You may have heard about GPT-4 Turbo, Gemini, Llama or X’s (formerly Twitter) Grok. However, there is a new contender outside of these Big Tech models in town. It’s called Claude, created by Anthropic. The company recently released Claude 3 models and claims its premium “Opus” model is smarter than all other AI bots. Many people have touted it as the most intelligent AI available right now. Moreover, it has access to events up to August 2023, making it more up-to-date than other models.
Could Claude’s stock screening capabilities and human intuition help you realize significant returns? Let’s put it to the test and ask it to list seven stocks that it thinks will “mint millionaires.” Note that some highly unprofitable and dilutive companies and big-cap picks unlikely to deliver “millionaire-making” gains have been left out of the AI stock picks for obvious reasons.
Paycom Software (PAYC)
Claude: “Paycom Software (NYSE:PAYC) is a leading provider of cloud-based payroll and human resource management software for small to medium-sized businesses. The company’s platform offers a range of tools for managing payroll, time and attendance, talent acquisition, and HR compliance. Paycom’s user-friendly interface, strong customer support, and focus on innovation have helped it gain a loyal customer base and maintain high retention rates. The increasing demand for cloud-based payroll and HR solutions, driven by the need for businesses to streamline their processes and ensure compliance with evolving regulations, supports Paycom’s growth prospects. Additionally, the ongoing shift towards digital transformation and the increasing technology adoption by small and medium-sized businesses are key megatrends that benefit Paycom.”
Claude has hit the nail on the head regarding the trends driving long-term growth for Paycom’s business. There is not much to add except looking at the metrics. Most cloud-based software companies are trading at significant premiums right now. Still, I cannot say the same for PAYC, trading 63% off its 2021 peak despite generating solid profits and paying a small dividend. However, I believe times will change as companies accelerate efforts to automate their workforce. Analysts expect continued EPS and revenue growth in low double-digits going forward, which are relatively muted expectations the company can beat. I agree that outsized returns are definitely possible here from these depressed levels.
Vicor (VICR)
Claude: “Vicor (NASDAQ:VICR) is a leading high-performance power conversion and management solutions provider. The company’s innovative products are used in various industries, including automotive, aerospace, defense and data centers. Vicor’s patented technology enables efficient, high-density power delivery, crucial for the growing demand for electrification and high-performance computing. The company’s strong market position, expanding customer base and exposure to key megatrends such as electric vehicles and data center growth make it a compelling investment opportunity.”
This power modules company is another beaten-down bet that can deliver significant returns. I agree with Claude that the risk-return setup here is favorable for investors. However, I am not as optimistic as AI on the near-term prospects. Analysts expect EPS to recover from $0.32 to $1.26 in one year, along with 33% revenue growth. However, the revenue of $92.7 million in Q4 was down ~12% sequentially and on a YOY basis. The company missed consensus revenue estimates by a whopping $14.4 million while book-to-bill remained below 1. These are concerning metrics for the near term, but I cannot complain much about the long-term prospects with shares at bargain-basement levels.
Enphase Energy (ENPH)
Claude: “Enphase Energy (NASDAQ:ENPH) is a global leader in microinverter-based solar-plus-storage systems. The company’s innovative technology enables more efficient and reliable solar energy generation and storage, making it a key player in the growing renewable energy market. Enphase’s strong brand, expanding global presence and partnerships with leading solar installers position it well for future growth. The increasing adoption of solar energy, the need for energy storage solutions and the global push towards renewable energy are significant megatrends that support Enphase’s long-term prospects.”
Speaking of bargain-basement pricing, Enphase Energy certainly has you covered there. The entire solar sector went through a bearish wave in the past few months, but that seems to be subsiding with many solar stocks recovering from their troughs. Enphase has recovered significantly but is still down 64% from its peak. I believe these cheap prices have significant upside potential as rate cuts take effect. The company has $1.7 billion in cash and huge growth ahead, with residential installations only comprising over 20% of the overall capacity installed in the U.S. Analysts expect EPS to rise from $3.3 in 2024 to $11.4 in 2029 alongside revenue growing from $1.6 billion to $4.4 billion during the same period. It’s definitely one of the best AI stock picks here.
