Daily Stock Pick for August 2, 2023

2023 has been the year where AI truly filtered into the mainstream consciousness.

But because AI stocks are investor darlings right now, it seems every business is trying to mention that their business is somehow related to AI – no matter how tangential the connection really is.

This is a normal part of the hype cycle, and the next stage will be the investing public becoming more jaded and skeptical toward so-called AI stocks.

I’m starting to see some of that happening already – but it’s just a taste of what’s coming.

The best move now is to position yourself in AI stocks that are actually using AI to create market value…

AND maximize your potential gains by focusing on stocks that aren’t already worth hundreds of billions of dollars.

That’s why today’s stock pick is an AI stock that’s still worth less than $2 billion, has a business model that’s entirely based on AI, and extremely strong momentum on its side (despite still being down over 85% from its all-time high).

Oh, and it’s due to report Q2 earnings later today after market close – which should give the price a nice boost if it outperforms expectations.

Lemonade, Inc. (LMND)

Lemonade is an insurtech company that uses AI to price premiums more efficiently. One way we can gauge whether an insurance company’s premiums are priced efficiently or not is to look at their loss ratio – the ratio of total claims paid to premiums received. A loss ratio of under 100% means the company receives more premiums than its pays in claims, while a loss ratio of over 100% means the company is paying more in claims than it receives in premiums.

A “good” loss ratio for an insurance company is between the 60–70% mark. As of the end of the first quarter of 2023, Lemonade’s gross ratio stood at 87% – below where they want it to be.

But if we look at the trend, we can see it’s steadily improving – the company’s loss ratio stood at 94% just 2 quarters prior. Lemonade notes that the improving loss ratio reflects the advancements in its AI-based pricing models.

Its Q1 results were impressive, and Lemonade’s stock has strong price momentum on its side – having risen by 65% this year. But remember, it’s still over 85% down from its previous all time-high, and the stock would have to rise by nearly 700% to hit those levels.

Should today’s Q2 earnings indicate it’s going in the right direction, this will be yet another positive sign for the stock. That itself could create a near-term price jump – while solidifying the case for a longer-term hold.

To your wealth,
Felix @ Ace of Investing