I’m keen to buy some cheap shares for this year’s Stocks and Shares ISA, and wondered if AI could help. And I’ve fiddled around with ChatGPT enough to know its limitations, but was curious to see what it would throw at me.

I’ve made a habit of snapping up cheap FTSE 100 shares, particularly those paying high dividends. So I shouldn’t have been surprised to see ChatGPT recommend two stocks I already own. But I was.

AI sees life in Legal & General shares

The first was Legal & General Group (LSE: LGEN). I bought the insurer and asset manager on three occasions in 2023, when it really was cheap, with a price-to-earnings (P/E) ratio of six or seven. ChatGPT said it’s cheap today, quoting a P/E of nine times.

This highlights the first problem of using a robot to select stocks. ChatGPT doesn’t always land on the latest info. Legal & General’s P/E has shot up to 33 times. That follows two sharp, successive drops in earnings per share, from 34.19p to 12.84p in 2022, then to just 7.35p last year my figures, not ChatGPT’s). So it’s no longer cheap.

The Legal & General share price is up just 0.75% over the last year, and 2.4% over five. At least it’s remained steady over recent volatile weeks.

This suggests it has defensive grit and it offers one brilliant attraction – a huge trailing yield of 8.25%. Which ChatGPT highlights. It could hardly miss it.

My slightly unreliable robot buddy also said Legal & General “benefits from an ageing UK population and growing demand for retirement solutions”, but has “underperformed recently due to bond market volatility and interest rate uncertainty”.

No arguments with that. AI also warns of “regulatory challenges” but it always does that.

I think Legal & General is still worth considering for income seekers. It could be in demand when interest rates fall, and cash and bond yields head south. But management needs to drive those earnings.

Taylor Wimpey shares look good value

ChatGPT’s second cheap UK stock pick was housebuilder Taylor Wimpey (LSE: TW). It highlighted a P/E of around eight but I’m seeing 13.3 times. Oh well, it’s closer than the last one.

I bought Taylor Wimpey in 2023 at around six or seven times earnings, and my shares were up 40% in short order. Markets thought housebuilders would benefit from Labour’s plans to build 1.5m homes in five years. Wrong.

The Taylor Wimpey share price is down 18% over 12 months and 42% over five years.

As ChatGPT notes: “Housebuilders have struggled due to high mortgage rates affecting affordability”, while sticky inflation has driven up material and labour costs.

I’d add that Budget-linked National Insurance and minimum wage hikes, due in April, will add to the price burden.

Again, Taylor Wimpey should get a lift when inflation and interest rates show meaningful falls. That should boost sales and prices, cut costs and further tempt investors by slashing returns on cash and bonds. With a trailing yield of 8.3%, Taylor Wimpey should make hay when that happy scenario lands. Patience required.

It’s still well worth considering, for income seekers who can stand a spot of short-term risk. I’ll keep fiddling with ChatGPT (sceptically), and hope next time it tips some cheap shares I don’t own.

Being a shareholder in Tesla (NASDAQ: TSLA) has always been a dramatic ride. It has been very rewarding for many investors though. Over the past five years, Tesla stock has soared 462%.

Lately though, things have not been going so well. In fact, Tesla stock has crashed 45% from where it stood in the middle of December. That is a long way to fall in a fairly short time, especially for an enterprise of this size. Even after the crash, Tesla has a market capitalisation of $826bn.

So does this put Tesla on a firmer footing when it comes to valuation – or could things get even worse from here?

Brilliant business with a proven track record

For me, this is not purely an academic question. I am not a shareholder at the moment. But I do think Tesla has a lot going for it as a business. If I could invest at what I thought was a reasonable price I would happily do so (in this regard, I follow Warren Buffett’s maxim of aiming to buy into great companies at attractive prices).

The market for electric vehicles (EVs) is huge and set to grow over time. Tesla is one of a limited number of players who have proven that they can scale up to a mass-market sales levels – and make money doing so. Its installed base, well-known brand and proprietary technology all makes it attractive to me. Its vertically-integrated production and sales approach also helps set it apart from rivals, in my view.

