Top 25 Stock Ideas from the InsideArbitrage Quant Model

Last month we announced the roll out of the new InsideArbitrage quant model and the inclusion of the IA Score in all of our stock quote pages. You can see how the model scored the athleisure apparel company, Lululemon Athletica (LULU) in December 2024 below.

Since then Lulu’s stock has risen to $411.16 but the IA Score dropped to 72 as the valuation of the company has gotten less attractive with the increase in price. I have personally started using 70 as a threshold score where I get interested in a company.

When we rolled this feature out, I received some emails from subscribers asking if we could create a list of stocks that were rated the highest on the IA Score. A little over a month later, we are happy to announce that we have created a custom screen that allows InsideArbitrage Premium subscribers to access a list of top 25 stock ideas that have the highest IA Scores.

Instead of one list, we ended up creating four lists:

• List 1: Includes all factors
• List 2: Excludes momentum factors
• List 3: Without valuation factors
• List 4: Without both momentum and valuation

There is obvious overlap between these lists but it is that fourth list of stock ideas, which is primarily based on company fundamentals (revenue growth, margin improvement, balance sheet strength, etc.) and event-driven factors that I find the most interesting. A screenshot of the top 25 ideas as of yesterday is given below:

The top stock from the fourth list is the company Avadel Pharmaceuticals (AVDL) that we discussed both in an insider weekends article as well as our recently launched special situations podcast. Key insights from our insider weekends article about the company are given below:

Key Insights:

• We decided to look beyond our top insider purchases and sales this week and write about Avadel Pharmaceuticals, a small-cap biotech that focuses on treating narcolepsy.
• Avadel and the FDA were sued by the biotech giant Jazz Pharmaceuticals, which claimed that Avadel’s narcolepsy-treating drug, Lumryz, violated the exclusivity given to Jazz Pharmaceuticals’ narcolepsy drug Xywav.
• The key difference between Lumryz and Xywav is that Lumryz is a single-dosage once-at-bedtime drug, whereas Xywav is a split-dose drug that requires users to wake up for a second dose.
• The FDA declared that Lumryz was “clinically superior” and the judge in the case agreed.
• Avadel’s financials, especially the income statement, point to a company at an inflection point – where earnings will likely turn positive and the company continues to capture market share from Xywav and Jazz Pharmaceuticals.
• We’ve seen multiple insider purchases at the company over the past month, understandable considering these impressive developments and the fact that the stock is down about 50% in the last year.
• We are in the early stages of our research but like what we have seen so far and hope to elaborate further in the next monthly special situations newsletter.

We also mentioned the following about the company in our last podcast:

“Right, so speaking of biotechs, we saw Insider buying at Avadel (AVDL) once again, this time by director Linda Palschuk, which brings our total count to five different insiders purchasing shares of the company. We discussed Avadel on last week’s podcast, but just to recap, the company produces a sodium oxybate drug meant to treat narcolepsy and has created significant competition for the pharmaceutical giant Jazz Pharmaceuticals.

As we discussed in the last podcast, Avadel enjoys massive advantages in this narcolepsy market, including the fact that their drug is considered to be clinically superior. However, the stock is down about 50% in the last year, and that could be due to the fact that concerns have been rising surrounding patients discontinuing the drug. Avadal, as we mentioned before, looks very strong financially. We quite like the company at the moment. Q4 results are expected in early March and we’ll provide more information and guidance about the company’s future.”

The list above also includes several stocks I have either looked into or owned in the past including the bank First Horizon (FHN), the mediterranean restaurant chain Cava (CAVA), a company that makes tasers AXON Enterprises (AXON) and Interactive Brokers (IBKR).

We are currently updating the model three times a day across the entire universe of stocks we have in our database and also display the change in the IA Score from the prior day.

Quantitative or factor-based models are just as likely to be wrong as a qualitative process but I personally like to use a combination of both quantitative models and qualitative analysis when hunting for new ideas. As I mentioned in our article announcing the creation of the IA Score, please do your own due diligence and note that there may be microcap companies or penny stocks in this list.

If you are already an InsideArbitrage Premium member, happy hunting, and if you are not, you can sign up here.

Disclaimer: I personally started a long position in Lululemon Athletica (LULU) after writing about the company in our July 2024 special situations newsletter. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article