Every year this column tracks the ratings put on stocks across the FTSE 100 and FTSE 350 by the investment banks which provide research on the UK equity market. What catches the eye this year is that the analyst community is the most bullish (and least bearish) it has ever been since our first survey back in 2015, based on stock-specific, public recommendations.

Analysts have become progressively more bullish over the past three years. While this does not look so smart in terms of the UK market’s sluggish overall performance, it makes sense, as the FTSE 100 and FTSE 350 continue to lag their global peers and thus become progressively cheaper on a relative basis (and an absolute one, as earnings and dividends continue to grow).

As we enter 2024, 59% of all stock ratings are buys and just 8% are sells for constituents of the FTSE 100, the highest and lowest scores in a decade. For the FTSE 350 index 62% of all recommendations are positive ratings and just 7% are negative, again the highest and lowest scores since 2015.

We are not endorsing these views, but investors could be forgiven for wondering whether this is a signal to buy more London-traded stocks or actually a warning to cut exposure to UK equities. Momentum players may feel inclined to stick with US equities and join the herd in running with the ‘Magnificent Seven’ US tech stocks. Contrarians may take to heart Mark Twain’s maxim that: ‘Whenever you find yourself on the side of the majority it is time to pause and reflect.’ This might lead them to ponder whether the analysts are on to something as they champion the unloved, and thus potentially undervalued, UK stock market.

One way to research which path may be the best one to follow is to assess the efficacy of individual analyst recommendations.

A GOOD YEAR

This column has back-tested the performance of the most and least popular stocks at the start of a year, as measured by the percentages of ‘buy’ and ‘sell’ ratings attributed to them by analysts.

The good news is that the most popular picks outperformed the FTSE 100 in 2023 (after similar success in 2019) to suggest there may be some truth in the idea that the huge flows of money into passive instruments such as exchange-traded funds (ETFs) mean there are opportunities for skilled stock-pickers.

Sceptics will counter by saying that the least popular FTSE 100 stocks with analysts, as ranked by the percentage of ‘sell’ ratings attributed to them, went up more than the most popular ones and the index overall.

Analysts will take less satisfaction from how their labours worked out across the FTSE 350. When it came to the broader index, the most popular selections marginally underperformed the index and the least popular ones outperformed hugely.

This is not to poke fun. It just shows how hard picking individual stocks can be, even if it is your full-time job (and this column should know, having been an equity analyst at a leading investment bank from 1993 to 2005). No analyst sets off with the intention of joining the consensus. It just so happens that their views shape that consensus and almost by definition the consensus is priced in quickly, so if anything unexpected happens (as it tends to) then share prices will diverge from the anticipated path.

Analysts are more bullish than ever on FTSE 100 and FTSE 250 stocks as we enter 2024

HIGH CONVICTION

The ultimate conclusion still probably has to be 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), certainly in the cases where stocks seem universally popular.

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 before they even think about buying or selling any of its shares.

In sum, Warren Buffett seems spot on with his observation that, ‘you cannot buy what is popular and do well’.

The stunning performance of the Magnificent Seven in America will put that to the test once more in 2024 and, closer to home, investors might like to know which stocks are most liked – and disliked – by analysts at the start of 2024. The 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.

Brokers’ top FTSE 100 picks beat the index in 2023 (but so did the least popular names)

Brokers’ top FTSE 350 picks did not beat the index and the least popular names did in 2023

The 10 most and least popular FTSE 100 stocks with analysts at the start of 2024

The 10 most and least popular FTSE 350 stocks with analysts at the start of 2024

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