In this post we discuss International Airlines Group and four of its fellow UK 100 blue chip stocks that all share one thing in common: There’s not a ‘Sell’ rating in sight!

Analysts tend to disagree with one another…

It’s natural for different analysts to look at different metrics when analysing stocks – there are so many variables that, when combined with the illogicality of human thought, there’s no real correct answer to the question ‘should I buy XXXX shares today?’

As such, when looking at consensus for stocks one usually finds that the most accurate 12-month performance forecast is the average of many – both bullish and bearish – forecasts. It’s also handy to look at the distribution of recommendations: what percentage is outright bullish? How does that compare to the percentage of outright bearish recommendations? How many brokers are neutral?

Needless to say that if you got all brokers covering a stock into a room together, none would agree wholeheartedly on the method of analysis, let alone a collective recommendation and target price. Importantly though, despite individual analysts disagreeing on a company’s valuation, the average of all target prices is often what shares will move towards over the following weeks or months.

That’s why things get interesting when you notice that there are several stocks currently residing in the UK 100 on which the brokers covering each stock do appear to agree on at least one thing: The shares are currently under-priced. These stocks have no ‘sell’ ratings. Brokers are saying ‘hold’ and ‘buy’ but none are saying ‘sell.’ This means two things:

Firstly that very few, if any target prices will be below the current price. It therefore means the average target price should indicate a healthy amount of upside potential.

Secondly, it’s a significant bullish sentiment indicator. We’re not saying these stocks are a dead cert, just that the balance of opinion is very interesting!

Stocks with no sell ratings

The above table details the 15 stocks in the UK 100 that currently have no sell ratings issued on them by the brokers. Note International Airlines Group topping the list with a staggering 27 ‘Buy’ ratings and consensus seeing an attractive 43% upside to the average target price. This is just one example of many instances of broker bullishness on UK Index stocks. If you thought Brexit and other market headwinds were putting the brakes on growth, think again! We look at five of the most exciting stocks with no sell ratings (on Bloomberg as at 10 May) in more detail below.

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International Airlines Group (IAG)

The reason no broker is currently saying ‘Sell IAG’ stems from the fact that its fundamentals look pretty sound in comparison to other flag carrying peers (International Airlines Group owns British Airways and last year acquired Aer Lingus). Shares trade at a small premium to the sector average P/E ratio for the coming 12-months, which in this case could be seen as a sign that there’s growing market confidence in IAG as a value play.

A recent share price retreat from levels around 620p will have tracked a rising oil price, and with shares now back at 16-month rising support the technicals could take over and present investors with a buy opportunity. While the long term outlook for International Airlines Group is bullish, given the brokers’ views, watch out for nearer term downside. Use of a stop loss can help limit losses in such a case. 

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Shire (SHP)

Pharma giant Shire often flies under the radar of investors, overshadowed as it is by UK 100 supergiant peers Astrazeneca (AZN) and GlaxoSmithKline (GSK). Yet it’s a fundamentally sound company whose shares trade at 13.7x 12-month forward earnings, low compared to Shire’s ‘speciality pharma’ sector average, but not suspiciously low like some of the sector’s known underperformers – namely the US’s Valeant!

Technically, support at 4-year rising lows and now the 200-week MA continues to indicate a bullish outlook for the stock. Its defensive nature means it may have suffered of late from a risk rally in equity markets, but the value element remains evident in SHP.

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3i Group (III)

The London listed private equity group’s shares have rebounded to trade flat for the YTD, after a disappointing set of 2016 results impacted the price. The recovery was widely expected by analysts given the company’s positive outlook – expectations are for 18% growth this year. A recent break back above the 200-day moving average is encouraging for growth seekers, with that now hopefully reverting to support for a further 22.5% northerly march to the average target price of 588p.

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Prudential (PRU)

Another stock that’s fared relatively poorly YTD – shares are down 17% since end-Dec. Yet Prudential could now represent the best value of the UK’s insurance pack. With EPS growth of 30% in 2015, P/E ratios around the sector average and a dividend yield of nearly 4%, technical support around 1248p could provide the base for a re-test of the hitherto ‘unbreakable’ 200-day MA and return to the March 2015 highs around 1700p.

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Barratt Developments (BDEV)

BDEV represents a great opportunity in the UK’s house building sector. Shares have suffered so far this year because of wild Brexit speculation concerning house prices, yet the company posted good 2015 results and a solid outlook.  Could BDEV present a good opportunity to ride a potential relief rally post-vote? Its healthy 5.6% dividend yield is certainly not to be sniffed at!

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As always, the use of stop losses when trading equities can help manage the risk posed by short term market fluctuations.

For more information on any of the stocks discussed – and those that aren’t, access our no nonsense research offering here.

Augustin Eden, Research Analyst (16 May)

Accendo Markets does not have a rating or target price on any of the stocks mentioned above.