Broker and Tipster Coverage & Sentiment Differs by Company Size

This week, we use the 38,000+ stock tips currently performance-tracked on the Stockomendation platform to analyse the relationship between a company’s size and the level of scrutiny it typically receives from brokers and tipsters.

We find that the largest companies listed on the London Stock Exchange (LSE) are subject to the most broker and tipster scrutiny, which is expected given the greater appetite for these companies amongst the investment community. For example, the top 25 most frequently-tipped firms on the Stockomendation platform all feature in the most valuable 10% of companies listed on London Stock Exchange, while the top three most frequently-tipped companies – Lloyds Banking Group, AstraZeneca and GlaxoSmithKline – collectively have been subject to more tips than the smallest 150 firms listed on the LSE’s Main Market and AIM.

In the chart below, all companies listed on LSE are divided evenly into quintiles; where the largest 20% of companies listed on LSE are combined together in the first quintile, and the smallest 20% of firms are combined in the fifth quintile. Both brokers and tipsters focus primarily on the largest companies, with over 50% of all tips tracked on Stockomendation being made about these firms. While broker coverage of smaller companies is minimal (only 4.3% of broker ratings concern the bottom two quintiles, representing the smallest 40% of all companies listed on LSE), tipsters fill this gap to some extent, with online publications such as ShareProphets covering a large number of smaller companies on AIM and the Main Market.

Brokers focus on the largest firms on LSE , while tipsters provide more coverage of small companies

The next chart, shown below, shows broker ratings awarded to firms in each of the five quintiles. There is a noticeable pattern here: broker sentiment is comparatively lower towards larger companies, and very high for smaller companies. This is partly due to the small number of tips made, but also because brokers tipping smaller companies are typically the company’s house broker, who are therefore unlikely to offer a ‘sell’ recommendation in most circumstances.

Broker sentiment is most positive for smaller firms

Tipster sentiment is most positive for larger firms

In contrast, tipsters offer more ‘Buy’ tips towards the largest companies (over 70% of all tips for the largest companies offer buy recommendations), and the same is true for large and mid-sixed companies. However, tipsters are much more negative towards smaller companies than brokers. In fact, over half of tips made regarding the smallest companies listed on AIM offer a ‘Sell’ recommendation. This figure was less than 5% for brokers! Tipsters are also much less likely to offer ‘Hold‘ ratings, and are therefore more polarised in their views.

So what’s the message here? There are a few things we can take, but perhaps most pertinent is that exposing yourself to a diverse range of commentary and opinion can be extremely beneficial, though hard to do in an age where social media can serve to strengthen our own confirmation bias. Understanding the bull and the bear-case is essential in making informed decisions, and therefore – whether you typically invest in the largest or smallest companies, or somewhere in between – keeping track of opinions from a range of broker and tipster sentiment can be a useful endeavour.

Stockomendation allows users to see the consensus opinion of all open tips tracked on our platform, and see what our pool of tracked tipsters and brokers are saying for every company listed on the LSE Main Market and AIM. You can use Stockomendation to add companies you’re following to your Watchlist and be notified whenever a new tip is published. You can also click through and view the original tipster research (where available). Our platform allows you to performance-track over 38,000 stock tips. Sign up now and take a look for yourself – it’s FREE!

Disclaimer: The contents of this article should not be considered financial advice. All information correct as at 27th July 2018.