Everyday research analysts at broking firms are pouring over numbers, tweaking models, meeting management and sifting through annual reports before issuing reports to their institutional clients, who pay big money to hear their opinions.
They don't know everything, but when they change their recommendation from "sell" to "buy", or vice versa, the market listens - and reacts.
So into which companies are the wonks at the big investment banks like Macquarie, Goldman Sachs and UBS telling their clients to put their money? To give you the inside scoop, we've identified the 23 stocks on the ASX that receive a perfect five out of five from the analyst community - the strongest possible consensus "buy" recommendation, as measured by Bloomberg. We limited the field to those companies with at least three analyst opinions.
How one analyst defines a "buy" compared with another can be tricky, as you are not always comparing like with like. Sometimes it's based on the estimated absolute share-price performance over the coming months, other times it's a relative game compared with the sharemarket as a whole. What they do have in common is that an analyst sets a 12-month price target and, factoring in the risk around their estimates, will generally base their recommendation off that. But as you can see, Corporate Travel Management has an implied 12-month return of 9 per cent, well below Linc Energy's 263 per cent, so there's more to it than the distance between the share price now and the estimated number in a year's time.
Looking through the list, it's clear that the analyst community still reckons there are opportunities in the mining sector in the coming 12 months, although there is a bias towards more speculative miners and alternative energy plays. Six of the 23 companies are not expected to make money this financial year. Mining services companies are also well represented.
Of course, a well-placed "sell" recommendation can be just as powerful as a "buy", and there are a number of companies in the analysts' bad books.
Scoring the lowest for consensus analyst recommendations are three real-estate investment trusts, or REITs: Growthpoint Properties, Ale Property Group, and Commonwealth Property Office Fund. Next comes troubled timber company Gunns, followed by Platinum Asset Management. Ten Network, David Jones and Harvey Norman receive the next-lowest consensus scores, with Australian Agricultural Corporation and another REIT, Aspen Group, rounding off the bottom 10.
Does that mean you should forget any thought of buying shares in these businesses? Or dump the ones you already own? Not necessarily it could be the perfect opportunity to pick up an under-appreciated business on a cyclical low. And a consensus "sell" could simply mean that a good business is being way overvalued by the market - the sharemarket is so often a relative game. That also goes for a positive view on a stock.
Finally, keep this in mind: you might be happy to hold on to an "underperforming" stock because you're investing for the long term: three or five years, or longer. Analysts, like much of the professional investment community, are often tied to the short term. Broker recommendations are just one piece of the investment puzzle.
Frequently Asked Questions about this Article…
What does a “five out of five buy” analyst consensus on ASX stocks mean for everyday investors?
A “five out of five buy” is the strongest possible buy consensus from the analyst community as measured by Bloomberg. The list in the article was limited to ASX companies with at least three analyst opinions, so a 5/5 rating means those brokers independently recommend buying. It’s a useful signal, but it’s only one input to your investment decision.
How do broker and analyst recommendations influence ASX share prices?
Analysts at broking firms research companies, set 12-month price targets and issue recommendations. When a well-known analyst changes a call from “sell” to “buy” (or the reverse), the market often listens and reacts, so recommendations can move share prices—especially when issued by big firms.
Why do different analysts’ “buy” ratings sometimes look inconsistent?
Analysts don’t all define “buy” the same way: some base it on expected absolute share-price gains over the next 12 months, others on relative performance versus the market. They also factor in their individual 12-month price targets and risk assumptions. The article gives examples: Corporate Travel Management had an implied 12‑month return of about 9% while Linc Energy’s implied return was about 263%—showing how targets can vary widely.
Which sectors showed up most among the ASX stocks with unanimous buy ratings?
The analyst consensus favoured mining-related opportunities: there was a clear tilt toward mining companies (including more speculative miners and alternative energy plays) and mining services were well represented among the 23 stocks with unanimous buy ratings.
If a company has a strong consensus “sell,” does that mean everyday investors should avoid or dump the stock?
Not necessarily. A consensus sell could reflect an overvalued stock or short-term concerns, but it might also point to a cyclical low and a potential buying opportunity for long‑term investors. The article notes several REITs and other companies with low consensus scores, but cautions that sell ratings aren’t automatic advice to divest.
How should long‑term investors treat broker recommendations?
Use them as one piece of the investment puzzle. Analysts often focus on the short term, while long‑term investors may be happy to hold through short-term underperformance. Consider your time horizon, risk tolerance and other research rather than following broker calls blindly.
What risks should investors note about some companies with unanimous buy ratings?
The article points out that six of the 23 companies with unanimous buy ratings aren’t expected to be profitable this financial year. Many of the opportunities are speculative miners or alternative energy plays, which carry higher risk and uncertainty—so investors should factor that into their decisions.
How were the ASX stocks chosen for the article’s list of top analyst picks?
The list identified 23 ASX stocks that received a perfect five-out-of-five buy consensus from analysts according to Bloomberg, and the selection was restricted to companies with at least three analyst opinions. The piece explains methodology limits and why consensus ratings can still vary in meaning.
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