I asked ChatGPT to name 2 cheap shares to buy in an ISA with £2k and its reply terrified me!

With this year’s Stocks and Shares ISA deadline days away, many investors will be out hunting for cheap shares to add to their portfolio.

Cheap shares happen to be my favourite type. I love buying top quality companies after their stock has dipped, in the hope of picking up a bargain.

Yet this isn’t a foolproof strategy. Sometimes shares are cheap for a reason. Instead of recovering, their plight might just get worse. As ever with investing – no guarantees!

With that in mind, I decided to call in a bit of outside help, from ChatGPT.

ChatGPT got Barclays shares all wrong

ChatGPT isn’t a stock picker and I don’t take its suggestions too seriously. My latest request soon reminded me why.

I couldn’t really argue with its first pick, FTSE 100 bank Barclays (LSE: BARC). I’ve consider buying it, but I already have plenty of exposure to the sector via rival Lloyds Banking Group.

But ChatGPT quickly blotted its copybook by saying Barclays “screams undervalution” trading at a lowly price-to-earnings (P/E) ratio of five. That’s plain wrong. Its trailing P/E is actually 8.5 times. Not a massive difference, but enough.

It gets worse. My unreliable robot ‘bro then said the Barclays share price has “underperformed, down around 10% over the past year”. Wrong again! It’s actually rocketed more than 70%.

At this point, I gave up. AI is obviously using out of date information. I do think Barclays is worth considering today, although I’m wary because the shares have overperformed, and may struggle to maintain their recent momentum. Which is the exact opposite of what ChatGPT is saying.

I wouldn’t touch Vodafone shares

Its second pick was FTSE 100 telecoms giant Vodafone (LSE: VOD), which it calls “a beaten-down telecoms stock with recovery potential”.

Vodafone terrifies me. It’s like a giant monster of wealth destruction. It lures unsuspecting investors in with a dazzling yield, only to chew up their capital and slash sharehholder payouts too.

The Vodafone share price has climbed 5% over the last year, but it’s down 40% over five years. At around 72p per share, it’s trading at 1996 levels.

ChatGPT acknowledges say that “Vodafone has been a disaster for shareholders for the last five years” then jauntily adds: “But with a 6.9% dividend yield and a turnaround plan in place, it could be a bargain at today’s P/E of around 7”.

Wrong! Today’s dividend is actually 5.3%. And wrong again! The P/E is 11.6%. That’s still below the average FTSE 100 of around 15 times, but not as cheap as ChatGPT thinks.

It also claims that the telecoms sector is defensive, but a quick glance at Vodafone and rival BT group suggests it’s actually intensely volatile. At least the chatbot was right to highlight Vodafone’s huge debt pile of around €36bn, which it calls “challenging given today’s high interest rates“.

The latest Vodafone turnaround plan may succeed where the others failed, but it’s not a stock I would consider buying today. Personally, Vodafone still terrifies me. And so does ChatGPT.

The post I asked ChatGPT to name 2 cheap shares to buy in an ISA with £2k and its reply terrified me! appeared first on The Motley Fool UK.

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Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, Lloyds Banking Group Plc, and Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.