I don’t normally ask generative AI platforms like ChatGPT for recommendation on what shares to purchase, however curiosity not too long ago acquired the higher of me. Has synthetic intelligence developed to a stage the place it will possibly perceive the nuances of figuring out high quality firms?
I needed to scratch that itch and discover out.
Right here’s the fruits of my misguided labours.
A considerably tepid reply
A small a part of me hoped it might say one thing utterly unhinged like “Go all in on SpaceX“. Sadly, the response was nearly precisely what I anticipated — neutral, balanced, and fairly boring.
My particular query was: “Which shares do you assume a British investor ought to take into account shopping for if the inventory market had been to crash?“
Its reply?
If the inventory market had been to crash, a British investor ought to prioritise defensive, cash-generative FTSE 100/250 shares with sturdy steadiness sheets, dependable dividends, and inelastic demand.
Not precisely groundbreaking stuff. However I can’t argue with it. That’s really fairly first rate recommendation, though it doesn’t inform me a lot that I didn’t already know.
So I pushed on for some examples.
The same old suspects had been highlighted: client staples like Reckitt Benckiser, utilities like Nationwide Grid, healthcare giants GSK and AstraZeneca, and the previous dependable dividend gem, Authorized & Basic.
A literal cornucopia of among the most boring names on the London Inventory Alternate. However that’s precisely what to deal with when markets get unstable.
That’s all properly and good however I believe I may discover higher worth elsewhere. Some lesser-known firms have risen to fame not too long ago off distinctive outcomes, and I missed the boat.
A crash may give me the proper alternative to get onboard earlier than the inevitable rebound. However I’ve to select rigorously.
A prime contender
AEP Plantations (LSE:AEP) is a London-headquarter palm oil and rubber producer working in Malaysia and Indonesia. I’ve thought of shopping for the shares a number of occasions prior to now 12 months, and every time I’ve kicked myself for not doing so.
Now buying and selling at 179p a share, it’s up 57% prior to now 12 months.
That would nonetheless be a good entry value as a result of it doesn’t look closely overvalued. However because of the regional and environmental dangers concerned, I’d desire getting in at a lower cost.
It positively leans towards a higher-risk/greater reward play, largely because of the nature of palm oil farming and shifting laws in Indonesia. Not too long ago, a change in useful resource and export management insurance policies despatched the inventory plummeting 21%.
However a restoration has already begun, and it’s now up 208% prior to now 5 years.
What provides confidence to the story is its spectacular dividend development. Since 2020, dividends have elevated from 0.5c a share to eight.1c — an enormous 1,500% enhance in simply 5 years!
At simply 3.6%, the yield seems average, however the development trajectory is the important thing attraction right here. If it continues, it may very well be a extremely profitable addition to my passive revenue portfolio.
The underside line
Relating to valuing shares, some companies are price shopping for even at a excessive value. Others want extra cautious evaluation in regard to threat versus reward.
Good cash might be made off dangerous shares nevertheless it’s vital to know market cycles and valuation. In the long term, endurance and consistency normally beat attempting to catch ‘falling knives’.
AEP isn’t a confirmed blue chip but, however I nonetheless assume it’s price contemplating — particularly at a decrease valuation. And for the extra risk-averse, there’s one inventory which may be preferable…
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Mark Hartley owns shares in Reckitt Benckiser, Nationwide Grid, GSK, AstraZeneca, and Authorized & Basic.
