Analysts more bullish than ever on UK stocks as 2022 begins

“As we enter 2022, 57% of all analysts’ recommendations are buys and just 9% are sells for constituents of the FTSE 100, the highest and lowest scores over the past eight years. For the FTSE 350 index 59% of all recommendations are positive ratings and just 8% negative ones, so even after last year’s healthy share price gains the analysts are more bullish than ever,” says AJ Bell Investment Director Russ Mould. “Momentum players may feel inclined to go with the positive flow. Contrarians may take the opposite view as they bear in mind legendary investor Sir John Templeton’s maxim that ‘bull markets are founded on pessimism, grow on scepticism, mature on optimism and die on euphoria.’

Source: Refinitiv data, analysts’ consensus

“Traces of euphoria may be hard to find in the UK equity market, but one way to assess which path may be the best one to follow is the study the efficacy of individual recommendations over time.

“The bad news is the analysts’ top picks failed to beat the FTSE 100 index in 2015, 2016, 2017, 2018, 2020 and now 2021, despite all of their diligence.

“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, especially given the cross-currents which prevailed in 2021, including viral variants, supply chain disruption and gathering inflation on one side and fiscal stimulus, monetary stimulus and an economic upturn on the other.

“To further the case for the defence, the degree of underperformance was relatively modest and eight of the ten most popular names, based on ‘buy’ ratings, provided positive total returns, as did the top ten picks overall. 

Better still in 2021, the least popular names in the FTSE 100 did badly. Knowing which names to avoid can be every bit as valuable as knowing which names to buy, if not more so.

Source: Refinitiv data, analysts’ consensus

“Analysts can also take satisfaction from how their labours worked out across the FTSE 350. 

“When it came to the broader index, their ten most popular names massively outperformed and the least popular ten stocks massively underperformed. Six of the least-favoured names produced negative total returns even as the FTSE 350 generated a comfortable mid-teens percentage advance.

“Perhaps the message here is that it is easier to add value further down the market cap chain, where there is less attention being paid. Across the FTSE 100 there is an average of 18 analysts looking at a stock, compared to an average of 13 across the FTSE 350 (and thus just 10 across the FTSE 250 companies only).

Source: Refinitiv data, analysts’ consensus

“That said, even the least popular FTSE 350 names grubbed out a 7.1% positive total return, so the ultimate conclusion still probably has to be that broker research needs to be treated with a degree of caution (assuming that private investors can get their hands on it in the first place). 

“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. 

“At best, broker research may be a useful filter, at worst a contrarian indicator, especially given Warren Buffett’s maxim’s that ‘you cannot buy what is popular and do well” and “you pay a high price for a cheery consensus.

With that maxim in mind, investors might like to know which stocks are most liked – and disliked – by analysts at the start of 2022. 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: Refinitiv data, analysts’ consensus. Data as of 5 January 2022.

Source: Refinitiv data, analysts’ consensus. Data as of 5 January 2022.