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Analysts more bullish than ever on UK stocks as 2022 begins

by LLB Reporter
14th Jan 22 12:24 pm

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.

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.’

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,” says AJ Bell Investment Director Russ Mould.

“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.

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