Currently, I hold four FTSE 100 shares in my Stocks and Shares ISA. I’m pretty happy with them, and believe they’re some of the best long-term investment opportunities on the index. However, with artificial intelligence (AI) already trumping my IQ, I decide to ask ChatGPT for its opinion on my humble UK portfolio.
So, here’s what ChatGPT said.
Mixed take on banking stocks
ChatGPT noted that my holdings in Barclays and Lloyds are both seen as proxies for the UK economy and the financial sector. The AI platform rated Barclays at 7.5/10, noting that it was a “solid pick in the financial sector, but macroeconomic risks warrant caution”. It only gave Lloyds a 6.5/10 rating, suggesting it was overly dependent on the UK economy.
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Focusing on Barclays, ChatGPT said the bank had a strong capital position, noting the CET1 ratio, supportive trends in interest rates, and diversified revenues steams. Unlike Lloyds, Barclays has an investment arm. However, risks include exposure to the slow-growing UK economy, regulatory scrutiny, and volatility in investment banking revenues.
Turning to Lloyds, the AI platform hailed the bank’s leadership in the mortgage market, cost discipline, and digital transformation, while noting the generous dividend yield. However, ChatGPT doesn’t like Lloyds’s industry-topping exposure to the UK economy — notably through mortgages — and its limited diversification.
While ChatGPT makes some valid points, it’s worth noting that investing in banks often requires a deep dive to thoroughly understand the risk/reward payoff. The platform’s analysis is very surface level. My optimism relates to their price-to-earnings (P/E) ratios relative to their US peers, and under-appreciated hedging incomes. In future, I’ll stick to John Choong’s analysis of banking stocks.
ChatGPT is bullish on air travel
Onto my next two stocks, IAG and Rolls-Royce (LSE:RR), which were rated 7/10 and 8/10, respectively. ChatGPT said the British Airways owner was experiencing strong post-Covid booking trends, noting cost-saving initiatives and rebounding long-haul travel. However, it wasn’t a fan of its exposure to fuel price volatility and its debt burden.
The AI bot also suggested that Rolls-Royce’s debt burden was too high, and that it was heavily exposed to geopolitical events. However, the engineering firm was its top pick. This was thanks to the aforementioned recovery in air travel, strong defence budget, and restructuring efforts.
Personally, I’d argue that Rolls-Royce’s £800m debt burden is more than manageable. I’m sure many analysts would agree, given the stock’s whopping £50bn market cap and increasingly strong cash flows. This does suggest to me that some of the data ChatGPT is using may be outdated. That’s a concern, especially in industries that are moving very quickly.
Instead, I note that a key risk with Rolls-Royce lies in the rising production costs driven by inflation. In addition, the aviation sector is vulnerable to severe downturns, as evidenced during the pandemic.
However, despite Rolls-Royce being rated the best of my holdings by ChatGPT, I feel that I have significant exposure. I probably won’t top up any time soon.
