By its own admission, ChatGPT definitely isn’t a stock picker, and anything it throws up demands a healthy dose of scepticism. It’s prone to picking up old information — tickers, valuations, dividends — and present it as new.

That said, it can be a handy starting point, to throw a few names at me that I might have overlooked. So I asked it to fill a five-stock Stocks and Shares ISA purely from FTSE 250 shares.

Balfour Beatty shares tempt me

First up was Balfour Beatty (LSE: BBY), which it calls “one of the UK’s biggest construction and infrastructure groups”, operating across everything from transport to energy. ChatGPT highlighted its long order book and global contracts, stable earnings and history of shareholder rewards via dividends and share buybacks.

The Balfour Beatty share price has had a strong run, soaring 60% in 12 months and 120% over two. It’s now on track to meet full-year expectations after a 20% jump in its order book, which already stood at £18.4bn.

Full-year earnings are projected to grow 5%, with monthly net cash at the top end of guidance, to around £1.2bn. On top of this, a new share buyback kicks off in January. Yet the stock looks good value trading on a price-to-earnings ratio of 16.5.

Infrastructure can be bumpy. Projects can overrun and pricing can be tricky — but Balfour Beatty looks bright. It’s a solid candidate to explore for a balanced growth-and-income ISA. So what about the others?

ChatGPT also suggested Bloomsbury Publishing, best know for the Harry Potter franchise. But since it nabbed this tip straight from The Motley Fool, I’ll go to the original rather than a chatbot synthesis.

Risks, rewards, omissions

It then picked oil and gas producer Harbour Energy, which I’ve previously explored and ignored. I’ve been burned by oil explorer stocks in the past, and I’m clearly not the only one. The Harbour share price is down 15% this year, and 55% over five. ChatGPT highlighted its eye-popping 10% trailing yield, but didn’t breathe a word about the huge capital loss potential, except mentioning it was cyclical.

Its next pick was European construction materials supplier Grafton Group, highlighting its steady growth and dividends. The yield’s halfway decent at 4%, but the shares are down 2% over the last year and flat over five, so recent growth’s been non-existent. Of course it might recover, but I need to do some heavy research of my own here too.

Finally, it suggested TwentyFour Income Fund, a high-yielding investment trust offering a trailing yield of 9.68%. Which is, of course, suspiciously high. It focuses on “higher-yielding, less liquid credit assets that can deliver strong dividends”, ChatGPT said, and warned I might need to seek capital gains elsewhere. Since the shares stand roughly where they did a decade ago, I’d second that.

These are interesting starting points, and I’ll do a deeper dive into Balfour Beatty and Bloomsbury. From here, all the research will be my own rather than AI suggestions. The robot can talk, but now it can walk. Investing’s too important to be left to a bot.

The post I asked ChatGPT to pick the ultimate FTSE 250-based Stocks and Shares ISA portfolio and it said… appeared first on The Motley Fool UK.

How it all works

First let’s run through the concept. Pershing Square Capital Management is the entity that’s trying to buy Howard Hughes for $85 a share. Ackman would form a subsidiary that would merge with the real-estate developer, which would allow him to benefit from the strong cash flow and operating profit from the company. He could then use this funds to go and pursue new investments and dealmaking for Pershing Square.

For clarity, there’s a slight difference between Pershing Square Capital Management and the listed stock Pershing Square. The Capital Management business provides the investment expertise and decision-making for the listed company, with it being a way to offer a publicly accessible vehicle for investors to benefit from Pershing Square Capital Management’s strategies. Both are overseen by Ackman, ensuring alignment in philosophy and objectives.

Ackman openly admits his idea is a nod to Buffett. The Oracle of Omaha famously bought Berkshire Hathaway when it was a textile company. Buffett used the cash generated by Berkshire’s textile operations to invest in other businesses. This has proved to be a very profitable strategy.

How I can do the same

To be clear, I’m not in a position to buy an entire business to benefit from the cash flow benefits for my personal portfolio. But I can copy Buffett and Ackman in the thinking behind this.

For example, part of my existing portfolio is built around owning stocks that pay me dividends. As a result, I get income from these shares, which I can use to fund more stock purchases. This is on a much smaller scale to what Buffett and Ackman do. Yet the principle of using my cash flow to help fund more investments is the same.

For example, I recently bought Balfour Beatty (LSE:BBY) stock. The share price is up 25% over the past year. At the same time, the dividend yield is 2.77%. Even though this isn’t super-high, it should still provide me with income going forward from a mature and stable sector. Buffett went for textiles, Ackman for property, Smith has gone for construction!

