ChatGPT and other large language models (LLMs) win lots of media attention and headlines, but can they pick good stocks? Evidence shows the answer is no.
Why?
LLMs are largely trained on the open internet and function too broadly to perform tasks that require deep subject matter expertise, like intelligent stock picking.
When you narrow the scope of an AI, as we’re doing with our partnership with Google Cloud, you tackle a much more manageable challenge across a smaller domain that the AI Agent needs to fully understand. This approach enables human experts to ensure the data is accurate enough to support rules that produce reliable results.
For example, our small language model (SLM) powers market-beating stock picking. We’re able to empirically prove the accuracy and reliability of our SLM because it is based on:
- Publicly available data in financial filings,
- Systematically gathering data into a clear ontology that supports sophisticated research, and
- Metrics and signals whose accuracy can be measured objectively by stock market performance.
There is no better proof that our AI Agent works than the novel alpha delivered via the outperformance of the Very Attractive Stocks Index, officially known as the Bloomberg New Constructs Ratings VA-1 Index (ticker: BNCVA1T:IND). This index holds the stocks in the Bloomberg US 1000 that get our Very Attractive rating. Thus, we refer to it as the Very Attractive Stocks Index.
Below, we share one of the stocks in the Index along with a brief overview of why we think Very Attractive stocks provide quality risk/reward. Enjoy this free stock pick. Feel free to share it with friends and family. We are proud of our work and want more people to see it.
Featured Stock from Bloomberg New Constructs Ratings VA-1 Index: Allison Transmission (ALSN)
Allison Transmission (ALSN: $82/share) earns an overall Very Attractive rating, with Very Attractive ratings in four of the five criteria that drive our overall Stock Rating. See Figure 1.
Figure 1: Allison Transmission’s Stock Rating
Sources: New Constructs, LLC and company filings
Quality of Earnings Analysis
Allison Transmission earns a Very Attractive Economic vs. Reported Earnings rating and a Very Attractive top-quintile return on invested capital (ROIC) rating.
We like to see companies grow their economic earnings, the true cash flows of a business. Allison Transmission grew its economic earnings from $250 million in 2020 to $486 million in the TTM, or 16% compounded annually. The company improved its ROIC from 10% to 19% over the same time. See Figure 2.
Figure 2: Allison Transmission’s Economic Earnings and ROIC: 2020 – TTM
Sources: New Constructs, LLC and company filings
ALSN Is Undervalued
Allison Transmission has a 2-year average FCF (excl. cash) yield between 3% and 10%, which earns an Attractive rating. Additionally, the stock has a price-to-economic book value (PEBV) ratio lower than 1.1, and a market-implied growth appreciation period (GAP) of less than 3 years, both of which earn Very Attractive ratings.
More specifically, at its current price of $82/share, ALSN has a PEBV ratio of 0.8. This ratio means the market expects Allison Transmission’s NOPAT to permanently decline by 20% from TTM levels. This expectation seems overly pessimistic for a company that has grown NOPAT by 4% compounded annually over the last five years and 9% compounded annually over the last ten years.
The low expectations baked into Allison Transmission’s stock price, along with strong quality of earnings, drive its Very Attractive Overall Stock Rating.
Background on our Stock Ratings
Five criteria drive our stock ratings. We divide those criteria into two categories: quality of earnings and valuation.
Quality of earnings criteria:
- Economic vs. Reported EPS: compares both the level and trend of Economic Earnings, the true cash flows of the business, vs. reported earnings.
- Return on Invested Capital (ROIC): measures how much profit a company generates for every dollar invested in the company.
Valuation criteria:
- 2-year Average Free Cash Flow (excluding cash) Yield: measures the true cash yield of a company.
- Price to Economic Book Value: measures the growth expectations implied by the company’s stock price.
- Market-Implied Growth Appreciation Period (GAP): measures the number of years of future profit growth required to justify the current valuation of the stock.
Stocks that get an overall Very Attractive rating are poised to outperform in any market.
Real-Time Proof of Superior Stock Ratings
The strong outperformance of the Very Attractive Stocks Index proves the superiority of our Stock Ratings. BNCVA1T outperformed the S&P 500 by 54% over the last 5 years, rising 162% compared to the S&P 500 rising 108%. See Figure 3.
Figure 3: Very Attractive-Rated Stocks Strongly Outperform the S&P 500 Over the Last Five Years
Sources: Bloomberg as of October 24, 2025
Note: Past performance is no guarantee of future results.
This article was originally published on October 24, 2025.
Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.
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