Artificial intelligence (AI) has come a long way since the early days but can it effectively analyse market data? I put that theory to the test by asking three AI chatbots what are the best FTSE 100 stocks?
The results were compelling but I question how they were chosen.
Surprisingly, each bot I asked provided different answers. Claude claimed it was unable to provide specific answers due to a lack of access to real-time data. However, it provided some useful information on how to pick stocks.
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Gemini was more compliant, although I had to trick it into pretending it was an investor before it chose to play ball! That makes me question whether its answers are accurate or part of the pretence.
It chose three stocks it felt had performed well recently, Shell (up 9% in the past month), AstraZeneca (up 1%) and HSBC (up 5.6%). Yet it didn’t explain why they would be good to buy now.
In the end, ChatGPT provided the most detailed answer. Rather than base its options solely on past performance, it focused on price-to-earnings (P/E) ratios, P/E growth (PEG) ratios and cash generation.
ChatGPTs five picks
It chose Legal & General, with its strong track record of cash generation, a forward P/E ratio of 10 and a dividend yield of 7.86%. The yield seems a bit low but otherwise accurate.
It noted insurance company Phoenix Group, with a PEG ratio of 0.5 and a 9.6% yield, could benefit from an ageing population. I believe the company’s currently unprofitable so I question that PEG ratio.
GSK, with upcoming RSV vaccine developments and a forward P/E ratio of 10 — the lowest in five years, looks accurate.
Vodafone comes with a P/E ratio of 11 and yield of 10.2%, but It failed to mention that the yield drops closer to 5% this year.
Not as accurate data as I’d have hoped but a good selection, nonetheless. I know those four options well but was surprised by its fifth pick, Associated British Foods (LSE: ABF). As a stock I haven’t given much attention to, I decided to investigate.
Resilience and diversification
ABF’s the world’s second-largest producer of both sugar and baker’s yeast, with several subsidiaries around the world. It produces famous brands like Ovaltine, Ryvita, Kingsmill and Twinings. It’s also the parent company of popular international fashion/lifestyle chain Primark, stores of which can be found on most British high streets. Over in the US, it also operates ACH Food Companies.
This makes it a highly defensive stock as it’s likely to bring in revenue even during economic downturns. Considering the current state of global markets, I’d say that’s a big plus.
However, most of its products are neither unique nor premium. Consumers have many options and could easily be swayed to pick alternatives. It also faces supply chain risks and exchange rate fluctuations, both of which could hurt profits.
While I appreciate its defensive value, it wouldn’t rank in a list of my best FTSE 100 stocks and I don’t plan to buy it right now.
It’s clear AI can aggregate data faster than a human. However, I don’t think its powers of prediction go much beyond predictive text.
So while it may have a use, it’ll be some time before I trust it over the advice of experts.
