New research from AJ Bell shows that the FTSE 100 firms which attracted the highest percentage of analyst ‘buy’ ratings last January markedly underperformed the index during the year and delivered a negative return:
| Buy | Hold | Sell | Buy % | 2017 performance |
Shire | 25 | 3 | 2 | 86% | (16.7%) |
Dixons Carphone | 12 | 1 | 1 | 86% | (43.9%) |
TUI AG | 6 | 3 | 1 | 86% | 32.4% |
Smurfit Kappa | 10 | 3 | 1 | 83% | 33.1% |
Paddy Power Betfair | 13 | 2 | 1 | 81% | 0.6% |
Babcock International | 12 | 3 | 1 | 75% | (26.0%) |
Provident Financial | 8 | 2 | 0 | 73% | (68.6%) |
Informa | 13 | 2 | 1 | 72% | 6.2% |
3i | 5 | 5 | 0 | 71% | 29.8% |
Hikma Pharmaceutical | 7 | 5 | 0 | 70% | (40.1%) |
Total |
| (9.3%) | |||
FTSE 100 |
| 7.6% | |||
Source: Digital Look, Broker Forecasts, Thomson Reuters Datastream
Additionally, the ten companies with the highest percentage of ‘sell’ ratings a year ago, did better than the FTSE 100 index and the list of ten most popular stocks:
| Buy | Hold | Sell | Sell % | 2017 performance |
INTU | 1 | 4 | 10 | 67% | (10.1%) |
Rolls Royce | 2 | 5 | 12 | 63% | 28.5% |
Morrison (Wm) | 0 | 8 | 9 | 53% | (4.7%) |
Royal Bank of Scotland | 2 | 10 | 13 | 52% | 23.8% |
Admiral Group | 3 | 3 | 5 | 45% | 9.6% |
Antofagasta | 2 | 12 | 11 | 44% | 48.9% |
Marks & Spencer | 9 | 5 | 11 | 44% | (10.1%) |
Tesco | 6 | 6 | 9 | 43% | 1.2% |
Standard Chartered | 7 | 6 | 9 | 41% | 17.6% |
Pearson | 8 | 6 | 8 | 36% | (10.1%) |
Total |
| 9.5% | |||
FTSE 100 |
| 7.6% | |||
Source: Digital Look, Broker Forecasts, Thomson Reuters Datastream
Thankfully, the analysts found redemption in the FTSE 250, where coverage can be less intense and the scope for adding value through diligent analysis is potentially greater.
The ten FTSE 350 firms that had the greatest percentage of ‘buy’ ratings in the first week of January 2017 rose by a market-busting 35.4% between them:
| Buy | Hold | Sell | Buy % | 2017 performance |
Paysafe | 9 | 0 | 0 | 100% | 58.9% |
RPC | 9 | 0 | 0 | 100% | (11.3%) |
Sophos | 9 | 0 | 0 | 100% | 117.9% |
JD Sports | 5 | 0 | 0 | 100% | 5.8% |
John Laing | 5 | 0 | 0 | 100% | 8.6% |
Diploma | 4 | 0 | 0 | 100% | 20.0% |
Polypipe | 4 | 0 | 0 | 100% | 21.4% |
Savills | 4 | 0 | 0 | 100% | 41.8% |
Elementis | 3 | 0 | 0 | 100% | 3.9% |
NMC Health | 3 | 0 | 0 | 100% | 86.9% |
Total |
| 35.4% | |||
FTSE 350 |
| 8.8% | |||
Source: Digital Look, Broker Forecasts, Thomson Reuters Datastream
However, the most aggressively sold names again confounded the bears, rising faster on average than the FTSE 350 index overall:
| Buy | Hold | Sell | Buy % | 2017 performance |
INTU | 1 | 4 | 10 | 67% | (10.1%) |
Ferrexpo | 3 | 1 | 7 | 64% | 117.9% |
Rolls Royce | 2 | 5 | 12 | 63% | 28.5% |
Metro Bank | 2 | 1 | 4 | 57% | 22.5% |
CYBG | 2 | 5 | 8 | 53% | 21.1% |
Morrison (Wm) | 0 | 8 | 9 | 53% | (4.7%) |
Royal Bank of Scotland | 2 | 10 | 13 | 52% | 23.8% |
Grafton | 5 | 4 | 9 | 50% | 45.8% |
Millennium & Copthorne | 0 | 2 | 2 | 50% | 27.1% |
Mitie | 0 | 6 | 6 | 50% | (20.9%) |
Total |
| 25.1% | |||
FTSE 350 |
| 8.8% | |||
Source: Digital Look, Broker Forecasts, Thomson Reuters Datastream
Russ Mould, investment director at AJ Bell, comments:
“Mifid II has shone a bright light on who is paying for analyst research but of equal importance is whether that research is actually adding any value. The cost of this research will ultimately be borne by customers, whether that is directly or indirectly and a look back at 2017 suggests these ratings needs to be treated with kid gloves, especially when it comes to the FTSE 100.
