The stock market isn’t a casino and shouldn’t be treated like one. When investing, hours of research should always precede any decision to buy or sell. With a wealth of data at its disposal, investors might think artificial intelligence (AI) could reduce this research to mere minutes.
But I don’t believe it’s ready yet to fully replace human analysis.
With everybody jumping on the AI bandwagon lately, I decided to give it a go. After using the same prompt on several platforms, I found ChatGPT to provide the most comprehensive response.
Rather than simply answering the question, it took the time to consider several investment themes. It highlighted an increased focus on renewable energy transition, along with ageing populations. Green energy, healthcare and pharmaceuticals were noted as potential winners in the years to come.
Naturally, it was also enthusiastic about AI and automation.
The picks
Overall, it made some fairly obvious choices and appeared to err on the side of caution. Top S&P 500 leaders such as Meta, Citigroup and Nvidia were key recommendations. In the UK, Diageo, AstraZeneca and BAE Systems were unsurprising picks.
However, among the ever-popular leaders were some interesting outliers, such as Rocket Pharmaceuticals and DXP Enterprises. One I found particularly notable was Oxford Metrics (LSE: OMG). Unlike the other FTSE 100 stalwarts, it’s a tiny £72.6m UK company selling shares at 56p a pop.
Specialising in AI-enhanced motion sensor technology, its clients include big names in aerospace, entertainment, pharmaceuticals, research and sports.
Sounds impressive — but does it convert to profits?
A long road to recovery
Oxford Metrics rode a wave of success from 2017 to 2019 but performance lately’s been anything but impressive. After two slow years, it issued a profit warning in September.
Earnings fell to a five-year low, with net profit margins slipping below 8%. The shares are down 47.5% in five years but still don’t look undervalued, with a forward price-to-earnings (P/E) ratio of 30.
So I had to wonder why ChatGPT would think this struggling penny stock has any future.
Despite a volatile share price, revenue in 2023 hit a new high of 44.24m. In 2024, it introduced a new division, Smart Manufacturing, bolstered by the acquisition of Sempre Group. The group’s known for providing highly specific micro-measuring solutions to aerospace and biomedical companies.
Spending on expansion is a necessary but risky part of business. If it pays off, the firm could turn around. But with barely any cash flow and £3.7m in debt, it needs to tread carefully. Pushing itself too far could be catastrophic.
One attractive value proposition that may help turn the tide is the 5.7% dividend yield. Payments are reliable and growth’s been steady for the past five years. Unfortunately, volatile small-cap stocks don’t make great additions to a passive income portfolio. There are too many chances of cuts or big price swings.
For that reason, I’ll have to disagree with ChatGPT on this recommendation. It seems like a decent stock with potential, and it may well be the next big thing. But right now, I think it’s too soon to tell.
AI may know a thing or two, but I’ll stick to my slow and diligent research methods.
This post was originally published on Motley Fool
