Are broker stock ratings worth the paper they're written on?

Dr David Allen

Plato Investment Management

It's not uncommon to hear broker research ratings being dismissed by investors. So, in this brief wire, I'll outline some of the Plato Investment Management team's data and perspectives on the topic.

One key area of criticism is conflicts of interest. It is true that investment banking (advisory and underwriting) is one of the most lucrative revenue sources at the very same companies that produce company ratings. 

At the three largest global banks, JP Morgan, Goldman Sachs, and Morgan Stanley, investment banking makes up 50%, 40%, and 40% of revenue respectively. The investment banks of course counter that Chinese walls are in place preventing the corruption of analyst research by their investment banking departments.

The chart below shows the breakdown of ratings globally as of this morning - 51% are Buys and just 5% are Sells. 

If the market is even close to equilibrium, one would expect the number of buy and sell ratings to be roughly equal. This bias towards Buys is persistent over history, and rightly shakes confidence in the utility of broker ratings.

Source: Plato Investment Management, 2023

So, how well do broker analyst ratings predict future stock price performance? 

The result may surprise you. 

In the chart below we show the one year forward total return of stocks by consensus broker rating for companies in the MSCI World All Cap index for the period 2002-2023. 

Buys (10.5% p.a.) outperform Overweights (10.4% p.a.), Overweights outperform Holds (8.9% p.a.), Holds outperform Underweights (2.6% p.a.), and Underweights outperform Sells (-6.3% p.a.). 

The Sell ratings are particularly informative. 

The potency of Sell ratings makes perfect sense when you consider internal pressures. For a broker to give a company a Sell rating, you could indeed surmise the company needs to be a real basket case. 
Source: Plato Investment Management, 2023

A large number of Sell ratings is one of Plato’s 100+ Red Flags that we look at before making any investment, long or short.

Here are the top five ASX 300 stocks with the poorest consensus sell-side ratings.

Poorest consensus broker ratings


GICS sub industry

Analyst consensus

BWP Trust

Retail REITs


Appen Ltd.

IT Consulting & Other Services


Reece Limited

Trading Companies & Distributors


Platinum Asset Management Ltd

Asset Management & Custody Banks


Sigma Healthcare Ltd

Health Care Distributors


And here's five of the strongest.

Strongest consensus broker ratings


GICS sub industry

Analyst consensus

Resolute Mining Limited



Life360 Inc.

Application Software


Lake Resources N.L.

Diversified Metals & Mining


Boss Energy Limited

Coal & Consumable Fuels


Vulcan Energy Resources Ltd.

Diversified Metals & Mining


Final word

The severe slant towards Buy ratings suggests analysts are loathe to give companies Sell ratings. 

However, despite the potential conflicts that do cloud views research ratings, the hard data shows that on average and across time, broker analysts tend to get it right.

For full transparency, The Plato Global Alpha Fund is currently short Australian commercial REIT, BWP Trust.

Fund in Focus: Plato Global Alpha Fund 

This communication is prepared by Plato Investment Management Limited (‘Plato’) (ABN 77 120 730 136, AFSL 504616) as the investment manager of the Plato Global Net Zero Hedge Fund (ARSN 654 914 048) (‘the Fund’). Pinnacle Fund Services Limited (‘PFSL’) (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund. Link to the Product Disclosure Statement: Link to the Target Market Determination: For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance. Whilst Plato, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Plato, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication. Any opinions and forecasts reflect the judgment and assumptions of Plato and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future.

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Dr David Allen
Head of Long Short Strategies
Plato Investment Management

David is Plato Investment Management’s Head of Long Short Strategies and Co-Portfolio Manager of the Plato Global Alpha Fund. Prior to joining Plato in 2018, David worked for JP Morgan Asset Management in London for 15 years, where he designed and...

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