ChatGPT has already transformed our lives. But is it useful for predicting which UK stocks look set to crash in value? As a fun experiment (and no more), I decided to investigate.
What the bot had to say made me feel it’s not really that useful as it’s just rehashing what has already been said online.
No sure thing
I actually agreed with ChatGPT’s preamble. It stated that identifying such businesses was “impossible to predict with certainty, and any attempts to do so veers perilously close to financial speculation“.
Ultimately, no one knows where the share price of any company is going. This includes those ‘highly-informed’ boys and girls in the City as well as legends like Warren Buffett.
For this reason, us Fools prefer to look at the long-term potential of any investment. While every person’s financial goals and time horizon will be different, this places emphasis on finding and holding great companies in our portfolios.
Anything else feels more like gambling than investing. The former rarely works out well.
On the shortlist
ChatGPT’s summary about which stocks might be vulnerable weren’t a million miles from my own.
Silver miner Fresnillo featured. It’s benefitted massively from rising precious metal prices. This could continue if inflation keeps bouncing and geopolitical events panic markets. However, we know that commodity prices can also swiftly reverse, lowering profits in the process.
Marks & Spencer has also had a wonderful purple patch in recent years, brought about by restructuring and a strong recovery in clothing and homeware. However, the recent hacking of its IT systems was concerning. The ongoing consumer spending squeeze is a clear risk to trading too.
Most vulnerable?
Top of ChatGPT’s list however, was market darling Rolls-Royce (LSE: RR). Its recovery under CEO Tufan Erginbilgiç, who brought in a wave of cost-cutting measures, has been nothing short of sensational.
It might just continue. Global air travel’s expected to continue expanding in the next decade, as is demand for engines in military aircraft and ships. Bulls would also point to the company’s strong growth potential as it attempts to expand into small modular nuclear reactors (SMRs). To further sweeten the investment case, the firm has started paying dividends again.
But no share price rises forever. And the engineer now trades at a lofty forward price-to-earnings (P/E) ratio of 40. The average P/E in the UK stock market is around the mid-teens.
Conceivably, any unexpected event to hit the airline industry could damage sentiment. The same goes for any defence budget cuts or contract issues.
Don’t go all-in
The implication that only high-flying UK stocks like those mentioned above are at risk of tumbling in value should be taken with a pinch of salt. In reality, no stock is safe.
I agree that the companies mentioned above are probably at risk of disappointing investors with inflated expectations. But this isn’t to say they will. And even if they do, we’re still no wiser as to when this might happen. ChatGPT can’t help us here.
I reckon an investor’s best defence is to spread their money around the market. Using this strategy (with that long-term mindset), even expensive stocks like Rolls-Royce still warrant consideration.
Oh, and remember to see ChatGPT as a tool like any other, rather than a substitute for proper research.
