I like to get a second opinion when buying UK shares, even an artificial one. So I called in AI chatbot ChatGPT.
I asked it to create a balanced retirement portfolio of five FTSE 100 stocks. I had to substitute two of my robot buddy’s choices, because I’ve covered both a lot lately. I’ve highlighted my stock substitutions below.
As my robot buddy said, “when it comes to building wealth over 50, a sensible strategy involves balancing growth potential with steady dividend income”. Who needs Warren Buffett when I’ve got blinding computer insights like?
My mechanoid mate started by tipping Legal & General Group, a stock I love and own. On being pressed, it switched to insurer Prudential (LSE: PRU), which I don’t.
Prudential has underperformed
Prudential has made a much-applauded transition from Europe to Asia, hoping to tap into the huge and growing Asian middle class. So far, it hasn’t paid off.
The Prudential share price has plunged 20% over one year and 50% over five. China’s economic troubles have hit investor appetite, while higher interest rates and market volatility squeeze insurers generally.
The shares look good value with a price-to-earnings (P/E) ratio of just 9.5 times. The yield is a disappointing 2.7%, way short of Legal & General’s 8%. ChatGPT was right to pick that first. I’d do the same.
One day Prudential could rally hard, but I’ve been saying that for a long time now.
I also asked ChatGPT to find a substitute for its next pick, pharmaceutical giant AstraZeneca. Unsurprisingly, it picked rival GSK.
GSK has been trailing AstraZeneca for years, but in my view looks better value today. It yields almost 4%, roughly double Astra’s income. And it’s incomparably cheaper, with a P/E of around nine times against AstraZeneca’s hefty P/E of 65 times.
I didn’t have any issues with ChatGPT’s third pick, consumer giant Unilever. “As the owner of household brands like Dove, Persil and Ben & Jerry’s, it enjoys steady demand regardless of economic cycles”, ChatGPT drooled.
The yield is modest at 3.1% but Unilever typically hikes shareholder payouts by 5% every year. The shares are up 18% in 12 months. It’s sprawling, ill-focused operations need banging into shape, but it still looks like a solid long-term buy and hold to me.
Investing for income and growth
I certainly can’t argue against AI’s final two picks – utility giant National Grid and cigarette maker British American Tobacco (except on moral grounds in the latter case).
As a regulated utility, National Grid enjoys predictable income streams, ChatGPT tells me, with an attractive 5.8% trailing yield. The shares look good value with a P/E below 12. My worry is that National Grid has to invest heavily in the energy transition. That’s driving up debt and could one day squeeze dividends.
British American Tobacco is under constant regulatory attack and operates in a declining market. Yet it boasts top brands like Dunhill, Lucky Strike and Vuse, while “pricing power and brand strength allows it to maintain high profit margins”, ChatGPT enthuses.
The trading yield is 7% with the shares up 40% in a year. It’s also cheap with a P/E below nine.
Any investor considering these stock should ensure they work well with existing holdings. They should also take a long-term view. Even over 50, there’s still a long way to go.
