Stock Picker: Undervalued Titans (FA)

Overview and Suitability: The robot is a specialized AI-driven robot designed for beginners who are interested in identifying undervalued stocks with high growth potential. It utilizes only technical analysis, focusing primarily on fundamental metrics to identify opportunities for "value" investing. The robot analyzes companies whose intrinsic value exceeds their current market price, aligning with the principles of value investing.

By incorporating relative strength analysis against the S&P 500, Trend Trader pinpoints stocks that not only exhibit strong fundamentals but also outperform the broader market. This makes the tool highly suitable for investors looking for an automated, systematic approach to uncovering small-cap stocks with upside potential.

Strategic Features and Technical Basis: The core strategy behind Trend Trader is based on the "Tiny Titans" approach, a value-driven methodology tailored to small-cap stocks. The system identifies undervalued companies by focusing on micro and small-cap stocks with low price-to-sales ratios and high relative strength to the index.

Key Selection Criteria:

• Market Capitalization: Focuses on companies with market capitalizations between $50 million and $300 million, targeting the smallest 10% of the market.
• Price-to-Sales Ratio (P/S): Only stocks with a P/S ratio lower than 1 are selected, ensuring that the robot identifies undervalued firms.
• Relative Strength Calculation:
  • It compares a stock's rate of change over the past year against the overall index (S&P 500) rate of change.
  • Stocks with the highest relative strength scores (highest outperformance against the index) are prioritized, while only the 25 lowest-scoring stocks are chosen for investment.

Investment Rationale:

• Higher Growth Potential: Small-cap stocks historically offer greater growth potential than large-cap stocks, making this strategy advantageous for capturing high returns.
• Value Premium: By focusing on undervalued stocks, the robot aims to benefit from the value premium—where stocks with lower valuations tend to outperform over time.
• Exploiting Market Inefficiencies: Small-cap stocks are less frequently covered by analysts, presenting opportunities for the robot to find undervalued stocks that might be overlooked by the broader market.

Risks:

• Volatility: Small-cap stocks are generally more volatile, meaning they experience larger price swings.
• Liquidity Risk: Lower trading volumes in small-cap stocks can lead to difficulty entering or exiting positions without affecting stock prices.

Position and Risk Management:

To manage risk, Trend Trader uses a highly disciplined approach to position sizing and trade execution:

• Max Open Trades: The robot manages up to 25 open positions simultaneously, providing a diversified portfolio of small-cap stocks.
• Stop Loss and Take Profit: Each trade comes with a predefined fixed stop loss of 20% and a take profit threshold of 75%, ensuring that potential losses are contained while allowing for significant upside gains.

Trading Execution:

• Selection Process: The robot ranks the stocks based on their relative strength and chooses the top-scoring options for long positions.
• Order Execution: Market orders are placed within 1-2 hours after the market opens, ensuring optimal liquidity and favorable pricing.

Trading Frequency:

• Monthly Analysis: Trend Trader processes the analysis and refreshes the list of potential stocks to invest in at the beginning of each month, ensuring that its portfolio reflects the most up-to-date market data and opportunities.

This careful balance between strategic stock selection and risk management makes Trend Trader an ideal choice for investors looking to automate their exposure to undervalued, high-potential stocks with minimal hands-on involvement.

Trading Dynamics and Specifications:

• Maximum Open Positions: Medium, allowing for diversified exposure while managing concentration risk.
• Robot Volatility: Medium, offering a balanced approach between capturing significant market movements and mitigating sharp declines.
• Universe Diversification Score: Medium High, indicating a moderate array of instruments to hedge against sector-specific downturns and enhance profit opportunities.
• Profit to Dip Ratio (Profit/Drawdown): High, suitable for traders who are able to tolerate and manage greater levels of risk in exchange for potentially higher returns.
• Optimal Market Condition: This robot shows its best performance when market volatility is high, making it particularly adept at navigating turbulent market phases.

Disclaimer:  Disclaimers and Limitations 

Simulated Performance: All simulated performance results are derived solely from real-time calculations using historical data. Algorithms receive minute-by-minute historical prices and other data from Morningstar and generate trades in real time based on these historical inputs, effectively eliminating any hindsight bias. 

Actual Performance: All actual performance results are derived solely from real-time calculations using current data. Algorithms receive minute-by-minute current prices and other data from Morningstar and generate trades in real time based on these current inputs, effectively eliminating any hindsight bias. 

Gross Performance: Gross performance results do not deduct any fees or expenses. These results reflect the total returns generated by the AI Robots without considering the costs associated with accessing the service. 

Net Performance (current performance chart): Net performance results deduct fees to provide a more accurate representation of returns experienced by the user. These deductions can include: Model Fee Deduction: Net performance results may deduct a model fee equivalent to the highest subscription fee charged to the intended audience. Actual Subscription Fees: Net performance results may also deduct the actual subscription fees paid by the user for access to AI Robots.