Stocks including British American Tobacco, Smurfit Kappa and Greencore are among those with the highest percentage of broker buy ratings in the FTSE 100 and FTSE 350 lists, according to a new study by AJ Bell. However, it has also suggested that, based on past experience, a high percentage of buy ratings isn’t a guarantee of success.
The pension and investment firm analysed the most popular stocks based on the current percentage of broker buy ratings for the coming year, finding almost universal broker approval for British American Tobacco (94%) and Smurfit Kappa (93%) on the FTSE 100 list, and a 100% buy rating for convenience-foods company Greencore on the FTSE 350 list.
Other firms that rated highly in the eyes of brokers included NMC Health (88%), DCC (86%) and Ashtead (83%) on the FTSE 100 list, and National Express (100%), Equiniti (100%) and JD Sports (100%) on the FTSE 350 list, to name but a few.
The firm also analysed the stocks that are least popular in the eyes of analysts, noting, ‘The ten most aggressively sold names outperformed both the FTSE 100 and the FTSE in 2017.’
Among the names to feature on this list are Marks & Spencer (46% sell rating) and clothing retailer Next (43% sell rating).
Underperformed
According to AJ Bell, the FTSE 100 firms that attracted the highest percentage of analyst buy ratings last January markedly underperformed the index during the year, delivering a negative return.
In addition, the ten FTSE 350 firms that had the greatest percentage of buy ratings in the first week of January 2017 rose by 35.4% between them.
The firm undertook the research to illustrate the potential impact of the Markets in Financial Instruments Directive, or Mifid II, which became effective on 3 January, creating harmonised regulation for investment services across the 31 member states of the European Economic Area.
Mifid II
“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,” commented Russ Mould, an investment director at AJ Bell.
“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 need to be treated with kid gloves, especially when it comes to the FTSE 100,” Mould continued, suggesting that its study shows that the brokering 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 its shares,” said Mould.
AJ Bell sourced its data for the study from Digital Look, Broker Forecasts and Thomson Reuters Datastream. AJ Bell was formed in 1995 and is one of the largest providers of online pension, investment and stockbroker services in the UK.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
