The FTSE's top broker recommendations.
It surprised me the other day the notice that there are just four companies in the FTSE 100 (UKX) for which the brokers consensus recommendation is a strong buy. That's what my portfolio software tells me anyway: it's possible other websites collate brokers' recommendations differently.
Now I don't normally pay a lot of attention to brokers' recommendations, but equally it would be perverse to ignore what the City's finest scribblers are saying. City analysts have a great deal of contact with the companies they follow, and specialise in following and researching specific sectors, so they ought to have valuable insights. And in any case, the brokers' recommendations themselves are a piece of market information that can move share prices.
So I would generally have a cursory glance at what brokers say before buying or selling a share, without putting a great deal of weight upon it. But I was intrigued to look further at what these four companies are, to be so distinguished.
Without further ado, the four are iron ore miner Rio Tinto (LSE: RIO), gold miner Randgold Resources (LSE: RRS), International Consolidated Airlines (LSE: IAG) -- which was formed from the merger of British Airways and Iberia -- and fund manager Aberdeen Asset Management (LSE: ADN).
For me, the most illuminating of these is Randgold. Earlier in the year its shares plunged 20% on news of a military coup in Mali, the West African country where most of its operations are located. I thought the market reaction was overdone, especially as Randgold operations in Western Mali seem to be unaffected by trouble in the remote north of the country. At the time brokers were ambivalent to say the least, and certainly not recommending buying.
I suggested investors could profit from this coup and I'm pleased to say that, at 7,350p -- and helped along by QE3 -- the shares have gone up 35% in that time. I've taken my profits while brokers have turned positive.
Now, I don't suggest for a moment this is a case of me being smarter than City analysts. But what I think it does illustrate is the caution and fear of looking silly that weigh on employees of institutions. It's much easier for a private investor to stick his neck out, make a judgment and decide how much he's willing to back it.
International Consolidated Airlines has never been on my radar, so I was surprised to see it rated as, apparently, one of the four most attractive stocks on the FTSE. The old joke is that the best way to make a small fortune in the airline business is to start with a large one. Airline revenues are closely tied to economic cycles, and Spain's ailing economy is a particular drag on the company, which expects to make a small operating loss in 2012. Ailing Quantas has just ended its alliance with BA in favour of Emirates. But analysts presumably like the restructuring potential in Iberia and the cyclical upside.
The asset management business is highly fragmented. Aberdeen Asset Management is one of just three asset managers in the FTSE 100 and, with £183bn of funds under management, is roughly the same size as rival Schroders (LSE: SDR). The smaller Ashmore (LSE: ASHM) specialises in emerging markets.
Aberdeen's funds under management and margins have held up well in a difficult market and, with 40% of revenues coming from Asia, there is room for growth.
It's no surprise to see Rio Tinto on the list. Miners have had a bumpy ride, as market sentiment has waxed and waned in concert with confidence in the future of Chinese demand, the global economy and economic stimuli. All of the big miners are cutting back on capex, and there is an argument that we are witnessing the end of the mining supercycle. But miners are correspondingly cheap, and with projects being cancelled future supply and demand may not be so out of kilter. I'm happy to hold Rio.
Mining is one of the sectors explored in more depth in the Motley Fool's report “Top Sectors of 2012”. To find out which other sectors are tipped for this year, you can download the free report to your inbox by clicking here.
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> Tony owns shares in Rio Tinto but no other shares mentioned in this article.