I like the stock particularly due to the potential for higher government spending on infrastructure both in the US and UK. These are two main markets for the global firm, with a long history of winning public sector contracts. Therefore, I feel this could provide a sharp boost for revenue in the coming years. I’d expect part of this to filter down to higher dividend per share payments, increasing the dividend yield.

Of course, I’m aware that government promises can be broken and this is a risk going forward. Yet this is just one example of a new stock in my portfolio that should allow me to copy the same concept that helped Buffett to build his empire.

The post This billionaire is copying Warren Buffett. Should I do the same? appeared first on The Motley Fool UK.

Running it back

To begin with, let’s consider how things could have gone in the past. If we rewind to 25 years ago (the investment time horizon for a 40-year-old to retirement, based on the retirement age back then), the FTSE 100 was at 6,658 points. It’s now at 8,220 points. This is just under a 24% return, or less than 1% a year.

This might not seem impressive, but remember this is the entire index, not specifically the growth stocks. For example, over this period technology stocks have done very well. RELX is a good example. The global provider of information-based analytics and decision tools has grown substantially over the past decade as take up of the product from businesses has grown. As a result, the share price is up 577% since 2000, an average of almost 8% a year.

Over the same period, there has been huge growth in the private equity sector. Investing in companies that aren’t currently public has been a source of large profits for firms in this area. For example, 3i Group is one of the largest private equity powerhouses. The boom in this segment has been one factor in the 299% share price rally since 2000, averaging just under 6% a year.

Looking to the future

Although the past doesn’t predict the future, an investor could look at more examples like this and conclude that over the next 25 years, achieving a 6%-8% annual growth rate is a reasonable assumption to make.

Looking ahead, an investor could consider picking an idea that’s in a hot sector now for long-term future gains. Balfour Beatty (LSE:BBY) is a stock I hold that I think fits the bill, with it rallying 26% over the last year.

The global infrastructure group specialises in construction and support services, with strong growth recently in the US and UK. It has the potential to win more contracts in the coming years as new administrations in both countries look to deliver on their pledge to increase infrastructure spending.

This could provide a multi-year boost for revenue. There’s also large potential for growth in Asia, where it has a joint venture with Gammon but hasn’t really got things moving yet.

One risk is that new projects are partially financed using debt. Given that interest rates in the US and UK are staying higher for longer, this can make new borrowing more expensive.

Potential numbers

If an investor could put away £400 a month in FTSE 100 growth stocks and achieve a 7% average return for a 25 years through, the investment pot could be worth a juicy £326k. Of course, trying to forecast this far into the future is very difficult. The final figure could be significantly higher or lower than £326k. But it does provide a good idea of what could be achieved.

The post If a 40-year-old invested in top FTSE 100 growth stocks, here’s what they could have by retirement appeared first on The Motley Fool UK.

Already on the move

I’m talking about Balfour Beatty (LSE:BBY). The multinational infrastructure group specializes in construction and support services. Over the past year, the stock is up an impressive 25%.

Part of the reason behind the move over this period has been improved financial results. Even though the company is a mature firm, it’s still managing to post yearly growth. The latest trading update from December showed that profit before tax should be ahead of prior year and “slightly ahead of market expectations”.

Looking forward, the order book is growing, which is good news for 2025 and beyond. Importantly, this is being “driven by momentum in the Group’s chosen growth markets, principally UK energy and US buildings”.

The fact that focus is on the UK and US markets leads me to the exact reason why I think the next few years could be strong for the share price.

Higher fiscal spending

As we start 2025, the UK Labour Government are starting the first full year in power, and a new US President about to take power. Both leaders have made it clear they are planning on boosting infrastructure spending in the coming four years.

Balfour Beatty is well placed to take advantage of this, given the existing ties to government departments and a history of securing contracts in these areas. I feel that the US could enact more (and more lucrative) spending plans. The half-year results showed that US construction revenue was £1.7bn, higher than the £1.5bn from UK construction. This shows that the US is already a larger market than the UK in this area. It’s not like Balfour Beatty is just beginning to tap into this market.

Of course, the contract wins will take time to come through. It’ll also take time for the money to filter down to Balfour profits. But I’m thinking about holding this stock for the next few years. Over this time horizon, I expect the share price to rally from current levels as investors realise the benefits that the contracts bring.

One eye on funding costs

There are risks associated with the company. One is that although it has a disciplined approach, it still uses some debt to finance projects. As a result, the fact that interest rates are remaining higher than many thought will mean that funding costs in both the UK and US could be higher than anticipated.