Revolve Group (RVLV)
Claude: “Revolve Group (NYSE:RVLV) is an online fashion retailer that targets Millennial and Gen Z consumers. The company’s data-driven approach, influencer-driven marketing and curated product offerings have helped it build a loyal customer base and differentiate itself in the competitive e-commerce market. Revolve’s agile supply chain, strong brand partnerships and focus on customer experience position it well for continued growth. The increasing shift towards online shopping, the growing influence of social media on consumer behavior and the rising spending power of younger generations are key megatrends that support Revolve’s growth prospects.”
This is another beaten-down stock among the AI stock picks that I think can perform relatively well in the years ahead. However, I again would not be very optimistic here in the near term, given retail spending is still down and high interest rates have dampened discretionary purchases. However, I would still say this deserves a buy rating because the balance sheet is quite clean, with only $41 million in debt and $245 million in cash. The growth potential cannot be ignored, as analysts expect EPS to jump from $0.48 to $6.3 from 2024 to 2033 and revenue nearly quadrupling in that timeframe. In the long run, I have a lot of conviction that you can squeeze out significant upside from this stock from the current depressed levels.
IDEXX Laboratories (IDXX)
Claude: “IDEXX Laboratories (NASDAQ:IDXX) is a global leader in veterinary diagnostics, software and water microbiology testing. The company’s innovative products and services help veterinarians deliver high-quality care and enable early detection and treatment of pet diseases. IDEXX’s strong competitive position, global presence and innovation focus position it well for continued growth. The increasing humanization of pets, the growing demand for veterinary care and the rising awareness of early disease detection’s importance are key megatrends supporting IDEXX’s long-term prospects.”
You could include this company in your core portfolio without hesitation. Still, I do not think this is the sort of stock you would necessarily chase if you are looking for millionaire-making returns. Regardless, you could still make some juicy gains if you hold this long enough. It is a quality company, but I disagree with Claude that it can generate the multibagger returns I am targeting in the next few years.
Tactile Systems Technology (TCMD)
Claude: “Tactile Systems Technology (NASDAQ:TCMD) is a medical technology company that develops and provides innovative medical devices for treating chronic diseases at home. The company’s flagship product, the Flexitouch system, treats lymphedema and chronic venous insufficiency. Tactile Systems’ focus on improving patient outcomes, reducing healthcare costs and enabling at-home treatment positions it well for future growth. The increasing prevalence of chronic diseases, the growing demand for home-based healthcare solutions and the ongoing shift toward value-based care are key megatrends that support Tactile Systems’ growth prospects.”
This is certainly one of the AI stock picks that could deliver the oversized returns I discussed. EPS is expected to double in the next two years nearly, and revenue is growing in the lower double digits. The valuation and margins are very appealing here, and the 3-year FCF growth rate of 281% makes it better than 99.7% of its industry peers. It is a quality company with a clean balance sheet. Still, the potential upside is a bit muted, and I do not expect TCMD stock to break $50 anytime soon.
Simulations Plus (SLP)
Claude: “Simulations Plus (NASDAQ:SLP) is a leading modeling and simulation software provider for drug discovery and development. The company’s innovative software platform helps pharmaceutical and biotechnology companies accelerate the drug development process, reduce costs and improve success rates. Simulations Plus’ strong market position, expanding customer base and focus on innovation position are good for continued growth. The increasing complexity of drug discovery, the growing demand for efficient drug development processes and the rising adoption of computer-aided drug design are key megatrends that support Simulations Plus’ long-term prospects.”
This is another stock in the healthcare industry sort of in the same boat as TCMD. Do not expect massive returns, but the possible gains are significant enough to include in a high-risk, high-reward basket of stocks. The company beat top-line estimates by nearly 6% in the recent quarter and has some of the best margin and cash positions, with negligible debt and $108 million in cash. Revenue growth is expected to be around 15% annually and 20-30% EPS growth going forward. However, you are paying a hefty premium for this stock, so I do not think life-changing returns are possible. However, it is still one of the AI stock picks worth buying for potential double-digit returns.
On the date of publication, Omor Ibne Ehsan did not hold (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.
