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The British shares tipped for the biggest gains – and those forecast to slump

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·4 min read
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Stock market
Stock market

A single professional stock analyst's view – no matter how well they are paid – is far from a foolproof guide as to whether a share is worth buying or selling.

But taking the views of the City’s investment research houses in aggregate, to capture the wisdom of the crowd, can offer DIY investors a more valuable insight into which stocks to trade.

Wealth manager Brewin Dolphin has canvassed the "buy", "sell", and "hold" calls on FTSE 100 companies to reveal a comprehensive picture of which stocks professional analysts expected to perform well and poorly, and by how much they believe the shares could fall or rise.

It gave companies a rating by rewarding 10 points for a "buy", five points for a "hold" and nothing for a "sell", then dividing the score by the number of analysts researching the company.

Brewin Dolphin found that house builder Taylor Wimpey enjoyed the highest average rating by analysts, with 19 advising clients to buy the shares and just one recommending a holding.

Not only could Taylor Wimpey's shares rise by 27.5pc to reach its average price target, they are also forecast to yield 5.6pc in dividend payments over the next 12 months.

Packaging group Smurfit Kappa, private equity investor 3i and software company Aveva are also among the favourites of analysts, who have target prices which average more than 10pc higher than their current share prices.

Buoyed by its role in the development of Covid-19 vaccinations, AstraZeneca is another to feature in the top 10, while analysts are forecasting continued gains for JD Sports after a strong run for shares in the sportswear retailer.

Vodafone is tipped for the biggest share price rise, of 45pc, if it climbs to the analysts' average target. Of the 27 analysts covering the shares, 24 rate them a "buy", alongside one "hold" and two analysts advising clients to sell. The shares have fallen 6pc this year but are forecast to yield 6.7pc in dividend payments over the next 12 months.

Rob Burgeman, of Brewin Dolphin, said the top picks were businesses that had successfully transitioned to the "new normal" brought about by Covid-19.

"JD Sports has done exceptionally well from e-commerce, while Smurfit Kappa has benefited from the same trend in a different way through its packaging products. Similarly, AstraZeneca has been at the forefront of the development of vaccinations," he said.

Shell and Vodafone’s inclusion in the top 10 might come as a surprise to most, he noted, as they were considered "old economy" stocks struggling in the modern world.

"However, the medium-term prospects for a sustained higher oil price mean analysts seem to be relatively bullish on Shell, and the fact its shares remain some way off pre-Covid peaks means there is room for growth, particularly as the company moves towards net zero," said Mr Burgeman.

"Vodafone should be among the top beneficiaries of the adoption of 5G, but the cost of associated infrastructure is a significant consideration for potential investors," he added.

Among the stocks with the lowest analyst ratings are companies which were hit hard by the pandemic, such as aircraft engine maker Rolls-Royce. Of the 21 analysts who cover the shares, 10 are advising their clients to sell them, with six rating the shares a "hold" and just five labelling them a "buy".

"The bottom 10 are largely made up of the companies badly affected by the pandemic,'" said Mr Burgeman.

"Rolls-Royce’s business model relies on aircraft being in the sky, which seems unlikely to return to the same levels as before in the near term."

Other poorly rated stocks are those which have enjoyed a strong run that analysts don't expect to last, such as Spirax-Sarco Engineering, B&Q-owner Kingfisher and safety equipment manufacturer Halma. Spirax-Sarco is forecast to deliver the biggest share price loss, of 19pc, should the shares fall to the average target price analysts have placed on the company.

Admiral has the worst overall rating, the product of just three of the 19 analysts who cover the shares rating them a "buy". Eight are advising their clients to sell them, with the same number rating the shares a "hold". Analysts' average price target for the shares is 16pc below their current price.

However, AJ Bell, the fund shop, found that broker research, even taken in aggregate, needed to be treated with a degree of caution.

At the start of 2020, it examined the stocks with the highest number of "buy" ratings by analysts. It found that one year later, the 10 most popular shares did far worse than the index.

To compound that dismal showing, the 10 stocks with the greatest percentage of "sell" ratings actually generated a positive total return between them, even though the FTSE 100 failed to do so.

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