Brokers are as downbeat as they've ever been on Australian large-cap stocks

Photo by James D. Morgan / Getty Images)

Australian large cap stocks are on the nose, at least among Australia’s analyst community.

As this excellent chart from Tim Baker and Joseph Kim, Australian equities strategists at Deutsche Bank, reveals, the number of broker ‘buy’ ratings on ASX 100 stocks — the largest of the large — currently sits near record lows.

Baker and Kim suggest this shows “very low conviction amongst the analyst community”.

With brokers downbeat on the prospects for large cap stocks, Baker and Kim decided to look at recent movements in share prices compared to changes in broker recommendations “to generate some stock ideas”.

The pair came up with this excellent scatter plot chart that tracks changes in both metrics seen over the past two months.

It’s a beauty, isn’t it?

Individual stocks are broken down into four quadrants. Those in left hand side of the chart have seen broker downgrades, while those on the right have received upgrades. In the top half, stocks have seen their share prices increase, while those in the bottom half have fallen.

While these are not recommendations from Deutsche, those in the bottom right could be deemed to be new buying opportunities for investors, while those in the top half may be at risk of succumbing to selling based on previous outperformance.

While this analysis is based off recent changes to broker recommendations and share price movements, if you’re thinking about rejigging your portfolio, there’s more than a few names that you can have a look at.

As the contrarian saying goes, be greedy when those are fearful, and fearful when others are greedy.

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