Which are the most and least popular stocks heading into 2021?

“The UK stock market got off to a flier in 2021, as the FTSE 100 racked up a 6% gain, its best-ever advance over the first five trading days of a new calendar year, although trading has become a little more choppy since. As a result, some investors will already be pondering whether the UK’s leading index is still on an upward trend or whether the early gains were simply a case of  every dog having its day, after the UK’s terrible showing in 2020,” says AJ Bell Investment Director Russ Mould. “However, some investors may conclude the index’s gyrations do not matter, because they are dealing with a market of stocks and there are still individual opportunities to be had.

“This latter viewpoint is backed up by the huge divergence in returns from the FTSE 100’s constituents in 2020.

“Five members the FTSE 100 as of 31 December 2020 generated a positive total return that exceeded 50%, namely Scottish Mortgage, Pershing Square, Ocado, Fresnillo, Flutter and Antofagasta. Just to make it harder, two of those – Pershing Square and Fresnillo – were not even in the index last January (Fresnillo was promoted in March, Pershing Square in December).

“Only two firms in the FTSE 100 at the end of last year generated a negative total return of worse than 50%, namely International Consolidated Airlines and Rolls-Royce. However, Carnival was relegated to the FTSE 250 in June and did worse than either of those. Worst of all, NMC Health’s shares were suspended in March as the firm went into administration amid allegations of fraud.

“This begs the question of how investors can find winners – or at least avoid portfolio-damaging losers.

“One possible way is to at least narrow down indices as big as the FTSE 100 or FTSE 350 could be identify which firms are more and least preferred in the research written by analysts at the leading investment banks and broking firms. Granted, this is primarily intended for institutional investors but websites such as Sharecast and Marketscreener provide a summary of how many analysts cover a stock and how many rate the stock a ‘buy’ or a ‘sell’ (or are sat on the fence with a ‘hold’).

“AJ Bell has back-tested the performance on the most least popular stocks at the start of a year for the past several years and its conclusion remains that broker research needs to be treated with a degree of caution (assuming that investors can get their hands on it in the first place). 

“This is not to poke fun at the analysts. It just shows how hard picking individual stocks can be, even if it is your full-time job, and 2020 was a tricky year, so some allowance can be made for how the FTSE 100 stocks with the greatest percentage of ‘buy’ ratings went down. 

“Unfortunately, the news was worse than that. The ten most popular names did far worse than the index, on a total return basis. To compound that dismal showing, the ten stocks with the greatest percentage of ‘sell’ ratings actually generated a positive total return between them even though the FTSE 100 failed to do so.

Source: Sharecast, Refinitiv data

“The news for the brokers was not quite so grim in 2020 when it came to the FTSE 350, as the most widely recommended ‘buys’ beat the index. However, those ten names still generated a negative total return and, for good measure, they did less well than the ten stocks which the analysts were keenest to avoid. 

Source: Sharecast, Refinitiv data

“Some slack must be cut for the beleaguered analysts, since 2020 was a fiendishly difficult year. Stocks collapsed in the first half of the year only to rally hard in the second and in many cases macroeconomic trends, such as the pandemic, recession and Governments’ and central banks’ policies trumped bottom-up, ‘micro’, company-specific developments.

“Yet the data show their analysts’ top picks failed to beat the index in in 2015, 2016, 2017, 2018 and now 2020, despite all of their diligence. Those investors who are of a contrarian bent may therefore be concerned to see that the broking community is carrying the highest percentage of ‘buy’ ratings on FTSE 100 and FTSE 350 stocks since AJ Bell began this annual survey back in 2015. Last week’s quickfire gains at least mean that the analysts are off to a good start in 2021.

Source: Sharecast, Marketscreener

“What this does go to show is that anyone prepared to pick their own stocks rather than pay a fund manager or index-tracker fund to do it for them simply must do their own research on individual companies they even think about buying or selling any of its shares. 

“At best, broker research may be a useful filter or a cheeky contrarian indicator which only confirms legendary investor Warren Buffett’s old maxim that ‘you cannot buy what is popular and do well’. 

“With that in mind, investors might like to know which stocks are most liked – and disliked – by analysts at the start of 2020. The two tables below list the names which investors may wish to analyse in greater depth, or simply avoid altogether, depending upon their view of the value of the research provided.

Source: Sharecast, Marketscreener

Source: Sharecast, Marketscreener