I have my own ideas about which UK shares will take off in the next bull run, but I fancied giving artificial intelligence (AI) a shot. So I asked ChatGPT to name three growth stocks it thought would benefit when the outlook brightens and investors get their mojo back.
Its first suggestion didn’t surprise me. It’s the number-one FTSE 100 performer over the last year, and at the very top of my own shopping list. The other two did surprise.
I’m hungry to buy IAG
ChatGPT’s first pick was British Airways owner International Consolidated Airlines Group (LSE: IAG). It praised IAG’s “resilience amid past economic downturns” but I’m not sure I totally agree. IAG was on the brink during the pandemic, although that was an extreme case, to be fair.
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The IAG share price has soared 110% in the last year, with people hungry to travel post-lockdown, while it’s whittled down debt to €6bn. That’s still high, but far from lethal.
Running an airline isn’t cheap, and IAG’s had to pour money into fleet modernisation to stay ahead of the competition. It’s exposed to volatile fuel prices, consumer downturns and geopolitical events, and always will be.
But with transatlantic routes – its niche – particularly buoyant, it looks good value trading at 7.7 times earnings.
I didn’t expect Bellway
Now for the first AI surprise: FTSE 250 housebuilder Bellway (LSE: BWY). My own play on the housebuilding sector’s Taylor Wimpey, so I haven’t paid much attention to the others. ChatGPT has a wider outlook.
My ‘bot buddy says builders will benefit from lower interest rates which “typically make mortgages more affordable and stimulate housing demand”.
It added that Labour’s “commitment to addressing housing shortages, coupled with potential planning reforms, could further bolster the sector”.
ChatGPT highlighted Bellway’s strong balance sheet and strategic land acquisitions, while warning that it remains “exposed to fluctuations in the housing market and economic cycles”.
The Bellway share price has struggled lately, falling 4% over the last year, and 36% over five years. It looks a little pricey trading at 19 times earnings. The dividend yield‘s a modest 2%. With Taylor Wimpey at just under 12 times earnings and yielding almost 8%, I’ll stick with that.
Thanks ChatGPT, but no thanks.
AJ Bell shares are tempting but pricey
Finally, my chatbot chum picked out investment platform AJ Bell (LSE: AJB), saying that “as savings rates fall, individuals may seek higher returns through investments, driving growth”.
ChatGPT also praised its “user-friendly interface and diverse product offerings”, while warning it operates in a highly competitive industry with pressure on fees and margins. Stock mark volatility can also hit assets under management and associated revenues.
I’m wary. The AJ Bell share price has been going great guns, up 40% in the last year. It looks expensive though, trading at almost 22 times earnings.
Also, falling interest rates will cut margins on customer cash balances, a strong source of revenue lately. Of the three, IAG’s the one I want. It’s leading the charge right now, even without a bull market.