I’m happy to own the stock and feel that investors can consider doing the same.

The post I bought this FTSE stock to beat the index over the next 4 years appeared first on The Motley Fool UK.

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Mixing growth and income

To help speed up the process of reaching five figures worth of annual income from the ISA, I’d suggest focusing on buying stocks that can give both income and growth. This might confuse some people. Yet it’s a misconception that a stock can only offer either growth or income.

Sure, high growth stocks typically reinvest profits to fuel further growth instead of paying it out to shareholders. But there are plenty of companies that are doing very well and still choose to pay out dividends.

By building a portfolio with these type of companies, an investor stands to get the best of both worlds. The regular dividend payments can be banked and reinvested straight away. If the share price continues to rally, profits can be selectively trimmed by selling a small amount of the shares. This in turn becomes a source of income.

The risk with this strategy is that by shooting for income and growth, investors can miss the top performers in each category. For example, the average dividend yield would be lower than if someone purely focused on income stocks. The same is true with growth ideas.

A case study

As an example of a stock that I hold and feel is an all-round player, I like Balfour Beatty (LSE:BBY). The FTSE 250 bank currently has a dividend yield of 2.60%. Yet the stock has risen by 36% over the past year.

The international infrastructure group has a bright future, with strong public sector demand. This includes here in the UK, where a recent trading update noted “the new Government reinforcing commitments to critical national infrastructure.” Over in the US, the new President has also pledged to invest significant sums in construction and similar projects. Balfour Beatty generates more revenue from the US than the UK, so this is clearly going to be a positive for the coming few years.

Some might not be too impressed by the dividend yield. I accept this, but flag up that the dividend per share has been increasing over the past few years. I think this will continue, based on the latest results, so feel the yield will move higher too.

Let’s also not forget that Balfour Beatty is a defensive stock choice. So if in the years to come we have another stock market crash or black swan event, I feel that this company could perform better than some more volatile picks.

Putting the numbers together

Let’s assume that £500 a month was invested in an ISA. The aim would be for an average dividend yield of 4.5%, with share price growth of 9.5%. This means the blended growth rate of the portfolio could be 7%.

If the gains were left to compound, after 15 years the pot could be worth £159.9k. This means that in the following year an investor wouldn’t have to invest a penny more but be able to enjoy £11.2k in income from the portfolio.

The post Consider filling an empty Stocks and Shares ISA like this to hit five figures of second income appeared first on The Motley Fool UK.

Big on infrastructure

One common theme from both candidates Trump and Harris is that they are planning on spending big. This is likely in the form of more infrastructure projects across the country.

As a result, I expect FTSE 100 stocks that are involved in this area to do well. For example, I’m thinking about buying Balfour Beatty (LSE:BBY). The company is actively involved in construction and engineering projects in the US at the moment, alongside work done in the UK and elsewhere.

It’s also a leader in doing public-private partnerships (PPPs). This is where the government links up with a private contractor to help fund and execute a project. These can be very profitable, and I’d expect more of these to occur in the coming year based on the efforts of a new president.

The stock is up 48% over the past year. I feel that some of these gains over the past month are as a result of some investors buying ahead of the election. Despite this, the price-to-earnings ratio is only 11.89. So although this isn’t what I’d call undervalued, it’s not very expensive given the jump in the share price.

A risk is that project funding could get delayed, meaning the company wouldn’t actually see any tangible financial benefit for a long time. This could cause some investors to be disappointed and sell.

Energy from different perspectives

Another theme that has been a topic of the campaign is energy. The Harris camp has been vocal on pushing for renewable energy, while Trump is keen on having energy independence. This would involve potentially greater use of domestic oil supplies.

From that angle, I think BP could do well in either outcome. It has been heavily investing in renewable energy over the past few years, including offshore wind and bioenergy. Yet at the same time, it’s still oil and gas that drives profitability, with a strong US footprint.

Focus on defence

Finally, whoever is president, defence will be a key focus in the coming year and beyond. The world is a more dangerous place than it has been for a long time. Spending on defence is likely going to increase.

BAE Systems is one of the leading defence contractors out there. It operates around the world, including in the US, but is listed on the FTSE 100. It’s well placed to take advantage of new orders and contracts that could come through in the coming year.

A risk to all my three themes is that election pledges might not come to fruition after the campaigns finish. Politicians can say one thing and do quite another, so any watered down results or budget cuts might mean the stocks I like underperform.

The post 3 ways I can try and use the FTSE 100 to profit from the US election next week appeared first on The Motley Fool UK.

