachs or Merrill Lynch. We are not going to move stocks that much. But in the cases of some of the smaller ones, we do have the power by that recommendation. So, my guidance is, just spread it out.
DS: Well said. Great to have a strategy like that. And real quick to answer the other question that’s been popping up a little bit here. Alpha Picks is a $499 annual cost for that subscription, and then PRO Quant Portfolio is $2,400 a year. But I do know that there’s usually a $99 first month promo going on for that one as well. So, you can get into the system, see how each of them work. Obviously, Alpha Picks, two new stock picks every single month, as well as the Holds, as Steve mentioned, when a Hold of a 180 days or other criteria is met, they tell you when to Sell the stock as well. And then PRO Quant Portfolio, you have those actionable tradable ideas every single week, pretty much every week on average. So, go check those out if you haven’t already.
Steve, we’re already at time. These webinars go way too fast. But Top 10 AI Stocks for this year. Can’t wait to see how they lay out. There was a couple surprises for me, one on the medical side. I think everybody’s watching the medicine and how AI is going to incorporate that, but then the other one was HUT and knowing that it was such a big Bitcoin name. And, obviously, we’re seeing a pullback at Bitcoin. Bitcoin is in a bear market. Let’s be honest. So, now are they using these GPUs and leasing them for data center, and that’s a new revenue story?
I’m so fascinated by that pick. I’m going to dive a little bit deeper myself. But everyone, highly encourage you, at least create a Seeking Alpha Portfolio with these names, and you can track it and keep an eye on the Quant Score and metrics as well. Steve, anything you want to say before we jump off here?
SC: Yeah. I’d say the Quant system is great, but Daniel, if you’re trying to get a little bit of a deeper dive, then let’s go into HUT. The great thing about Seeking Alpha is, we have a lot of contributors that write articles as well. So, if I go to the summary page, you could actually see that Seeking Alpha contributors consensus is a Buy. Wall Street consensus is a Buy. But you could look at the analysis from a bunch of the different contributors, and that will take a deeper dive.
Obviously, on a Quant basis, we’re about the data, all about the data, but our contributors can give you a lot of color on what’s going on. And you need to learn more about the companies. You actually just scroll down, and we give a really good definition of what each of them do, but I definitely recommend Alpha Picks, and I’d say, if you have Seeking Alpha Premium, that really enhances it because you have the screeners and the portfolio tools as well. But, mostly, I just want to thank everybody for attending today. We really appreciate your time. And, Daniel, I appreciate you organizing the webinar for our Top 10 AI Stocks.
DS: Of course. And, everyone, it’s just a little bit of volatility in the markets. As we say, stay calm, invest on. Have a great week, and we’ll see you here in the next webinar. Take care.
SC: Thank you.
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