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.

This time, the analyst community is the most bullish it has ever been since our first survey back in 2015, based on stock-specific, public recommendations.

Analysts are more bullish than ever on FTSE 100 and FTSE 250 stocks as we enter 2023

As we enter 2023, 57% of all stock ratings are ‘buys’ and just 9% are ‘sells’ for constituents of the FTSE 100, the joint-highest and joint-lowest scores over the past nine years respectively and matching those of 2022. For the FTSE 350 index 63% of all recommendations are positive ratings and just 8% negative ones, the highest and joint-lowest since we began this survey in 2015.

Shares is not endorsing these views, but investors could be forgiven for wondering whether this is a signal to buy more London-traded stocks or a warning to cut exposure to UK equities.

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.’

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

Herd mentality

This column has backtested the performance on 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 bad news is the analysts’ top picks failed to beat the FTSE 100 index in every year between 2015 and 2022, apart from 2019.

This is not to poke fun. It just shows how hard picking individual stocks can be, even if it is your full-time job. The least popular FTSE 100 names from the 2022 group did badly as expected, with an aggregate total return of -20.5% against the +4.7% provided by the benchmark index. Knowing which names to avoid can be every bit as valuable as knowing which names to buy.

Analysts can take a little more satisfaction from how their labours worked out across the FTSE 350. When it came to the broader index, five of the 10 most popular names among analysts outperformed in 2022, although a couple of clunkers meant the group overall did worse than the FTSE 350. The least popular 10 stocks did terribly as forecast, with an overall negative total return of 28.2%. Only one of the 10 least popular names beat the FTSE 350, so the research was spot on.

High conviction

The conclusion must be that broker research needs to be treated with a degree of caution, certainly in the cases where stocks seem universally popular.

It is when analysts publish ‘sell’ ratings that they really stick their neck out. You can argue it is the picks when analysts go against the crowd that come with greater conviction and thus may be worthy of greater attention.

Anyone prepared to pick their own stocks rather than pay a fund manager or use an index-tracker fund to do it for them must do their own research on individual companies before they even think about buying or selling the shares.

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

With that maxim in mind, investors might like to know which stocks are most liked – and disliked – by analysts at the start of 2023.

The tables 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.

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