As an investor, there are few things more satisfying than identifying a top value stock, then watching it recover.
Everybody likes bagging a bargain. Whether it’s in the shops or the stock market. Everybody likes to be proved right too, especially when they’ve made a tough call. Even better if the dividend is higher than it would have been. And the growth rolls in too.
It isn’t easy though. If it was, everybody would be doing it. I’m always on the hunt, and this morning I called in ChatGPT to help with my search.
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AI rates Taylor Wimpey shares today
I never take ChatGPT’s results too seriously and it has serious limitations. Usually, it’s just lifting answers from articles written by human beings who’ve done the hard yards and not being very imaginative either.
Still, I won’t quibble because the two FTSE 100 value shares that ChatGPT tipped are both in my portfolio. It said they “have faced challenges but exhibit potential to rebound in the next 12 months”.
The first was housebuilder Taylor Wimpey (LSE: TW). My robot buddy praised the UK housing market’s resilience, with prices rising despite economic uncertainty. Despite that, the Taylor Wimpey share price is down 18% over 12 months, “reflecting investor concerns over persistent inflation and its impact on interest rates”.
But with Rightmove forecasting 2.5% house price growth this year, and City analysts anticipate a 23% earnings jump in 2025, it could be heading for a “significant rebound” in the coming year.
I agree with all of that. That’s why I hold it. Along with its irrresistible 8.3% yield. In one respect, I’m in no hurry for the stock to recover, because my reinvested dividends will pick up more Taylor Wimpey stock at today’s lower price.
I wasn’t surprised to see my chatbot chum flag up Diageo (LSE: DGE), the global beverage giant known for brands like Johnnie Walker, Bailey’s and Guinness. This is a stock in urgent need of a pick-me-up.
I’ve been confident that Taylor Wimpey will fight back at some point, but harbour doubts about Diageo. So I’m pleased to see ChatGPT bigging it up.
The Diageo share price is a downer
The Diageo share price is down almost 25% over the last 12 months (and 40% over two years) as the global slowdown hit sales, notably in Latin America where it’s also faced inventory issues.
Diageo made a big push into the premium drinks market, only to find to consumers tightening their belts amid economic pressures.
ChatGPT reckons consumer spending will pick up once global interest rates finally decline, “providing a favourable environment for Diageo’s growth and recovery in 2025”.
It also notes that Diageo is shifting growth to its attention to faster growing parts of the market, including non-alcoholic beverages. But it doesn’t mention one big factor that worries me. Younger people are drinking less. I still can’t work out whether this is a fad, or they’re serious about sober living. The answer may determine Diageo’s fate.
Yet the shares are low relative to former highs, trading at 16.5 time earnings, while yielding more than I can remember at 3.7%. So I’ll hang on, plough back my dividends, and hope ChatGPT is right on both counts.