“Ultimately, what the data does seem to show is the well-informed, diligent, expert broking community has little more idea of what is coming than anyone else, at least in the short term.
“Anyone prepared to pick their own stocks rather than pay a fund manager or index-tracker fund to do it for them must therefore thoroughly research any company for themselves before they even think about buying it shares.
“If this sounds difficult, well, it is but at least investors can follow the lead of successful American investor Charlie Munger – Warren Buffett’s vice-chairman at Berkshire Hathaway – who boils it down to four things:
- One, do you understand the business?
- Two, does the business have intrinsic value or durable competitive value?
- Three, does management have integrity?
- Four, does the stock come at a reasonable valuation?
“Equally, if an investor likes what they see, they should not be put off just because they are out of step with consensus – they may have unearthed a nugget of value, assuming the stock passes the first three of Munger’s tests. Then they may be heeding Warren Buffett’s maxim that “You can’t buy what is popular and do well.”
Stocks to watch (or avoid) in 2018
Even if following the most aggressively bought names was a flawed strategy in 2017 (at least in the short term), it will be interesting to see how the most popular stocks, based on the current percentage of broker ‘buy’ ratings, fare in 2018, for both the FTSE 100 and the FTSE 350 overall.
FTSE 100 | Buy | Hold | Sell | Buy % |
British American Tobacco | 16 | 1 | 0 | 94% |
Smurfit Kappa | 13 | 0 | 1 | 93% |
NMC Health | 7 | 1 | 0 | 88% |
DCC | 12 | 2 | 0 | 86% |
Ashtead | 15 | 3 | 0 | 83% |
3i | 4 | 1 | 0 | 80% |
TUI AG | 8 | 2 | 0 | 80% |
Shire | 19 | 5 | 0 | 79% |
Just Eat | 15 | 4 | 0 | 79% |
Informa | 14 | 4 | 0 | 78% |
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FTSE 350 | Buy | Hold | Sell | Buy % |
Greencore | 10 | 0 | 0 | 100% |
National Express | 8 | 0 | 0 | 100% |
Equiniti | 6 | 0 | 0 | 100% |
Polypipe | 6 | 0 | 0 | 100% |
888 Holdings | 5 | 0 | 0 | 100% |
BCA Marketplace | 5 | 0 | 0 | 100% |
Clarkson | 4 | 0 | 0 | 100% |
Coats | 4 | 0 | 0 | 100% |
JD Sports | 4 | 0 | 0 | 100% |
John Laing | 4 | 0 | 0 | 100% |
Source: Digital Look, Broker Forecasts, Thomson Reuters Datastream
Equally, natural contrarians may be tempted to look more closely at the stocks that are least popular in the eyes of analysts, as the ten most aggressively sold names outperformed both the FTSE 100 and the FTSE in 2017.
FTSE 100 | Buy | Hold | Sell | Sell % |
Antofagasta | 5 | 8 | 12 | 48% |
Marks & Spencer | 8 | 6 | 12 | 46% |
Rolls Royce | 4 | 6 | 8 | 44% |
Next | 3 | 9 | 9 | 43% |
Pearson | 5 | 8 | 8 | 38% |
Standard Chartered | 6 | 8 | 8 | 36% |
Hargreaves Lansdown | 4 | 5 | 5 | 36% |
United Utilities | 4 | 5 | 5 | 36% |
Burberry | 4 | 13 | 8 | 32% |
Kingfisher | 8 | 5 | 6 | 32% |
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FTSE 350 | Buy | Hold | Sell | Sell % |
Renishaw | 1 | 2 | 5 | 63% |
Sports Direct | 1 | 1 | 3 | 60% |
CYBG | 1 | 7 | 8 | 50% |
Fidessa | 1 | 2 | 3 | 50% |
PureCircle | 1 | 0 | 1 | 50% |
Antofagasta | 5 | 8 | 12 | 48% |
Marks & Spencer | 8 | 6 | 12 | 46% |
Wetherspoon JD | 2 | 5 | 6 | 46% |
Metro Bank | 2 | 4 | 5 | 45% |
Rolls Royce | 4 | 6 | 8 | 44% |
Source: Digital Look, Broker Forecasts, Thomson Reuters Datastream
