Equities tipped for recovery in 2008

TWO leading stockbroking firms expect Irish equities to perform much better in 2008 after a poor 2007 left the Irish market down 27%.

Davy Stockbrokers said yesterday Irish shares are being valued at just eight times 2008 earnings, the lowest price-to-earnings ratio since the mid 1980s. The ISEQ lost 26% of its value in 2007, leaving Irish equities trading at a 30% discount to other European markets.

“We believe time will prove markets to have been overly pessimistic, and we expect Irish equities to significantly outperform in 2008,” Davy Stockbrokers said yesterday.

Dolmen Securities said in its 2008 outlook that the Irish market has suffered disproportionately relative to other markets due to heavy weighting towards banking and construction-related stocks.

Dolmen said trading multiples at which some of the companies are currently trading suggests potential falls in earning of up 20%.

Dolmen is forecasting the ISEQ to hit 8,800 by the end of this year. The market closed at just under 7,000 yesterday.

Dolmen said it retained its “overweight” stance on companies in the beverage sector and increased its weighting in utilities to reflect the sector’s attractions of strong cash flow, above average dividend yield and the potential for further sector consolidation.

“Elsewhere, we trim our exposure to the banking sector, as the outlook remains unclear for the next quarter. We reduce our holding of international banks preferring Bank of Ireland, Allied Irish Bank and Anglo Irish Bank as in our view the Irish financials offer exceptional medium- to long-term value.”

The broker tipped 12 stocks to watch in the first quarter of 2008: AIB, British insurer Aviva, BP, Hewlett Packard, Coca-Cola, CRH, IAWS, Irish Life & Permanent, Microsoft, Paddy Power, Ryanair and Vodafone.