I don’t usually ask generative AI platforms like ChatGPT for advice on what stocks to buy, but curiosity recently got the better of me. Has artificial intelligence evolved to a level where it can understand the nuances of identifying quality companies?
I had to scratch that itch and find out.
Here’s the fruits of my misguided labours.
A somewhat tepid answer
A small part of me was hoping it would say something completely unhinged like “Go all in on SpaceX“. Sadly, the response was almost exactly what I expected — impartial, balanced, and rather boring.
My specific question was: “Which stocks do you think a British investor should consider buying if the stock market were to crash?“
Its answer?
If the stock market were to crash, a British investor should prioritise defensive, cash-generative FTSE 100/250 stocks with strong balance sheets, reliable dividends, and inelastic demand.
Not exactly groundbreaking stuff. But I can’t argue with it. That’s actually pretty decent advice, even though it doesn’t tell me much that I didn’t already know.
So I pushed on for some examples.
The usual suspects were highlighted: consumer staples like Reckitt Benckiser, utilities like National Grid, healthcare giants GSK and AstraZeneca, and the old reliable dividend gem, Legal & General.
A literal cornucopia of some of the most boring names on the London Stock Exchange. But that’s exactly what to focus on when markets get volatile.
That’s all well and good but I think I could find better value elsewhere. Some lesser-known companies have risen to fame recently off exceptional results, and I missed the boat.
A crash could give me the perfect opportunity to get onboard before the inevitable rebound. But I have to pick carefully.
A top contender
AEP Plantations (LSE:AEP) is a London-headquarter palm oil and rubber producer operating in Malaysia and Indonesia. I’ve considered buying the shares several times in the past year, and each time I’ve kicked myself for not doing so.
Now trading at 179p a share, it’s up 57% in the past year.
That could still be a decent entry price because it doesn’t look heavily overvalued. But due to the regional and environmental risks involved, I’d prefer getting in at a lower price.
It definitely leans toward a higher-risk/higher reward play, largely due to the nature of palm oil farming and shifting regulations in Indonesia. Recently, a change in resource and export control policies sent the stock plummeting 21%.
But a recovery has already begun, and it’s now up 208% in the past five years.
What adds confidence to the story is its impressive dividend growth. Since 2020, dividends have increased from 0.5c a share to 8.1c — a massive 1,500% increase in just five years!
At just 3.6%, the yield looks moderate, but the growth trajectory is the key attraction here. If it continues, it could be a highly lucrative addition to my passive income portfolio.
The bottom line
When it comes to valuing stocks, some businesses are worth buying even at a high price. Others need more careful assessment in regard to risk versus reward.
Good money can be made off risky stocks but it’s critical to understand market cycles and valuation. In the long run, patience and consistency usually beat trying to catch ‘falling knives’.
AEP isn’t a proven blue chip yet, but I still think it’s worth considering — especially at a lower valuation. And for the more risk-averse, there’s one stock that may be preferable…
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Mark Hartley owns shares in Reckitt Benckiser, National Grid, GSK, AstraZeneca, and Legal & General.
This story originally appeared on Motley Fool