Demand driven inflation

If Donald Trump wins, I think that HSBC (LSE:HSBA) could do very well. The global banking giant has operations in the US, particularly with the corporate and investment banking division.

Some of Trump’s policies are focused around cutting the corporate tax rate and imposing tariffs on trading partners. Both of these could actually serve to increase inflationary pressures in the economy, but also stimulate domestic growth.

HSBC should benefit from this in two main ways. Firstly, higher growth should see the businesses that it serves be more active, including transactions, loans and even merger and acquisition activities. This should boost revenue. Second, if inflation does rise, interest rates might have to stay higher for longer. This should benefit HSBC as it will make more net interest income if this happens.

One risk is that HSBC has operations in over 60 countries. Therefore, even if the US division does well in the coming year, it might not have that much of an impact on the share price. The stock is up 11% over the past year.

Infrastructure investment

If Kamala Harris wins, Balfour Beatty (LSE:BBY) could gain. The construction and engineering company is involved in several infrastructure projects in the US, such as the port of Long Beach, which is part of a larger $2bn Middle Harbour project.

Even though the stock is already up an impressive 50% over the past year, I think it could keep going in the coming year based partly on the election results. This is because Harris has committed to investing in more infrastructure projects, as well as maintaining the pipeline of deals that the current Biden administration approved.

Interestingly, the company’s half-year report showed that US construction revenue was $188m higher than UK construction revenue for that period. This shows that if things do take off in the US, it could materially help to increase profitability.

Of course, this is a very competitive area to be in. I imagine a large number of companies will be pitching in for future projects if they come online, which could trim the profit margins for Balfour Beatty.

I’m not trying to speculate on who will win the election. Rather, I’m going to wait and see what happens. Depending on who wins, I think the respective stock mentioned could do well over the following year or more. Therefore, I’m putting both on my watchlist and waiting patiently for the coming weeks!

The post 2 UK stocks I think could do well from the US presidential election appeared first on The Motley Fool UK.

Impressive portfolio of work

I’m a civil engineer by training, and to me the company’s portfolio is nothing short of remarkable. Leading the charge is the construction of the UK’s first nuclear power station in a generation at Hinkley Point. This underscores the company’s prowess in managing complex, large-scale infrastructure developments critical to the nation’s energy future.

The company’s global footprint is showcased in its work at Los Angeles International Airport, where it’s constructing an impressive automated people mover superstructure. This high-tech project highlights a serious ability to execute on the international stage.

The numbers

Recent financial performance reflects the challenges of the construction industry, known for its thin margins. Despite a 10% dip in profits last year, the company’s diverse operations and geographic spread are crucial strengths.

With earnings of £197m and revenue hitting £7.99bn, the company’s financial health’s pretty robust. The company’s price-to-sales (P/S) ratio stands at 0.3 times and its price-to-earnings (P/E) ratio at 10.5 times, making it look pretty undervalued compared to its industry peers, at an average of 14.3 times. Most interesting for me though, the shares are trading at a substantial 42.7% below a discounted cash flow (DCF) fair value estimate.

It’s not going to be the key reason for investing, but the company also offers a decent dividend yield of 2.8%, and a payout ratio of 33%. Both look to be in a fairly good place for potential growth if management chooses to do so.

Over the past year, the shares have returned a solid 16.6%, outpacing the UK market’s 6.4% return over the same period.

Despite an eventful period in recent history, the shares have been surprisingly stable, with a weekly volatility of about 3% over the past year.

But it’s not always calm in this sector, and there are a lot of risks I keep an eye on. The increasing complexity of supply chains and regulation pose formidable challenges. Keeping up with these evolving standards often leads to spiralling operational costs and potential project delays. I’m also conscious of the ever-present threat of cyber-attacks on critical infrastructure. This underscores the need for robust cybersecurity measures, adding another layer of complexity and cost.

One for the future

Despite some challenges, I see the company as more than just a name in the FTSE 250. It’s a really compelling story of resilience, innovation, and strategic prowess.

Its involvement in transformative projects, both domestically and internationally, screams technical excellence. While the construction sector’s thin margins and inherent risks are ever-present, management’s strategic diversity, solid financial foundations, and promising growth trajectory make it a compelling investment to me.

I see a bright future ahead here, so I’ll be buying some shares at the next opportunity.

The post I’m in love with this FTSE 250 company appeared first on The Motley Fool UK.

Faltering recovery

The Greggs (LSE: GRG) share price put in a strong recovery in 2021. But it’s plunged again in 2022, and we’re now looking at a 12-month fall of 25%.

