I’m on the hunt for cheap shares and happy to get help wherever I can, even if that means calling in the robots. So I asked AI chatbot ChatGPT for its views.
Of course, I know it doesn’t really have a view. It just culls information from the internet. Although in that respect it isn’t so different from the rest of us.
I didn’t see its first stock pick coming. I thought it would choose a couple of FTSE 100 companies whose shares had plunged in 2024 and were dirt cheap as a result. Instead, it came up with Barclays (LSE: BARC). It’s been one of the best performers of all, with the shares up 80% over the last year.
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The shares aren’t as cheap as the bot thinks
This highlights a risk of relying on ChatGPT. It based its recommendation on Barclays’ price-to-earnings (P/E) ratio for 2023, which was a lowly 5.1. After the recent surge, it’s now up to 9.5. Investors beware.
However, that’s still comfortably below the FTSE 100 average P/E of around 15 times. And Barclays currently has a modest price-to-book ratio of just 0.5. That’s half the figure of 1 seen as fair value.
It also boasts a diversified revenue stream across retail and investment banking, which includes exposure to the thriving US market. “This provides some resilience against sector-specific downturns”, ChatGPT tells me.
It’s actually quoting a Motley Fool article there. An old one. ChatGPT’s other ‘insights’ are just blether about the financial services sector being regulated and competitive. So what do I think?
Barclays is a brilliant long-term buy and hold. But after its strong run I don’t think this is the time to buy. The yield’s now down to 3%. I hold Lloyds Banking Group whose shares rose ‘just’ 20% last year. But with a P/E of 7.1 and forward yield of 6%, I think it’s the better pick. I’m only human though, and could be wrong.
ChatGPT’s second stock pick is cheap by anybody standards, oil giant BP (LSE:BP). So cheap in fact that I bought its shares on 14 January at a P/E of just 5.9 times.
I decided BP was an unmissable bargain
The BP share price has been highly volatile in recent years, mostly down to oil price movements. It rocketed after Vladimir Putin invaded Ukraine in 2022, triggering the energy shock, then fell as the West secured other supplies of energy.
Today, Brent crude’s back above $80 a barrel following the Biden administration’s 11th-hour sanctions on Russia, chilly temperatures across the Atlantic and inflation fears.
Markets are watching President-elect Donald Trump closely. He wants the US to get drilling, which should increase supply. Yet Goldman Sachs has warned strict sanctions on Iran could send Brent towards $90. Plus we’re all wondering what OPEC+ might do next.
I’m looking beyond the short-term noise – particularly voluble in the energy sector – and treating BP as a long-term stock to buy and forget. Now looks like a great entry point. Especially with that bumper 5.3% trailing yield and potential share buybacks.
ChatGPT also informs me that “BP must navigate the complexities of the energy sector’s transition and commodity market volatility”, and that’s a fair point.
