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Buy, sell or ignore? – research reveals equity analysts’ woeful record on FTSE 350 stocks in 2016

10th February 2017

The usefulness of equity analysts’ buy, hold and sell signals have been cast into doubt by research from platform A.J Bell.

The ten least popular stocks in the FTSE 350 – those with the greatest number of ‘sell’ ratings from analysts – beat the most popular ones and the index hands down in 2016.

The debate over just how much value is added by broker research is even more sensitive than usual at the moment, as fund managers assess how much or whether to pay for research amid a regulatory drive toward greater transparency on fees within the industry.

The cost of this research is routinely passed on to retail fund investors over and above the annual charge they pay for a fund – estimated at £1.5 billion in 2012 by the UK’s watchdog the Financial Conduct Authority.

AJ Bell has analysed the FTSE 350 (excluding investment trusts) and the number of broker buy, hold and sell recommendations per stock at the start of 2016 and how the most and least popular companies did across the year. The results make for sombre reading for those investment banks and brokerages looking to justify hefty fees for access to their analysis.

FTSE 350 stocks with highest proportion of buy ratings in Jan 2016:

Broker ratings, as of January 2016 2016 share
Buy Hold Sell % Buys price change
NMC Health 8 0 0 100% 83.7%
RPC 6 0 0 100% 37.9%
Vectura 5 0 0 100% -22.2%
Lookers 5 0 0 100% -36.6%
Interserve 5 0 0 100% -34.3%
Ibstock 4 0 0 100% -16.0%
DFS Furniture 4 0 0 100% -31.7%
Telecom Plus 3 0 0 100% 9.8%
Keller 3 0 0 100% 1.3%
John Laing 3 0 0 100% 29.0%
AVERAGE       100% 2.1%
           
FTSE 350 1,939 1,598 470 48% 12.5%

Source: Digital Look, www.brokerforecasts.com. Broker ratings data compiled on 22 January 2016. Performance data covers calendar 2016.

FTSE 350 stocks with highest proportion of sell ratings in Jan 2016:

Broker ratings, as of January 2016 2016 share
Buy Hold Sell % Sells price change
Electrocomponents 1 4 6 55% 96.0%
Wetherspoon JD 3 5 9 53% 15.5%
Coca-Cola HBC 0 8 8 50% 14.8%
Evraz 1 6 7 50% 195.8%
Vedanta 2 3 4 44% 230.7%
Rotork 1 11 8 40% 33.2%
Morrisons 4 9 8 38% 54.3%
Persimmon 0 5 3 38% -14.4%
Intl. Pers. Finance 5 0 3 38% -41.2%
TalkTalk Telecom 5 7 7 37% -23.2%
AVERAGE       44% 56.2%
           
FTSE 350 1,939 1,598 470 48% 12.5%

Source: Digital Look, www.brokerforecasts.com. Broker ratings data compiled on 22 January 2016. Performance data covers calendar 2016.

The picture is the same if you look at the FTSE 100 in isolation:

FTSE 100 stocks with highest proportion of buy ratings in Jan 2016:

 

Broker ratings, as of January 2016 2016 share
Buy Hold Sell % Buys price change
International Cons. Airlines 27 3 2 84% -25.9%
Dixons Carphone 10 1 1 83% -31.4%
Aviva 16 3 1 80% -7.1%
Prudential 16 3 1 80% 4.0%
Ashtead 10 2 1 77% 39.4%
GKN 12 3 1 75% 6.6%
3i 6 2 0 75% 43.4%
TUI AG 9 2 1 75% -6.8%
Land Securities 14 5 0 74% -11.5%
Experian 14 5 0 74% 25.6%
AVERAGE       78% 3.6%
           
FTSE 100 992 772 252 47% 14.4%

Source: Digital Look, www.brokerforecasts.com. Broker ratings data compiled on 22 January 2016. Performance data covers calendar 2016.