The high-street bakery chain is due to release first-half figures on 2 August. And if Greggs’ May trading update is anything to go by, investors will be hoping for something good.

The company saw 27.4% like-for-like sales growth in the first 19 weeks of the year. It also opened 49 new shops, while closing six. Although Greggs did tell us its full-year expectations were unchanged at the time, it was experiencing cost pressures.

That’s a key thing I’ll be looking for when we get the results. The second half could be all about resisting rising costs and trying to keep margins as healthy as possible.

Pandemic surge

Pets At Home (LSE: PETS) is one of the few stocks that soared when the pandemic hit. Anything at home enjoyed quite an advantage when we were all locked down. And the share price reflects the rise in demand.

The surge continued well into 2021, but it’s gone into sharp reverse in 2022. It always surprises me the way investors push a stock skywards when it benefits from a short-term problem, while knowing for sure that the problem will eventually end.

Still, what happens next will surely depend on how many new Pets At Home customers like the service and will stay with it. And we should get some idea of that when we see how the first quarter has gone, on 5 August.

Forecasts suggest several years of earnings growth. And if that comes off, I think Pets At Home shares could be good value now.

Battered sector

The construction business has been shunned by investors since the economic crunch set in. As a result, the Balfour Beatty (LSE:BBY) share price is down 10% over the past 12 months.

Forecasts put the shares on a forward price-to-earnings (P/E) ratio of around 11.5. But there’s a couple of years of earnings growth forecast, which would drop it to single digits if accurate.

The company itself seems to think its shares are worth buying. And it’s been hoovering them up as part of a share buyback programme.

At its AGM trading update in May, trading had been in line with the company’s expectations. And it had built an order book of £15.6bn. H1 results are due on 17 August.

Three to buy?

These three FTSE 250 stocks do face risks, especially if high inflation continues for too much longer. And I’d certainly not buy any of them in response to a single performance update. But on what I can see, all three have their attractions. We’ll have plenty to research in August.

The post 3 cheap FTSE 250 shares to buy in August? appeared first on The Motley Fool UK.

Infrastructure and construction

Balfour Beatty is an infrastructure and construction business that finances, develops, and maintains infrastructure. Its core territories include the UK, US, and Hong Kong, supported by over 254,000 employees. It operates via three main divisions which are infrastructure, construction, and support services.

So what’s the current state of play with the Balfour share price? Well, as I write, the shares are trading for 250p. At this time last year, the shares were trading for 309p, which is a 19% decrease over a 12-month period. The shares have dipped, like many others, due to the stock market correction and macroeconomic issues.

A FTSE 250 stock with risks

Balfour performance, and especially shares and investment viability, could continue to come under pressure from macroeconomic headwinds. Soaring inflation and rising cost of raw materials could impact profit margins. In turn, this could affect the share price and any returns I hope to make as a potential investor.

Despite being a worldwide business with a vast profile and reach, Balfour is in a saturated, competitive marketplace. Losing out on lucrative projects to competitors could cause a dip in performance and investment viability.

The bull case and my verdict

Let’s take a look at Balfour’s performance track record. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that revenue increased year on year between 2018 and 2020. Revenue in 2021 was slightly less than 2021 due to the effects of the pandemic.

Coming up to date, Balfour released a trading update in May for the first five months of its fiscal year. Net cash had increased beyond expectations to nearly £800m, which will give it an edge when looking to boost growth post-pandemic. It also expects to record profit and growth for 2022. There were also operational mentions of a few lucrative project wins as well as negative effects from Covid-19 restrictions in its Hong Kong territory.

Balfour shares look like decent value for money to me on a price-to-earnings ratio of 11 currently. The shares could also boost my passive income stream as the shares offer a dividend yield of just over 3.5%. Dividends can be cancelled at any time, however.

I also believe Balfour could benefit from current favourable market conditions. For example, the UK government has pledged to spend billions on infrastructure projects in the UK in the years ahead. A business like Balfour, with its experience and profile, could benefit from a chunk of this and boost shares and returns.

I think Balfour is an underrated FTSE 250 stock. Construction businesses have been viewed as low margin businesses but with the current economic outlook, and future projections of infrastructure projects, Balfour could be set to benefit.

With that in mind, I’d add Balfour shares to my holdings. They look good value for money, offer a dividend, and the business seems to be in a decent position based on its recent updates and current fundamentals with lots of demand ahead.

The post Here’s a FTSE 250 stock to buy to benefit from the construction boom! appeared first on The Motley Fool UK.