We recently compiled a list of UBS Lowest Quant Stocks in AI, IT, Healthcare and Others: 29 Stocks Across Sectors. In this article, we will look at APA Corporation’s (NASDAQ:APA) ranking on UBS’s list of least quant stocks.

As November 2024 sets in and the U.S. presidential election draws to a close, investors are also digesting the results of the latest earnings season. As was the case with the first and second quarter earnings season, the third quarter was also focused on artificial intelligence. While Wall Street’s AI GPU darling, the company whose shares are up an incredible 206% over the past twelve months, has yet to report earnings, other major companies have gotten the ball rolling.

Two of them are among the largest players in the software segment of the AI ​​industry. The former is known for its close relationship with the company behind ChatGPT, OpenAI. The second is the world’s largest social media company that has made waves in the AI ​​industry with its open source fundamental AI model Llama AI. Building on the first case, its ability to generate AI profits primarily through its cloud computing division is embedded in the narrative.

Since publishing its results, the stock has fallen 4.9%. That’s even though the company’s revenue and earnings per share of $65.59 billion and $3.30 beat analysts’ estimates of $64.51 billion and $3.10. dollars. Along with the rise in profits and revenue, the software company’s Azure cloud computing business, which also includes its enterprise AI services, grew 33% annually or 34% on a base-year basis. constant exchange rate. These also beat analyst estimates, so at first glance one might expect the shares to rise.

However, Wall Street doesn’t always focus on current performance, and for AI stocks, their talk relies on future expectations. These expectations are priced into stock prices. For the software company, its weak guidance is at the center of the poor stock price performance, as current quarter revenue forecasts of $68.1 billion to $69.1 billion missed by more than half a billion dollars Wall Street estimates of $69.83 billion.

The software company was joined by the social media company in releasing its results the same day. Shares of parent company Facebook are also down since the earnings release, as they lost 3.3% after recovering from a 5.3% loss. Its earnings report, like post-report stock performance, also reflects the software company’s results to some extent. For starters, the social media company also beat analysts’ revenue and EPS estimates. It reported revenue of $40.59 billion and earnings per share of $6.03, beating analyst estimates of $40.29 billion and $5.25. Driving the pace was rising advertising revenue, which rose 18.7% annually to $39.9 billion.

However, even though the company’s net income jumped 35% to $15.7 billion, it was the slowest growth in more than a year. Additionally, the company reported that it had 3.29 billion daily active users during the third quarter, which was lower than the 3.31 billion estimated by analysts. Another factor that failed to impress investors was its AI-related capital spending. The company increased the lower limit of its capital expenditures for the full year to $38 billion from $37 billion, and kept the upper limit intact at $40 billion. Higher spending increases the return expected by investors and reduces payouts in the form of dividends and share buybacks. As a result, the stock fell after the earnings release.

These two AI-driven earnings reports are part of a market that is now facing lower interest rates, higher growth, and the culmination of a hotly contested presidential election. In a recent report, investment bank UBS took an optimistic view of the US stock market. He noted that “from a macro perspective, the combination of slowed but sustainable economic growth, healthy earnings growth and continued Fed rate cuts is favorable.” The bank is also bullish on AI and particularly on a broader category of companies, with the exception of GPU designers, which have seen the bulk of the stock’s gains so far of their actions.

In his report, he notes that “AI-related companies spanning semiconductors, cloud service providers, devices and data centers account for more than a third of the S&P 500 in terms of market capitalization.” We expect continued growth in AI capital spending to drive revenue and profit. However, according to UBS, AI is not the only lucrative sector offered by the American stock market. The bank adds that “the S&P 500 also provides exposure to sustainable longevity growth through various U.S. medical device companies. Many American companies are also playing a leading role in the energy transition through electric vehicles, renewable energy and energy efficiency.

On the subject of interest rate cuts, the report notes that “reductions of 50 basis points in labor market conditions similar to those of today have historically been positive for stocks.” These working conditions are determined by the three-month average of non-farm employment in the United States, and UBS also believes that rate cuts decided by the Federal Reserve can ripple through global markets. He notes that “historically, Fed rate cuts of more than 50 basis points while the market has been within 1% of historic highs have been rare. This only happened during the Volcker era in the mid-1980s. The S&P 500 rose more than 20% in the 12 months following the giant reductions. Additionally, Fed rate cuts tend to have positive spillover effects on global stock markets, with Asia excluding Japan and emerging markets being the biggest beneficiaries outside of the United States.

Finally, with the 2024 US presidential election over, the bank’s report released ahead of the election also comments on the results on Wall Street. He said “S elections are a short-term risk; for example, if former President Donald Trump is elected, markets could quickly price in potential tariffs. However, we view dips as buying opportunities and recommend gradual exposure to stocks.

Our methodology

To put together our list of UBS stocks with improving quantitative metrics, we chose the company’s top stocks that are seeing improvements in EPS growth, P/E ratio, and other metrics. Stocks in each sector were ranked based on the number of hedge funds that had purchased the shares during the second quarter of 2024. The sectors themselves were ranked based on the cumulative number of funds that had been invested in the companies, in descending order.

Why are we interested in stocks that hedge funds are piling into? The reason is simple: our research has shown that we can outperform the market by imitating the stocks selected by the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

A chart plotting trends and performance of stocks in public stock markets.

APA Company (NASDAQ:APP)

Number of hedge fund investors in the second quarter of 2024: 31

Sector: Energy

APA Corporation (NASDAQ: APA) is a mid-sized oil and gas exploration and production company based in Texas. Amid a weak global oil industry that has seen prices fall due to China’s weakness, the company’s shares have struggled in the stock market. Shares of APA Corporation (NASDAQ:APA) are down 34% year to date as the company also struggles with weak natural gas prices. However, oil remains the driving force behind the company’s assumptions since 81% of its production revenues come from it. APA Corporation (NASDAQ:APA) has also reportedly been forced to sell assets in the lucrative Permian Basin to raise cash and reduce its substantial debt. As of June 2024, the company had long-term debt of $6.7 billion. For the stock to perform well in the future, oil prices need to stabilize and APA Corporation (NASDAQ:APA) needs to continue working with energy giant Total on its offshore oil production project in Suriname.

Ariel Investments mentioned APA Corporation (NASDAQ:APA) in its Letter to investors for the second quarter of 2024. Here’s what the fund says:

“Oil and natural gas explorer, APA Company (NASDAQ:APA), also recorded a decline during the quarter following a revenue shortfall. Weaker-than-expected production forecasts and an upcoming increase in capital investment weighed on investor confidence. At the same time, APA raised its cost synergy targets following the recent acquisition of Callon Petroleum Company, which is expected to increase the size of the company’s existing assets in the Delaware Basin. Increased operational savings appear to be accretive to key financial metrics through the end of 2024 and beyond. APA’s wells continue to show strong performance in the Permian Basin. The company also expresses its confidence in its development in Suriname. Management remains focused on increasing the operational efficiency of Callon’s assets, generating free cash flow and returning capital to shareholders through buybacks and dividends.

Overall, the APA ranks 27th on our list of the least quantitative UBS stocks in AI, IT, healthcare and other sectors. While we recognize the potential of APA as an investment, our conviction lies in the belief that AI stocks have more promise in terms of higher returns and in a shorter time frame. If you’re looking for an AI stock that’s more promising than APA but trades at less than 5x earnings, check out our report on cheapest AI stock.

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Disclosure: None. This article was originally published on Initiated Monkey.