 

FTSE 100 stocks with highest proportion of sell ratings in Jan 2016:

 

Broker ratings, as of January 2016 2016 share
Buy Hold Sell % Sells price change
Coca-Cola HBC 0 8 8 50% 14.8%
Persimmon 0 5 3 38% -14.4%
Royal Mail 4 5 5 36% 1.8%
Kingfisher 7 8 8 35% 4.2%
Anglo American 5 13 9 33% 279.0%
Rolls Royce 5 12 8 32% 19.5%
Sainsbury 4 11 7 32% -3.8%
Sage 7 6 6 32% 8.0%
Admiral Group 2 7 4 31% 7.9%
Aberdeen Asset Mgt. 2 10 5 29% -10.6%
Total       35% 30.7%
           
FTSE 350 992 772 252 13% 14.4%

Source: Digital Look, www.brokerforecasts.com. Broker ratings data compiled on 22 January 2016. Performance data covers calendar 2016.

Russ Mould, AJ Bell investment director, says: “Perhaps the greatest lesson from these figures is that they back up Jim Rogers’ assertion that ‘The more certain something is, the less likely it is to be profitable’ as buying the stocks where bullish conviction was strongest and avoiding or selling the ones where bearish conviction was strongest would have been a quick road to the poorhouse in 2016.

“Looking at the bare data cynics would say the analyst research has little or no value at all– other than perhaps giving a steer that investors should do the opposite – and it is unlikely that the broking industry will be able to sustain an average of 13 analyst ratings per stock over the medium term, given the costs involved.

“From a retail investor’s perspective, this shows the importance of doing your own research and not blindly relying on the consensus views of the ‘experts’. If you don’t understand the business, aren’t sure the company has pricing power, don’t trust the management or fear the shares are expensive, you may need to think again.”

“The 2016 figures raise the question of which stocks had the highest percentage of ‘buy’ and ‘sell’ ratings as we head deeper into 2017.

“January’s performance data looks more promising for the analysts, as the ten most popular selections by percentage of buy ratings are outperforming both the FTSE 350 and the ten stocks with the greatest percentage of ‘sell’ ratings. However, it is early days and we shall follow these 20 names with particular interest for the rest of the year.”

FTSE 350 stocks with highest proportion of buy ratings in Jan 2017:

Broker ratings, as of January 2017 2017 share
Buy Hold Sell % Buys price change
Paysafe 9 0 0 100% 6.2%
RPC 9 0 0 100% 0.0%
Sophos 9 0 0 100% -0.3%
JD Sports 5 0 0 100% 10.5%
John Laing 5 0 0 100% -1.7%
Diploma 4 0 0 100% -0.2%
Polypipe 4 0 0 100% 5.1%
Savills 4 0 0 100% 13.8%
Elementis 3 0 0 100% -2.0%
NMC Health 3 0 0 100% 12.4%
AVERAGE       100% 4.4%
           
FTSE 350 1,846 1,531 581 47% 0.6%

Source: Digital Look, www.brokerforecasts.com. Broker ratings data compiled on 9 January 2017. Share price change data covers 1 January to 6 February 2017.

FTSE 350 stocks with highest proportion of sell ratings in Jan 2017:

Broker ratings, as of January 2017 2017 share
Buy Hold Sell % Sells price change
INTU 1 4 10 67% -5.3%
Ferrexpo 3 1 7 64% 13.8%
Rolls Royce 2 5 12 63% 1.9%
Metro Bank 2 1 4 57% 18.8%
CYBG 2 5 8 53% 0.4%
Morrisons 0 8 9 53% 3.8%
RBS 2 10 13 52% -0.3%
Grafton 5 4 9 50% 8.9%
Millennium & Copthorne 0 2 2 50% -7.7%
Mitie 0 6 6 50% -18.8%
AVERAGE       56% 1.5%
           
FTSE 350 1,846 1,531 581 47% 0.6%

Source: Digital Look, www.brokerforecasts.com. Broker ratings data compiled on 9 January 2017. Performance data covers 1 January to 6 February 2017.

 

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