I’m on the hunt for a cheap FTSE stock in May, preferably a once-popular one that’s beaten-down but might stage an epic comeback. I could run a stock screener on my research platform, of course, but first I turned to ChatGPT for its view.
I asked the AI assistant for three stocks from across the FTSE 350 and FTSE AIM All-Share indexes. Here’s what it came up with.
High risk, high reward
The first share the bot spat out was Aston Martin Lagonda (LSE: AML) from the FTSE 250. This definitely counts as a fallen angel, given that Aston Martin’s share price is down 51% over one year and 82% across five!
In its short investment thesis, ChatGPT said the company has faced challenges, including supply chain disruptions, high debt levels, and declining sales in key markets like China. This is all true, although I would add persistent losses to the mix too.
However, it said “recent developments such as a £125m capital injection led by Executive Chairman Lawrence Stroll, the launch of new models like the DB12 and Valiant, and a strategic focus on cost optimisation and electrification under new CEO Adrian Hallmark suggest potential for a turnaround.”
Again though, the capital injection is necessary because Aston is losing money every year. Cost optimisation should help here, but how much is still uncertain. In Q1, the firm’s operating loss was £67.3m, widening from £58.7m the year before, while net debt was £1.27bn.
The new models are worth noting, with positive reviews from petrolheads, although the backdrop of weak consumer spending and a possible global economic downturn looms large. As does the spectre of Trump’s tariffs.
What about electrification under the new CEO? Well, he has kicked that costly can down the road, with Aston’s first fully electric model not expected until “the latter part of this decade”. So ChatGPT seems a bit behind the times with that one.
To be fair, the stock is worth flagging up for its turnaround potential. The brand is powerful, the products are great, and there’s a well-respected CEO on the job. But this one is far too risky for me.
The other two
The others picked by the chatty AI bot were more interesting to me because I don’t follow them too closely. They were Serica Energy, which it described as an “undervalued cash machine“, and “boring but beautiful” Sigmaroc. Both are AIM-listed stocks.
I’m going to rule out construction materials firm Sigmaroc because it doesn’t really classify as a fallen angel in my book. After rising 137% since late 2022, the stock is now down just 21% from a 2021 peak. I wanted the angel to have fallen 50%+.
North Sea oil firm Serica Energy fits the bill, as it’s down 71% in less than three years. I also like the sound of an undervalued cash machine, especially when it’s sporting a juicy 14.7% dividend yield (which ChatGPT strangely failed to mention).
However, another thing it didn’t mention was that Serica is currently in discussions regarding a potential merger with fellow oil firm EnQuest. Given this, it’s unlikely to be undervalued any longer.
Unfortunately then, it looks like I’ll have to go back to basics with the stock screener after all.
