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I regularly buy UK shares, and the decision is always mine. I’d never dream of letting a computer to choose them for me.
Playing around with ChatGPT and other generative artificial intelligence (AI) tools can be fun, but I don’t take the results too seriously.
Picking FTSE 100 stocks
That said, I thought I’d give it a whirl, and asked ChatGPT to list ‘five of the best UK shares to consider buying today’. Here’s what it came up with, and it’s reasoning.
London Stock Exchange Group. Its share price is down about 20% in the past year, yet analysts see growth ahead in its data and analytics division.
Babcock International Group. This defence contractor has raised profit targets and benefits from stronger UK and NATO military spending.
Rio Tinto. A major mining company offering a near-6% dividend yield with exposure to commodities in demand, which could appeal in a more inflation-sensitive environment.
Tesco. The grocery retailer has been gaining market share, suggesting resilience and cash-flow strength.
Smith & Nephew (LSE: SN). A medical-devices company undergoing a turnaround, with a strong buy-back programme and improving results.
ChatGPT also suggested “doing deeper research, looking at recent results, valuation, debt levels and dividend sustainability before making any move”. And I’ll certainly be doing that, because I’m not convinced by its choices.
First, they’re not really its choices. They were all lifted from the web, taken from articles written by actual humans. Ironically, the tip that impressed me most, London Stock Exchange Group, turned out to be from The Motley Fool!
Brilliant growth stock
I’ve personally bought the stock twice in recent weeks, because I think it’s a brilliant opportunity. So does Fool writer Dr James Fox. He wrote the article ChatGPTs quoting.
Personally, I’d rather read an investment writer’s reasoned thinking than a one sentence précis from a chatbot. But that’s just me.
Picking a stock is a complex decision, with risks and rewards to consider, and handing to a AI just isn’t on. Investors have to make their own decisions because they’re the ones who’ll make the gains or suffer the losses.
I’m wary of ChatGPT’s second pick, defence firm Babcock, whose shares are up a blockbuster 362% over five years. It may struggle to maintain that momentum, something ChatGPT doesn’t allow for. The Tesco share price has more than doubled in five years, and may also slow from here. Not mentioned.
Smith & Nephew in recovery
Smith & Nephew intrigues me though. The shares are up 20% in the last year, but trade only slightly above their level 10 years ago. I expected them to be cheap, but in fact it has a price-to-earnings ratio of 21.5, well above the FTSE 100 average of 15.
None of which ChatGPT mentions. On 5 August, Smith & Nephew reported robust first-half results with revenue, profit and cash generation all improving significantly, and unveiled plans for a $500m share buyback, as mentioned.
Operating profit rose 30.6% to $429m, while cash generated from operations jumped 54.3% to $568m. Smith & Nephew’s worth considering today, but also has risks, including US tariffs and operational challenges in China.
Overall, I was impressed by the pick. Then I saw where ChatGPT got it from. The Motley Fool again! In future, I’ll cut out the middleman. And make my own choices.
