These 10 'HALO' stocks protect your portfolio from the AI bubble

By Mark Hulbert

High capital-intensity, asset-heavy companies offer a proven hedge against 'Magnificent Seven' volatility

"Anti-AI" stocks are a contrarian bet that the market's tech-fueled rally will be short-lived.

It may be time for an anti-AI portfolio. That's because AI-related stocks have been soaring. "Anti-AI" stocks are a contrarian bet that the market's tech-fueled rally will be short-lived.

Anti-AI stocks are companies unlikely to be disrupted by artificial intelligence. Josh Brown, the CEO of Ritholtz Wealth Management, uses the acronym "HALO" to refer to such stocks - "heavy assets, low obsolescence."

The HALO stocks haven't glowed lately, while the so-called Magnificent Seven stocks have gained about 25% on average since the end of March, according to LSEG calculations. That compares with an average loss of 2.7% for the 10 HALO stocks currently recommended for purchase by at least two of the investment newsletters monitored by my performance auditing firm. Many other anti-AI stocks have performed even worse.

To determine which stocks are HALO, I relied on the capital-intensity ratio, which is the ratio of a company's total assets to its revenue. It isn't the only way of determining which firms are least vulnerable to AI disruption, but it's a good first pass. (I ignored companies in the Financials sector when sorting on the capital-intensity ratio, since such companies are naturally asset-heavy, rendering the ratio an unhelpful metric to compare them with firms in other industries.)

Many investors consider capital-intensive stocks to be boring and old-fashioned. But one day, the excitement of the AI trade will come from plunges rather than melt-ups, and when that happens, you will yearn for boredom.

The table below shows the 10 stocks recommended for purchase by at least two newsletters monitored by my firm with the highest capital-intensity ratios. In addition, they are undervalued: average dividend yield of 2.7% (versus 1.3% for the S&P 500 SPX) and an average forward P/E ratio of 16.9 (versus 22.2 for the S&P 500).

   Ticker  Stock                      Industry    Capital Intensity Ratio  Dividend Yield  Forward P/E 
   RXRX    Recursion Pharmaceuticals  Healthcare  22.2                     +0.0%           n/a 
   SRE     Sempra                     Utilities   8.2                      +2.9%           17.4 
   WTRG    Essential Utilities Inc.   Utilities   7.6                      +2.6%           16.3 
   HTO     H2O America                Utilities   6.3                      +3.4%           20.9 
   PCG     PG&E                       Utilities   5.5                      +0.8%           9.4 
   WEC     WEC Energy Group           Utilities   5.1                      +3.4%           19.4 
   PPL     PPL                        Utilities   4.9                      +3.1%           18.3 
   ES      Eversource Energy          Utilities   4.6                      +4.5%           13.9 
   SR      Spire                      Utilities   4.6                      +3.9%           15.8 
   AWR     American States Water      Utilities   4.3                      +2.7%           20.6 

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com a flat fee to be audited. He can be reached at mark@hulbertratings.com

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Also read: My retirement fund is like an AI version of me. It keeps working when I'm not able to.

-Mark Hulbert

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