Iâm always on the lookout for cheap shares to add to my portfolio of FTSE stocks, as I canât resist a bargain. I prefer buying top companies when theyâve fallen out of favour, as this typically means a lower entry price and higher yield. Betting against the market takes patience and strong nerves though. Troubled companies can take years to turn around.
When I asked artificial intelligence chatbot ChatGPT to name three FTSE shares with low valuations but high recovery prospects, I was pleased to find I already hold two of them.
Not that I treat ChatGPT as infallible â far from it. Still, I couldnât fault the chatbotâs logic: âInvesting in undervalued FTSE 100 shares that have underperformed recently can offer substantial growth potential as they reboundâ.
JD Sports Fashion’s been a losing bet so far
Unfortunately, its first pick, JD Sports Fashion (LSE: JD), has yet to prove the point. The trainer and sportswear retailer has had a volatile 12 months, with the shares down 28% after repeated profit warnings. Over three years, they’re down 57%.
Iâve been averaging down, tempted by its strong UK presence and expanding international operations, particularly in the US. As ChatGPT notes: âThe company’s extensive store network and growing online platform position it well to capitalise on consumer demand for athletic and leisure apparelâ.
JD Sports also looks great value, trading at just 6.8 times earnings. Yet it operates in a tough retail environment that demands constant investment in marketing and innovation. Fashion’s vulnerable to changing trends. Has athleisurewear finally had its day?
I think not. Iâm backing JD Sports to recover as interest rates fall and the economy improves, even though the shares continue to head south.
Retail’s a challenging sector, so itâs no surprise ChatGPTâs second pick is also in this space â albeit at the luxury end: Burberry Group (LSE: BRBY).
Burberry has also issued profit warnings, due to falling demand from both China and the West. Its brand suffered after marketing missteps, prompting new CEO Joshua Schulman to admit the groupâs âniche aestheticâ had âskewed to a narrow base of luxury customers”.
Investors have bought into his plans to refocus on Burberryâs heritage, with shares up almost 50% in the last three months. They’re still down 17% over one year and 46% over three. The valuation’s climbed to almost 14 times earnings.
The recovery has begun, but delivery’s crucial. Full-year results, due tomorrow (24 January), will tell us more.
Can Prudential shares finally fight back?
ChatGPTâs final pick is insurer Prudential (LSE: PRU), which is focused on Asia and Africa. I donât own this one, which is perhaps fortunate, given the shares are down 80% over 12 months and 50% over three years.
Still, the stock looks attractive, trading at just nine times earnings. As ChatGPT notes, Asia and Africa are âhigh-growth markets with increasing demand for insurance and financial services”.
Prudentialâs strong brand and extensive distribution network provide a solid foundation for long-term growth. Like Burberry, it would benefit massively from a Chinese recovery, but that remains a distant prospect, in my view. The shares are cheap, valued at nine times earnings.
Iâve been tempted by Prudential before, but Iâm already heavily invested in financials. For now, Iâll stick to my other picks and hope patience pays off.
The post I asked ChatGPT to name 3 cheap shares with massive recovery potential â I own two of them! appeared first on The Motley Fool UK.
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Harvey Jones has positions in Burberry Group Plc and JD Sports Fashion. The Motley Fool UK has recommended Burberry Group Plc and Prudential Plc. 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.
