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The best investors find opportunities to buy stocks when they trade at unusually low prices. And that often means when the rest of the investing community isn’t very interested.
The focus right now is on artificial intelligence (AI). But while I think that’s reasonable, a lot is still uncertain and investors should think about a number of possible scenarios.
AI opportunities and threats
I think people are right to be interested in AI – it looks like there are going to be some real and important productivity gains. But there are still a lot of unanswered questions.
An example is what the market for large language models (LLMs) is going to look like. One possibility is that a clear winner emerges – such as Gemini – and this results in huge profits.
But another possibility is that users are ultimately indifferent between several LLMs. In that situation, it becomes a price competition and this erodes margins across the board.
Investors don’t need to know which way this is going to go. But they do need to be able to see if share prices are overestimating or underestimating the risks involved.
Redundant business model?
One area where the stock market seems to be very concerned is online marketplaces. As an example, Rightmove (LSE:RMV) has seen its share price fall 33% in the last six months.
There are two major concerns. One is that the company might find itself replaced by the likes of ChatGPT, which might allow users to search for properties directly from agencies.
Another is that the company is going to have to invest heavily in AI tools to keep up. And this expense is going to weigh on the firm’s profit margins in the next few years.
Do these justify the stock trading at a lower price-to-earnings (P/E) ratio than during Covid-19? I’m not sure, but there’s another stock to look at for investors who are interested.
International peer
Baltic Classifieds Group (LSE:BCG) is another online marketplace. And it dominates the market in houses, cars, jobs, and general merchandise across Latvia, Lithuania, and Estonia.
The firm is more similar to Rightmove. But I think the disintermediation risk is lower in the generalist part of the business where individuals buy and sell from each other.
Unlike estate agents, individuals don’t usually have their own websites for customers to buy from. So users can’t easily use an LLM to bypass the marketplace and access listings directly.
There are familiar themes elsewhere – AI spending weighing on margins – and these give investors plenty to think about. But I think a P/E ratio of 20 makes this well worth a look.
Investing risks and rewards
Investing isn’t necessarily about being right all the time – the future is always uncertain and nobody has a crystal ball. But it is about taking calculated risks and managing them properly.
This involves looking for situations where the stock market is incorrectly assessing future risks in its pricing. And I think AI is creating some potential opportunities here.
With investors focusing on AI opportunities, it’s definitely worth looking for quality stocks that are now going cheap. And Baltic Classifieds Group is one I think is worth looking at.