Not only that, but its power generation business is already significant and growing fast. Meanwhile, there remains significant untapped potential in fields Tesla is hoping to crack, including self-driving taxis and robots.

The price could keep falling

Clearly though, something has happened. Tesla stock did not plummet 45% in a matter of months for no reason. The obvious ones include last year seeing the first ever fall in sales (albeit a small one) and investor concerns that Tesla boss Elon Musk’s high-profile public role may tarnish the brand for some potential customers.

On top of that, the EV market is becoming more competitive as Chinese rivals like BYD (a long-term Buffett holding) make inroads in markets where Tesla has done well. Tax credits in markets including the US are also at risk, which could hurt profitability for the carmaker.

Are such risks priced in after Tesla stock crashed? I do not think so. In fact, Tesla stock trades on a price-to-earnings (P/E) ratio of 130.

If some of the risks I mentioned come to pass and earnings fall, the prospective P/E ratio could be even higher. But just taking the current 130 figure, it is far more than I would be willing to pay for the share.

I see real value in Tesla, so I do not think the share is driving to zero. However, I still see it as significantly overvalued and think it could sink a lot more even from its current level. For now, I will not buy.

Earning a second income does not necessarily mean going out and taking on a second job. A less time-consuming approach that many people use is buying shares that pay them dividends.

Here, I walk through the basics of that approach and show what sort of income £9k in savings might be able to generate.

Dividends can be a useful income source

When a company generates more money than it needs, it has a few choices. It might save it, it could reinvest it in the business, or it could use some or all of it to fund a dividend for shareholders.

As the explanation suggests, dividends are never guaranteed. A company needs to be able to both fund them and choose to do so.

But they can be very lucrative. This year alone, just the FTSE 100 firms on the London market are expected to distribute around £88bn in dividends. Long-term investors may already have been receiving them for decades.

Some businesses, like Guinness-owner Diageo and British American Tobacco (LSE: BATS) have grown their dividend per share annually for decades.

The importance of yield… and power of compounding

British American Tobacco has a dividend yield of 7.6%. That means for every £100 invested today, an investor would hopefully earn £7.60 in dividends annually.

In reality, it could be more. British American has announced plans to maintain its annual dividend growth. But whether it can do so depends on business performance.

One reason its yield is high (over double the FTSE 100 average) is that investors perceive the risk of falling cigarette sales hurting profits – and leading to a dividend cut. Rival producer Imperial Brands did just that in 2020, although it has since started growing its dividend again.

So 7.6% of £9,000 would be £684 a year, or £57 a month. Instead of drawing that second income immediately, an investor could reinvest (compound) it to grow a bigger portfolio. That ought to lead to a larger second income for the patient investor.

After 10 years, such an approach would be earning around £119 a month. If the investor waited 20 years before drawing the dividends as a second income instead of compounding them, the monthly reward would be £247.

Finding shares to buy

Although British American’s yield is high, I think an average 7.6% yield is achievable in today’s market, even when sticking to proven blue-chip businesses.

Diversifying across different shares is important, to reduce risk.

British American does demonstrate a lot of what I look for when finding shares to buy for my portfolio, which is why I own it and think it is worth others considering.

For example, it has a large target market. Cigarette usage may be declining in many nations, but it remains significant – and other tobacco formats have been growing in popularity.

The company has a portfolio of premium brands such as Lucky Strike. That gives it pricing power, meaning it can push up prices without losing lots of sales volume by doing so.

That helps generate sizeable free cash flows which, in turn, fund dividends – and my second income as a British American shareholder.

One common misconception people have about investing in the stock market is that it takes a lot of money to do so. In fact, it is possible to start buying shares with just a few hundred pounds.

Some pros and cons of starting small

I see some possible advantages to doing so compared to saving a much bigger sum. For one thing it can mean starting sooner. It can be annoying having to sit out of the market and watching great opportunities disappear while saving funds to invest.

Another possible advantage is that any beginner’s mistakes will hopefully be less costly than investing a bigger sum.

But there are some potential downsides to starting on a small scale too. For example, sometimes fees and charges for trading shares have a minimum. So if someone starts buying shares with small sums, they could pay proportionately more than someone putting in a bigger amount of money.

