Artificial intelligence (AI) is only of limited use in helping investors decide which FTSE 100 stocks to buy. All it does is trawl the internet for facts and opinions, then bundle them into something that sounds authoritative but lacks true insight. To be fair, AI seems to understand its own limitations.
So when I asked ChatGPT a really stupid question, it was ready for me. Here’s what I wrote: Can you tell me the best FTSE 100 stock to buy, please?
It replied: “I can’t honestly tell you there’s a single ‘best’ stock to buy today, because it depends entirely on what you’re trying to achieve: income, growth, capital preservation, or a mix of all three”. Which is fair enough.
Dividend income shares
It clearly felt it had underdelivered so added: “But I can give you a clear, practical framework for choosing strong candidates. Plus some examples of high-quality FTSE 100 names investors often consider”.
It then listed four dividend favourites: Legal & General Group, British American Tobacco, National Grid and Phoenix Group Holdings. All solid, all well known.
I hold Legal & General and Phoenix, and wish I owned British American Tobacco. National Grid worries me though. It has to spend tens of billions upgrading the UK electricity grid for the green transition. The bill could squeeze dividends and might even force a further equity fundraising, diluting existing shareholders. Investing’s a very personal business, and National Grid isn’t for me.
ChatGPT then moved on to growth ideas, highlighting Diageo, Unilever, Experian and RELX (LSE: REL) as “high-quality global businesses that reinvest profits”.
I actually hold Diageo and wish I didn’t. The shares are down 30% in a year and 55% over three. I’m not feeling its “consistent long-term growth” right now. I sold Unilever nine months ago out of sheer boredom and don’t regret it. Experian has tempted me for years though, and may tempt me again.
Growth star RELX
Information and analytics firm RELX is the one that intrigues me. It’s been one of the best-performing FTSE 100 stocks of the past decade, combining steady dividend growth with long-term share price gains. I’ve long admired the business, but the shares always looked expensive, with a price-to-earnings (P/E) ratio north of 30. That’s the price of success. Now the RELX share price has plunged 20% over the last year, and I’m wondering if my chance has finally arrived.
RELX sells data to banks fighting money laundering, insurers assessing risk, and pharmaceutical firms researching new treatments. Its position looks strong, but AI adds a layer of uncertainty today, as it could allow customers to get the same information themselves, at much less cost. However, management sees an opportunity to improve its offer.
Investor expectations are high given that dizzying P/E, so when RELX reported 7% underlying revenue growth on 23 October, the shares retreated. Even after the dip, it isn’t cheap, with a P/E still above 25. I think it’s worth considering, but I’m not rushing in just yet as I gauge how the AI threat pans out here.
ChatGPT has shown its limitations, although next time, I should probably ask it a more intelligent question.
