When looking at FTSE 100 stocks to buy now, it can be helpful to know what not to do just as much as what to do. This was a classic technique of Warren Buffett’s longtime friend and business partner, the late Charlie Munger. His famous motto of “Invert, always invert” implored us to think about things backwards.
I thought I’d take this approach to ChatGPT and see what results I got. Who knows? It might even make me a billionaire, too.
Here’s what I typed in: “Please tell me the three worst FTSE 100 stocks to buy now.”
And here are the three unlucky lemons along with a simple line of reasoning:
- International Consolidated Airlines Group (LSE: IAG) — vulnerable to oil and geopolitical shocks
- JD Sports Fashion (LSE: JD.) — weakening consumer demand
- Barratt Redrow (LSE: BTRW) — housing market pressure plus remediation risk
Are these stocks ones to avoid?
While I’m not in the habit of taking all of what ChatGPT gives me at face value (hallucinations are still rife with the latest versions of large language models), I will say that I’m not looking to open a position in JD Sports.
The fashion retailer boomed along with the ‘athleisure’ trend of folks wearing jogging bottoms and tracksuits in their day-to-day life. Like many things in fashion, trends come and go. That’s not to say this could not be a good investment for the right investor, but it’s an area where I’m not interested in testing the waters.
Barratt Redrow is another stock I’ve been watching with some caution. UK housebuilders have been getting it from all sides in recent years.
Whether it’s ‘governmentally inflicted costs’ like wage increases, inflation up and down supply chains, or mortgages staying expensive as interest rates don’t fall as quickly as was expected, it’s been a rough old time to be in the business of building homes in this country.
I think the general demand means there could be value in buying Barratt Redrow at some point, but I think if a turnaround comes, it might be later rather than sooner.
Cheap as chips
The third stock, British Airways owner and airline group IAG, is one where I cannot agree with my sentence-predicting buddy. It’s true that the company – like all airlines – have been dealt two massive blows in recent years.
First, the pandemic, then the Iran war. These events have made the stock look like incredible value. A price-to-earnings ratio of just 6.21 looks like an enormous bargain in a sector expected to grow as the world continues to globalise.
While the impact of higher jet fuel prices should not be understated – and we all hope that the resolution to the conflict in the Middle East arrives in the near future – I don’t think this would come anywhere near my three FTSE 100 stocks to avoid at the moment. I think it could even be worth considering as a buy, too.
John Fieldsend has no position in any of the shares mentioned.
