Today’s artificial intelligence (AI) chatbots can give us some starting ideas for a Stocks and Shares ISA. But they’re only that — just starting ideas. I’ve had some hallucinated nonsense from them sometimes.
I’m always careful to ask for sources and I check them directly — although some of the sources didn’t even mention the suggested stocks this time. But I like the look of these three, even though it took some some careful probing.
Buy big oil?
Despite the on/off global political tussle between hydrocarbons and renewable energy, ISA providers are still seeing Shell (LSE: SHEL) as a popular choice with Stocks and Shares ISA investors.
Shell looks to have better defensive qualities than some, partly in the strength of its balance sheet. For the first half this year, the company reported $11.9 billion cash flow, “primarily driven by Adjusted EBITDA“.
The company’s achieved some impressive cost reductions, completed $3.5bn in share buybacks in the half, and has a 4.1% forecast dividend yield.
The robot brain did point out the long-term risk of future restrictions on fossil fuel use, as regulations could well sway back in favour of alternative energy sources. In fact, I think they eventually have to. But I still see potential for solid dividends for many years to come.
Pharma too
AstraZeneca‘s (LSE: AZN) another popular choice, especially now that earnings are catching up with the lofty valuations of a few years ago.
As recently as 2022, AstraZeneca ended the year on a trailing price-to-earnings (P/E) ratio up in the 60s. Today, we’re looking at a forecast multiple of 22, dropping under 17 by 2027.
It’s all been made possible by the company’s strong drug development pipeline. And we’re regularly hearing news of the latest drug trials and approvals.
Patent expiries are always a long-term risk in this business. And it can only take one expensive drug development failure to hit a company’s bottom line — and the share price.
But analysts point out that health-related stocks tend to have good defensive traits in times of stock market troubles.
Banking’s everything
Behind every successful company in every sector lies one essential service — banking. And that’s helping keep HSBC Holdings (LSE: HSBA) among today’s Stocks and Shares ISA favourites.
Geopolitical factors might make shareholders a bit nervous. And the apparent US obsession over Chinese trade is unlikely to help companies doing most of their business in that part of the world.
But there are two sides to that. Which nation is most likely to be the powerhouse of economic growth in the coming decades? Though some might think we can legislate otherwise, my eyes are still keenly focused eastwards on that one.
I’m maybe a bit concerned by the stock valuation getting up there a bit. A P/E of 11 is at the top end of the FTSE 100 banks. But earnings forecasts do have it dropping in the next couple of years.
Good start?
I see all three of these as good stocks to consider for an ISA, especially for someone starting out. They’re in three very different sectors, which helps balance risks. But for the next steps, I reckon further diversification is needed.