Making smart choices from day one

That helps illustrate why it makes sense to take time and effort when selecting a share-dealing account or Stocks and Shares ISA. With lots of choices on the market, it can be rewarding to choose one that best suits a particular investor’s position.

Allocating funds can be tricky

Another issue that can pop up when investing small sums is how to split them. After all, diversification is a simple but important risk management strategy no matter how much is invested.

But if someone starts buying shares on a limited budget this can require careful thought. Diversifying with £5,000, for example, could simply mean putting £1,000 into each of a handful of different shares.

With £300 though, that could be harder. Putting £60 each into five shares might not be practical. A single share of Nvidia, for example, costs around £85. Plus on such small sums, commissions might soon add up.

One potential solution could be for an investor to buy shares in an investment trust that holds a diversified stock portfolio.

Finding shares to buy

One such trust investors could consider is the Scottish Mortgage Investment Trust (LSE: SMT). In fact, it would offer exposure to Nvidia. Along with rival chipmakers ASML and TSMC, it is one of the trust’s top 10 holdings.

The biggest is SpaceX. As an unlisted company, a private individual with a few hundred pounds could not start buying shares in the rocket company. But Scottish Mortgage has the financial heft to do so.

Its portfolio offers exposure to a wide range of chosen shares, with a heavy emphasis on growth. That helps explain its recent storming performance. The share price is up 24% over the past year and 72% over five years.

A downside of course is that as some growth shares look potentially overvalued, any downturn among large US growth stocks could hurt the valuation of Scottish Mortgage.

Passive income plans come in all shapes and sizes. One I use is putting money regularly into the stock market and building a portfolio of dividend-paying shares.

Here is how anyone could use such a plan, starting today, to target a £700 monthly passive income from dividends.

Step 1: set up a share-dealing account

When the time comes to buy shares, a dealing account of some type will be necessary. So the first step would be looking at the different share-dealing accounts and Stocks and Shares ISAs that are available on the market and choosing a suitable one.

Step 2: setting up a regular contribution

£700 a month amounts to £8,400 a year. In a portfolio with a dividend yield of 7% (meaning it pays £7 in dividends annually for each £100 invested), that would require investing £120k.

In this example I presume someone starts with nothing and makes regular monthly contributions. I illustrate with £400, but each investor could adjust the amount to what suited them personally (though that may mean they hit the target sooner, or later).

Step 3: learning about the stock market

Is 7% a typical yield? No. It is close to double the current FTSE 100 average.

But I own some FTSE 100 shares like Legal & General (LSE: LGEN) that offer such a yield, or higher. Legal & General yields 8.5% and has announced plans to raise its dividend per share annually over the next few years.

Dividends are never guaranteed though. Legal & General cut its payout during the 2008 financial crisis. Plus, even a high-yield share can fall in price over time, potentially making for a loss-making investment.

So before starting, an investor ought to learn the basics of how to be a good investor and get to grips with concepts such as valuing shares.

Step 4: starting to buy shares

Another such principle is spreading risk by diversifying the portfolio across different shares. That is good practice from day one.

Like Warren Buffett, my approach to finding shares to buy is sticking to what I understand and looking for great businesses selling at attractive share prices. If nothing looks attractive today, there is never a rush to buy.

With passive income in mind, it is important not just to focus on yield. It also matters whether the dividend looks sustainable. Legal & General has a lot of competitors. Earnings over the past several years have been weaker than before and the planned sale of a US business could reduce them further.

But it does have strengths, such as a proven business model, large customer base a well-known brand.

Step 5: reinvesting dividends

Rather than immediately earning passive income, an investor could initially reinvest dividends to build more capital. This is known as compounding.

Step 6: getting the income

Compounding £400 a month at 7% annually, the portfolio should be worth over £124k after 15 years. At a 7% yield, that will throw off more than £700 in monthly passive income on average.

Step 7: staying the course

Starting today is easy. But to achieve the target, an investor will need to stick with the plan over time. That also involves keeping an eye on the portfolio in case the investment case for any of the shares changes along the way.

