ChatGPT is the artificial intelligence language bot that’s been getting all kinds of press in 2023. However, when it comes to picking stocks, it can’t hold a candle to the AI-powered equity ETF run by ETF Managers Group.
The company was founded in 2014 when CEO Sam Masucci launched the business to help meet the need for thematic investing. Its first theme-based fund was the ETFMG Prime Junior Miners ETF (NYSEARCA:SILJ), which debuted in 2012. In May 2021, the ETF exceeded $1 billion in net assets.
ETF Managers Group’s AI-Powered Equity ETF (NYSEARCA:AIEQ) hasn’t quite reached that level. Launched in October 2017, it has net assets of nearly $120 million. The actively managed fund uses the proprietary EquBot quantitative model developed by EquBot to pick U.S.-listed stocks. EquBot uses IBM’s (NYSE:IBM) Watson supercomputer to do all the heavy lifting.
“Each day, the EquBot Model ranks each company based on the probability of the company benefiting from current economic conditions, trends, and world events and identifies approximately 30 to 200 companies with the greatest potential over the next twelve months for appreciation and their corresponding weights, targeting a maximum risk adjusted return versus the broader U.S. equity market,” states the fund’s prospectus.
The automated data-driven investment process eliminates bias and personal preferences from its stock selection. In 2023, AIEQ is up 14.9%, nearly double the S&P 500.
Here are three top buys from the market-beating AI-Powered Equity ETF.
Celsius Holdings (CELH)
Celsius Holdings (NASDAQ:CELH) is AIEQ’s sixth-largest holding with a 2.1% weighting. However, the maker of energy drinks has seen a cooling off of its share price in 2023. It’s down around 5.7% year to date, but it remains up 83% over the past year.
Wedbush Securities recently upgraded CELH stock to “outperform” with a $115 target price, 17% higher than where it’s currently trading.
“We believe that the recent pullback in shares (which are down over 18% since 1/17/23, due to a lawsuit that will ultimately have little to no impact on company fundamentals) creates an attractive entry point for investors looking to gain exposure to the best growth story in all of [consumer products],” Wedbush analyst Gerald Pascarelli said in a note to clients.
In October 2021, I suggested that Celsius was a stock to buy and hold for the next decade. While its shares slumped in early 2022, I remain confident that it’s an excellent long-term buy.
In August, PepsiCo (NASDAQ:PEP) acquired an 8.5% stake in Celsius as part of a distribution partnership that saw the beverage giant become its U.S. distributor, with worldwide distribution in the future.
With Pepsi in its corner, the sky’s the limit.
UnitedHealth Group (UNH)
Next up is the second-largest holding in the AI-Powered Equity ETF, UnitedHealth Group (NYSE:UNH), with a 3.6% weighting. Of the three stocks on my list, this has to be viewed as the defensive position of the bunch. It’s done very little over the past 52 weeks, down 2%. While that’s better than the S&P 500, it’s not what shareholders have been accustomed to in recent years.
UNH stock took a bit of dive early in February due to the Centers for Medicare and Medicaid Services’ proposed Medicare Advantage rates for 2024. A core rate increase of 2.09% was lower than the average increase of 3.3% over the past five years. Wall Street was certainly not expecting such a low rate. But the final ruling doesn’t come until early April, so the rate may move higher by then.
“While the result is disappointing, the industry has been the beneficiary of some healthy increases in recent years,” Oppenheimer analyst Michael Wiederhorn wrote in a note to clients. “Additionally, we note that over the last five years, the final rule has come in 1.0% better than the proposal, on average.”
So, I wouldn’t be too concerned if you are considering buying UNH stock. These things have a way of working themselves out.
Mizuho Securities analyst Ann Hynes told her clients that the proposed increase will still allow UnitedHealth and its competitors “to continue to grow in the high-single digits.”
Analysts like UNH. Of the 26 covering it, 22 rate it “overweight” or “buy,” with no “underweight” or “sell” ratings. The average 12-month target price is $598.52, which is 26% higher than where it’s currently trading.
Roku (NASDAQ:ROKU), the eighth-largest holding in the AI-Powered Equity ETF at 1.9%, is performing well in 2023 following a tough 2022, during which the stock lost 82%. Up 54% year to date, the video streaming platform got some much-needed good news last week.
Warner Bros. Discovery (NYSE:WBD) will move its free, ad-supported television channels to the Roku Channel. Roku needs to add content to its homegrown channel to grow its advertising revenue. This deal allows it to do precisely that.
The other big news from Roku in recent weeks is the company’s push into its own line of branded smart TVs. They are expected to be out at some point in 2023. This will be another way for it to generate platform revenue from the Roku Channel. At the same time, it will enable the company to test and introduce new features on Roku TVs, Roku VP of Marketing Dan Robbins told Fierce.
Most importantly, with an ad platform and operating system purpose-built for TV streaming, advertisers will be more inclined to work with Roku to access this growing piece of the TV viewing audience.
In early January, Roku announced its active accounts had surpassed 7o million, up more than 16% over the fourth quarter of 2021. In addition, its platform revenue grew 15% in Q3 2022 to $670.4 million, while its average revenue per user rose 10% to $44.25.
More active accounts multiplied by increased streaming hours on Roku Channel translates into significant revenues. Look for Roku to continue to innovate in 2023.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Technology, Artificial Intelligence