It’s Stocks and Shares ISA time again, with the April 5 deadline now just two months away. Even if investors can’t afford the full £20,000 contribution limit, it’s worth tucking away as much as possible. Then starting on next year’s ISA early too.
I personally own a spread of around 20 FTSE 100 and FTSE 250 stocks, but wondered what I’d do if starting from scratch. So I called in artificial intelligence. To be clear, I’d never use AI to pick real stocks with real money. It makes too many errors and has zero accountability. Still, I was curious.
NatWest shares tempt me
The chatbot made a solid start with a FTSE 100 stock I’ve been eyeing myself: NatWest Group (LSE: NWG). Its reasoning? “This UK-focused retail bank has growing net interest income and improving profitability after years of weakness. Dividends have risen steadily.”
While past performance isn’t everything, NatWest has had a blinder. Its shares are up 63% in a year and 315% over five. That makes me wary though. Stock performance can run in cycles, and FTSE banks have flown across the board lately. Despite that, NatWest isn’t too expensive, with a price-to-earnings ratio (P/E) of 13.2. Its trailing dividend yield has slipped to around 3% after the share price spurt, but forecasts suggest 4.6% for 2025 and 5% in 2026.
There are risks, as ever. NatWest is heavily exposed to the UK economy, which is struggling, and falling interest rates could squeeze margins and raise impairment charges. In my real portfolio, I hold Lloyds Banking Group, which has a similar UK-focused profile. Buying NatWest feels like doubling down. Other investors might consider it for their ISAs, but must accept the shares could slow after their stellar run.
Next up is National Grid, which AI describes as a “defensive utility with steady income”. It’s a popular portfolio building block with a solid record of share price and dividend growth. Personally, I won’t buy it, as I’m worried that the tens of billions required for the green energy transition could eat into dividends. Many of my fellow writers on The Motley Fool disagree however.
More diversification required
ChatGPT also added two more portfolio staples: British American Tobacco and Lloyds Banking Group. Big Tobacco isn’t for everyone, but this FTSE 100 stalwart still sells hundreds of millions of cigarettes annually and has increased dividends every year this millennium. Vapes are a new opportunity, though regulators could pose risks here too. The trailing yield is a handsome 5.3%, but the shares may slow after a strong run.
As I said, Lloyds is a stock I already hold, and hope to do so for life. Its shares are up a staggering 85% in a year, but with the P/E climbing to 16, they must surely slow at some point.
At my request, ChatGPT picked a FTSE 250 stock. It chose Baillie Gifford US Growth Trust, an investment trust focused on high-growth US companies, including tech and some unlisted exposure. Worth considering, but I prefer to use a cheap tracker for my Wall Street exposure, rather than active managers.
ChatGPT’s five-stock selection isn’t a bad starting point. But two UK-focused banks in a five-stock portfolio? That’s too much concentration. As always, investors must do their own research, and make their own picks.