Investing in precious metals mining stocks has been deeply frustrating over the past three years. However, with gold prices surging to multiple all-time highs and silver like a coiled spring, this FTSE 100 stock looks primed for lift off.

Record shareholder returns

When I last covered Fresnillo (LSE: FRES) back in May 2024, the stock had moved 25% in just a month. Silver prices, which had been doing nothing for years, had just popped from $22 to $34. Since then, the cheaper cousin to gold has remained in the $30 range, a feat not seen since back in 2011.

Off the back of surging metal prices, the miner’s 2024 results were simply off the Richter scale. Gross profit was up 150% to $1.2bn. Earnings before income tax, depreciation, and amortisation (EBITDA) more than doubled to $1.5bn. And net cash from operating activities more than tripled to $1.3bn.

With the business simply gushing free cash flow, shareholders are set to receive bumper returns. On top of a final ordinary dividend, it intends to pay out a one-off special dividend of 41.8 cents. Excluding the already paid interim dividend, that means the yield for 2024 will be 6.2%.

Demand for gold

Gold prices have surged off the back of unprecedented demand from foreign central banks, including China.

Scott Bessent, the US Treasury Secretary, has a long history of managing a hedge fund. He has made it known that his funds had been accumulating gold before he took the position in Trump’s government.

Bessent has made it clear that the US is in the last chance saloon when it comes to dealing with its public debt mountain. He has even talked about the possibility of a Bretton Woods realignment in the years ahead.

I don’t expect gold to take on the role of a currency like it did before the Bretton Woods system was scrapped in 1971. But that doesn’t mean that gold won’t have some kind of potential role to play in the future. And on top of mounting geopolitical risks, I don’t rule anything out by this US Administration.

Gold to silver ratio

If someone had told me a year ago that the price of gold would be near $3,000 and yet the ratio of gold to silver would sit above 90, I would have laughed it off. With that ratio sitting at historically record levels, I can’t see anything other than it falling in the coming years. That means higher silver prices.

Silver has one huge advantage over gold – it’s used in multiple industrial applications. For example, silver makes up 10% of solar panels, demand for which is growing.

Investing in Fresnillo doesn’t come without significant risks. Operational challenges at several of its mines have beset it for years. If silver prices do explode in the years ahead, governments might well remove concessions or demand a greater slice of the pie.

Despite the huge risks investing in precious metals miners, I have been accumulating shares in Fresnillo for over two years now. If metal prices continue to climb, I wouldn’t be surprised to see special dividends becoming more of a regular feature in the coming years.

I think Informa‘s (LSE:INF) one of the UK’s best growth stocks. But earlier this week, the stock fell 8% in a day after releasing its preliminary results for 2024.

At a price-to-earnings (P/E) ratio of around 37, the stock looks expensive. Despite this, it’s on my list of stocks to consider buying right now.

Conferences and trade shows

The main part of Informa’s business comes from running conferences and trade shows. And these have a lot of very attractive prospects from an investment perspective. 

First and foremost, they have extremely strong competitive positions. They’re the biggest and most important trade events for industry participants to attend.

Evidence of this comes from the fact the company has recovered so well from the Covid-19 pandemic. Despite a temporary shift online, live trade events have proved irreplaceable.

As a result, revenues are well ahead of their 2019 levels. The disruption notwithstanding, Informa has grown its total sales at a very impressive 11% a year over the last decade.

Cash generation

Impressive revenue growth driven by a strong competitive position is part of what makes Informa an outstanding company. But it’s also a business that generates a lot of cash.

A P/E ratio of 37 makes the stock look expensive, but this might not be the best way to value the stock. A look at the free cash the firm generates makes things look quite different. 

Informa currently has a market-cap of £10.35bn and generated £812m in free cash in 2024. That implies a multiple of around 13, which isn’t particularly high at all.

The reason for this is the company has low capital requirements. It leases – rather than owns – the venues that host its events and collects fees from participants before settling its own costs.

Why’s the stock falling?

Informa’s latest report was very positive. Revenues for 2024 were up 11.4%, earnings per share rose 10.6%, and the company increased its dividend by 11.1%. 

