Stocks outperform global indices

IRISH stocks have outperformed global indices by almost three to one in the first weeks of the year and Goodbody Stockbrokers believe there is room for more growth in the ISEQ.

Goodbody analyst Liam Igoe, in a note circulated to clients yesterday, points out that equities have continued their strong performance into 2004, with global equities up 3% in euro terms since January 1.

"The ISEQ has returned almost three times that amount so far with +8.2% versus 3.0% globally (after a strong relative outperformance in 2003 at +23.1% versus 5.1% for both the US and Britain)," he said.

Mr Igoe notes that the strongest sectors so far in 2004 have broadly copied the 2003 trend consumer cyclicals, financials, industrials, technology and telecoms.

"When benchmarked against the four leading markets and the global index, the ISEQ sectors performed best in five out of seven categories consumer cyclicals (especially Ryanair, Paddy Power, INN), financials (broadly based), healthcare (esp. Elan), industrials (esp. CRH, DCC and Grafton) and utilities (Viridian)," he added.

Mr Igoe said that, looking for value in the ISEQ at current levels, they have subdivided the top 20 companies into three categories.

"Stocks where valuation levels are low by 15-year standards, those that are mid-range and those that have low ratings," he said.

Among the stocks identified by Mr Igoe in the historic low valuation category are: AIB, Bank of Ireland, CRH, Ryanair, Irish Life and Permanent (IL&P), Kerry, Galen, DCC and Fyffes.

Referring back to Goodbody's December strategy picks, they reiterate what they said at that time: "Namely, that our preferred top five picks in the market are Ryanair, DCC and Kerry among the industrials and IL&P and Anglo among the financials, although the valuation metrics of Anglo have clearly moved significantly in the interim.

"These stocks are chosen not only because of their relative ratings but are also influenced by our views on their scope for earnings growth potential in the coming years.

"Revisiting our views on equities for 2004, we opined that, in the early part of the year, the higher beta stocks had further scope for outperformance as they beat market forecasts in Q4/Q1. This has turned out to be the case," he said.

However, Goodbody still hold the view that, as the year unfolds, there will be a swing back to value sectors and four of the five stocks singled out above fall into this category.

"In the case of Ryanair, Kerry and DCC they have a track record that would also qualify them as growth stocks," he said.