One investor turned to ChatGPT to identify the best-rated FTSE 100 stocks by analyst consensus, and the results were mostly useful, with one notable blunder.
The FTSE 100 has delivered average total returns of 14% a year over the last five years, making it an increasingly popular hunting ground for retail and institutional investors alike.
Analyst ratings, including Buy and Sell forecasts and 12-month price targets, can help identify where the most compelling opportunities may lie at any given moment.
ChatGPT was asked a straightforward question: “What FTSE 100 stocks get the best ratings from analysts at the moment?” and the results were largely credible.
Rolls-Royce appeared near the top of the list, with 16 Buys or Strong Buys out of 20 analysts covering the stock, and not a single Sell rating recorded against it.
The consensus 12-month price target for Rolls-Royce sits at 1,730p, implying an 18.4% rise from current levels, which would represent a meaningful gain for shareholders.
Marks and Spencer and AstraZeneca (LSE: AZN) also featured on the list, each carrying a strong spread of Buy ratings and minimal or zero Sell recommendations from covering analysts.
However, one stock on the AI-generated list immediately raised a red flag, namely gambling group Entain (LSE: ENT), the owner of Ladbrokes, Coral, and PartyPoker.
Entain is no longer a FTSE 100 constituent, having been removed from the index in late September after its market value fell close to the £3bn mark, well below the threshold for index membership.
Despite that error, the analyst sentiment around Entain remains notably bullish, with a consensus 12-month price target of 994p set against a current share price of just 416p.
That gap between the target and the current price might look attractive on the surface, but a doubling of the share price within 12 months carries significant execution risk and external headwinds.
Governments around the world are tightening regulations on gambling, with the UK increasing gambling taxes and Germany introducing stricter operational rules for operators.
Perhaps most significantly, the president of Brazil recently made moves to ban all online sports betting and gaming, a major development for any company with exposure to that market.
There is also an ethical dimension to consider when evaluating investments in gambling stocks, a factor that some investors weigh alongside purely financial metrics.
For investors who are cautious about the sector, the regulatory and ethical pressures surrounding Entain may be reason enough to look elsewhere, regardless of what analyst price targets suggest.