The reason the stock fell however, is the outlook for 2025 isn’t as positive. The year’s guidance is for underlying organic growth of around 5% – down from 11.6% in 2024.

Its events bring together global businesses and this means a potential trade war could have significant implications for the firm. This is a risk that looks highly relevant right now. 

The company though, showed itself to be resilient when it came to the pandemic. And if it can handle that, I think it can handle most temporary things that might come its way.

I’m interested

The effects of the pandemic are still visible in Informa’s business. The company has much more debt than it had in 2018 and the number of shares outstanding is significantly higher.

As I see it though, both of these are opportunities. Even if underlying sales growth is limited, the business can boost its earnings by reducing its debt and buying back shares. 

This is exactly what the firm’s planning on doing in 2025. And with the share price having dropped 8% in a day, it’s suddenly reached a level where I’m considering buying.

Shares in Rentokil Initial (LSE:RTO) have fallen to £3.77 – the level I’ve previously identified as where I think they’re a bargain. But the latest drop is due to some disappointing news.

In its preliminary results for 2024, the company reported weak sales growth and a decline in operating profits. So should I buy the stock, or revise my estimate of what it’s worth?

Results

Rentokil’s sales grew 1.1% in 2024. That’s not particularly impressive and with inflation above these levels, it amounts to a decline in revenues in real terms. Worse yet, operating income fell by 12% (or 7% adjusting for amortisation, one-off costs, and changes in interest). And given this, investors might wonder why the stock didn’t fall further.

I think there are two main reasons. One is that most of this isn’t fresh news – Rentokil has been reporting weak earnings throughout the year, so the latest update shouldn’t have been a big surprise.

The second is the outlook for 2025’s slightly more encouraging. The firm’s still in transition after a major acquisition in 2022, but the CEO’s comments indicated progress is being made.

Outlook

Rentokil acquired US competitor Terminix at the end of 2022. Since then, it’s been working out how it can save costs and improve efficiency by integrating the two businesses. The latest news is that the FTSE 100 company is making good progress with streamlining its branches. This is expected to generate $100m a year in savings by the end of 2026. 

On top of this, the firm’s been revamping its brand strategy to try and boost sales. But growth has been slow in the first quarter of 2025 as a result of weak lead generation.

Overall, I view the latest report as mixed – it looks as though progress is being made, but it’s definitely slower than investors would like. And that’s been the story of the last few years.

Should I buy?

Investors can’t ignore the fact it’s going to be another couple of years until Rentokil completes its integration process. A 2.5% dividend isn’t much of a return while they wait.

Despite this, I’m still looking to buy the stock. I think the company’s position in a market that I expect to grow through pretty much any economic conditions makes it quite attractive.

The big risk with the stock is if the anticipated cost savings don’t materialise. If that happens, investors might struggle to get a good return on an investment at today’s prices.

Rentokil however, has successfully integrated a lot of businesses in the past. And while this one is on a different scale, I think there’s a good chance it could be a success over time.

Long-term investing

Right now, I’m not in a position where I have excess cash available to invest. And Rentokil stock isn’t at such a low price that I want to sell my other investments to add to this one.

When I’m next buying shares however, I’ll be looking at the stock as an opportunity. If the price doesn’t move from today’s levels, I’m expecting to be a buyer later this month.

Recent S&P 500 volatility is offering investors plenty of opportunities to snap up top-notch US stocks at slightly cheaper prices. The technology sector, in particular, is home to a wide range of promising enterprises with tremendous growth potential.

The problem is that such opportunities are unsurprisingly priced at a premium, inviting volatility.

However, volatility can be beneficial in creating new entry points for long-term investors. And one stock that’s started grabbing my attention is ServiceNow (NYSE:NOW). Since the end of January, shares of the digital automation cloud platform have stumbled 20% despite delivering fairly robust earnings.

So with £3k of cash at hand, is this a buying opportunity for my growth portfolio?

Growth versus price

Like many tech giants, shares of ServiceNow have always looked quite expensive. For reference, over the last five years the forward price-to-earnings ratio’s historically sat around 57. And right now, even after the stock lost almost a quarter of its value, this metric still stands at 56.5.

