Analysts’ ‘sell’ recommendations fall flat once again

Analysts, however, did see a positive return from their FTSE 350 ‘buy’ ratings, returning 23.2%.

Investors who purchased shares in companies that analysts were recommending to sell would have seen a return higher than the index in 2019, new research from AJ Bell shows.

According to the online broker, had an investor purchased the shares listed on the FTSE 350 index that were rated as a ‘sell’ by analysts in 2019, they would have seen a total return of 28.9%. In comparison, the FTSE 350 index returned 19.2%.

Analysts, however, did see a positive return from their FTSE 350 ‘buy’ ratings, returning 23.2%.

According to Russ Mould, investment director at AJ Bell: “The good news, from the brokers’ point of view, was that the FTSE 350 stocks with the greatest percentage of ‘buy’ ratings went up and – on average – provided a total return which exceeded that of the index.”

In previous years, analysts’ combined top picks had failed to beat the index.

Mould says: “The point of this exercise is not to poke fun at the analysts (I used to be one). It just shows how hard picking individual stocks can be, even if it is your full-time job.”

Analysts also fared better when it came to the FTSE 100, with buy ratings returning 23.2% compared to 18.4% from their sell ratings and 17.3% from the index.

Mould says: “The picture is a bit rosier for analysts if you just look at the FTSE 100, where the stocks that came with the highest percentage of buy ratings beat both the index and the names they were keenest to avoid.”

As for 2020, Mould notes that brokers now have the lowest percentage of buy ratings and higher percentage of sell ratings since AJ Bell started covering analysts’ buys and sells in 2015. He adds: “Wilful contrarians may be cheeky enough to think it is a ‘buy’ signal, even if logically there should be fewer buys and more sells the higher headline indices go.”

But, Mould also warns: “The data also suggest 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.”

FTSE 350 - most popular stocks     FTSE 350 - least popular stocks    
  Buy ratings Total returns in 2019   Sell ratings Total returns in 2019
Avast 100% 63.10% Pearson 56% -30.10%
Polypipe 100% 68.60% Marks & Spencer 52% -5.00%
Coats 100% -6.40% Millennium & Copthorne 50% 47.60%
BCA Marketplace 100% 10.40% Frasers Group 50% 92.90%
Energean Oil & Gas 100% 48.00% Admiral Group 50% 19.10%
St. Modwen 100% 27.40% Royal Mail 47% -7.80%
Telecom Plus 100% 8.70% Wetherspoon JD 43% 50.50%
CLS 100% 46.20% IWG 43% 111.00%
Primary Health Properties 100% 49.20% Hargreaves Lansdown 43% 6.90%
Sirius Minerals 100% -82.90% TalkTalk Telecom 40% 4.10%
Total   23.20% Total   28.90%
FTSE 350 51% 19.20% FTSE 350 11% 19.20%


Source: Sharecast, Broker Forecasts, Refinitiv data. Percentages of ‘buy’ and ‘sell’ ratings as of 2 January 2019

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