Goodbody lists its top stock picks for investors in coming year

CRH, KERRY and Irish Life Permanent are among six stocks recommended by Goodbody Stockbrokers as its key investment picks for 2009 – a year in which a deep recession is in store for Ireland, its research team said yesterday.

In its report on the outlook for Irish equities, Goodbody forecasts the Irish economy will contract by 4.2 per cent in 2009.

The forecast means Minister for Finance Brian Lenihan’s acknowledgement on Thursday that the economy would contract by 3 to 4 per cent next year has already been overtaken.

Goodbody equity analyst Eamonn Hughes and economist Dermot O’Leary said the stockbrokers would “remain on the defensive tack” as it entered 2009, picking six stocks on the basis of their strong balance sheets and, in many cases, the diversified nature of their holdings.

Mr Hughes said Irish Life Permanent looked “cheap” and the life franchise’s valuation had suffered from the market’s concern about the bank side of the business.

Buildings material group CRH, set to win new business as a result of US president-elect Barack Obama’s planned infrastructure investment, and food group Kerry are two stocks that could benefit if the US emerges from its recession before Europe, Mr Hughes added.

Kerry is also selected because its valuation is modest relative to its peers in food ingredients.

With deflation set to be a feature of 2009, stocks with high dividend cover, both on an earnings and cash basis, such as CRH, industrial holdings group DCC and fruit distributor Total Produce, will be better insulated.

As insurance prices gain traction, insurance group FBD will also be able to counter the deflationary cycle, according to Goodbody.

“The deflation lessons from the Great Depression and Japan are that highly leveraged enterprises struggle the most,” the report notes. It adds that higher levels of volatility in equity markets mean investors will have to “continue to be trading-oriented, with less emphasis on buy and hold strategies”.

The analysts have also picked cyclical stocks for its “fringe” portfolio that may be worth buying when they hit “specific trigger points”. These stocks are: AIB, Grafton, CPL, Smurfit Kappa, Dragon Oil and Abbey.

Goodbody is forecasting Irish market earnings will decline by 64 per cent from peak to trough.

The Irish stock market has fallen 75 per cent in value since its peak, with financials down 94 per cent.

But Goodbody said it believed the current bear market was entering its third and final phase in 2009.