However, this premium valuation isn’t entirely unjustified. Over the last five years, sales have expanded by an annualised rate of 44.7%. And management’s been making aggressive investments into generative artificial intelligence (AI) solutions that seem to be picking up a lot of interest from customers.

In turn, free cash flow generation has remained consistently strong, enabling vast amounts of cash to accumulate on the balance sheet that’s now being deployed through share buyback schemes.

Needless to say, this sounds rather promising. So beyond a lofty valuation, what’s behind the recent surge in concern that sent the stock falling in the wrong direction?

Emerging risks

As usual, there are a lot of factors influencing ServiceNow. The group’s rising exposure to international markets is introducing some unwelcome currency exchange headwinds due to a stronger US dollar. However, a more pressing concern in my mind is the ongoing transition from a subscription-based revenue model to a consumption-based one.

On paper, this transition sounds like a win-win for ServiceNow and customers alike. The initial barriers to entry for client onboarding are reduced. At the same time, revenue for ServiceNow scales alongside customer operations, resulting in higher profit margins.

But, it’s important to remember that deploying this new pricing structure comes with notable execution and operational risk that could put ServiceNow’s market share in jeopardy.

The bottom line

Volatility’s often the price of admission when investing in US technology stocks. And investors who were willing to pay the piper five years ago have since been rewarded with an impressive near-200% return. So can this impressive performance be replicated between now and 2030?

I think the answer to that all depends on how much value management’s able to extract from its AI investments. Suppose these new tools are successful in getting new and existing customers to ramp up spending under its new consumption-based revenue model? In that case, the stock’s upward trajectory could be set to continue. Of course, that’s a big if.

Personally, I want to see a bit more progress before putting any capital to work. But should the stock take another 20% nosedive, then things may start to look far more interesting.

UK shares have delivered fairly robust returns over the last six months, with the FTSE 100 delivering close to 9% total returns. Given its historical annual average has been closer to 6% over the last decade or so, that’s not bad.

But it pales in comparison to what some British stocks have delivered since September last year. In fact, looking across the entire FTSE All-Share index, the top five performing stocks have generated an average return of 70%!

Britain’s top five performers

In order of highest returns, the best-performing UK shares over the last six months are:

1. International Consolidated Airlines, +92.4%
2. Standard Chartered, +68.2%
3. Ferrexpo, +65.6%
4. Burberry Group (LSE:BRBY), +65.4%
5. Rolls-Royce, +62.9%

It’s a relatively diverse collection of companies covering multiple industries, including banking, mining, travel, engineering, and fashion. And if an investor had put £1,000 in each back in September, their initial £5,000 portfolio would now be worth just over £8,500.

But what’s behind these impressive returns?

Zooming in

There are a lot of factors at play. Each business has its own set of drivers, resulting in superior returns. But let’s dive into the fascinating developments at Burberry. The high-end fashion house has been on quite a rocky path lately.

Poorly received creative choices from previous management caused the business to swing from profitability into the red, sending the stock plummeting by 75% between April 2023 and September 2024. Since then, the firm’s been scrambling to turn things around. So far, recovery plans seem to be going well.

Under the new leadership of Joshua Schulman, the business is shifting its product portfolio back in line with the tastes of its core customer base while also initiating cost-cutting initiatives.

Investors who placed their faith in Schulman’s strategy have, so far, been rewarded quite generously. And with the broader luxury market also seeing a welcome albeit slow rebound, Burberry’s upward momentum may be set to continue.

Nothing’s guaranteed

Investors are usually forward-thinking. This attitude seems to be present when looking at Burberry’s share price, given that the firm has yet to start delivering solid recovery financials. That means the success of Schulman’s turnaround plan is still unclear. In his own words, Burberry is still “very early in our transformation, and there remains much to do”.

Should the firm’s plans start to show cracks or take too long to deliver, investors may start to lose patience and begin looking for opportunities to abandon ship. That’s why, when looking for top-notch stocks to buy right now, Burberry isn’t on my list.

It’s a similar story for the other UK shares highlighted. Before parting with any capital, investors need to dig into the details and discover both the potential risks as well as the rewards.