Earlier this month, I asked ChatGPT to identify the country’s most undervalued UK shares. After a few seconds, it produced a list of seven.
But were its selections any good? Let’s take a closer look.
A magnificent seven?
The stocks (in the order presented) were:
- ITV – “low earnings multiple, strong cash generation”.
- M&G – “high dividend yield”.
- Legal & General – “attractive valuation and dividend”.
- Barclays (LSE:BARC) – “low valuation versus earnings”.
- Lloyds Banking Group – “strong capital position”.
- British American Tobacco – “low valuation, high yield”.
What about the seventh? It was Phoenix Group (“very high cash generation and yield”). This is unfortunate because, in March, the group re-branded as Standard Life and officially changed its name. Mistakes like these are a useful reminder that there’s no substitute for doing your own research. Why?
It’s because ChatGPT trawls the internet looking for references to undervalued or cheap shares. Who knows whether the sources it finds are reliable? Indeed, the software itself warns: “ChatGPT can make mistakes. Check important info.” It’s likely to be a case of GIGO (garbage in, garbage out).
This casts doubt on the accuracy of some of the software’s statements. Indeed, according to the London Stock Exchange, British American Tobacco’s price-to-earnings (P/E) ratio is 12.91 compared to a five-year average (median) of 9.99. This suggests ChatGPT’s assertion that the tobacco giant has a low valuation is wrong.
That’s why, before considering any of these stocks, I would have to do further research. However, there is one stock on the list that I have researched. In fact, because I believe it’s undervalued, I have Barclays in my own portfolio.
Why?
In my opinion, it’s the cheapest of the FTSE 100’s five banks.
This is because it has the lowest price-to-book ratio and the second-lowest P/E ratio. Admittedly, it’s not so good when it comes to dividends – its yield is the worst of the five – but the bank’s planning to return £15bn to shareholders over the next three years (equivalent to around a quarter of its market cap) through a combination of payouts and share buybacks.
However, Barclays is vulnerable to a slowdown in the global economy. This is likely to lead to a reduction in new business and raise the possibility of increased loan defaults.
But we are a long way from the dark days of the pandemic. In 2020, the bank’s credit impairment charge of £4.84bn accounted for 22.2% of total income. In 2025, the equivalent figures were £2.28bn and 7.8% respectively.
Another potential risk to earnings comes from falling interest rates. This could put the bank’s net interest margin under pressure.
A positive outlook
Despite these threats, I think the bank’s in good financial shape.
It plans to use AI to deliver £2bn of cost savings over its next three financial years. This should help it achieve a cost-to-income ratio in the low 50s (in percentage terms) by 2028, compared to the 61% reported in 2025.
In addition, it’s targeting an increase in income of 5% a year. Overall, Barclays hopes to deliver a return on tangible equity of 14.8% in 2028. For comparison, it was 11.3% in 2025.
That’s why I own the stock. Others could consider it too.
Should you invest £5,000 in Barclays Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays Plc made the list?
James Beard owns shares in Barclays plc and Standard Life plc.
