When buying and selling UK stocks, I rely on my own research. That said, I’m open to anything, including chatbots.
Artificial intelligence (AI), as ChatGPT humbly admitted, is no substitute for human expertise. When I asked it to name two FTSE 100 shares it would sell in a heartbeat, it replied: “I’m not a financial adviser, so I can’t provide specific stock recommendations”.
It did however, list broad reasons to sell stocks, such as weak fundamentals, falling revenues, high debt, poor management, tough sector conditions, and overvaluation. Fairly obvious, I thought.
Perhaps sensing my disappointment, ChatGPT surprised me by adding: “Companies like Centrica (LSE: CNA) or BT Group (LSE: BT.A) have faced scrutiny due to operational struggles or stagnant growth”.
What’s the Centrica problem?
Curious, I asked why it flagged up Centrica. ChatGPT pointed out that core business British Gas faces intense competition from smaller energy suppliers offering cheaper deals and stealing market share.
Centrica’s board has also spend recent years restructuring, cutting jobs and selling non-core assets, which ChatGPT suggested might “signal instability or difficulty adapting to market conditions”. The company also faces the expensive challenge of transitioning away from fossil fuels, amid falling energy prices and windfall taxes.
Given all that, I was surprised to see that the Centrica share price has actually soared 95% in the past three years. Although it’s dipped 2.5% over the last 12 months.
The shares are dirt cheap, trading at just over four times earnings. While the dividend yields a modest 3%, share buybacks and a £3.2bn net cash pile add appeal.
Yet I share my robot buddy’s scepticism. As an energy explorer and utility owner, it’s an unwieldy hybrid. I already own BP, so don’t need more energy exposure. And I wouldn’t buy British Gas if it was a standalone stock.
Its view on BT
I spent much of 2024 running the rule over BT Group before deciding not to buy it. ChatGPT appeared to share my scepticism. It flagged numerous challenges for the sprawling telecoms giant, namely fierce competition, high debt due to heavy investment in Openreach broadband and 5G, huge pension obligations and missteps like its costly BT Sport venture.
That said, BT’as largely completed its investment in Openreach, so the rewards could soon follow. It has also eased concerns over BT Sport by selling a majority stake to Warner Bros.
Yet declining revenues in traditional areas like fixed-line services remain a concern. ChatGPT aptly described BT as a “classic case of a company trying to modernise while grappling with legacy issues”, with long-term rewards requiring “short-term pain”.
Despite these issues, BT’s shares are up 22% in the past year. They’re also cheap trading at 7.6 times earnings with a tempting 5.7% dividend yield.
Centria and BT Group both look a little messy to me. Too many fingers in different pies. I have considered buying them but ultimately decided to target cleaner, leaner, simpler companies. If I owned these shares, I wouldn’t sell in a heartbeat. But I’m in no rush to buy them either.
