Davy Stockbrokers tips CRH, UDG Healthcare and Aryzta for 2014
EARNINGS and cash delivery, combined with balance sheet strength, will be the key factors in selecting stocks that will deliver returns this year, according to Davy Stockbrokers.
Pinning its colours to the mast, the broker reckons that stocks including CRH, UDG Healthcare and Aryzta are among those that will come up with the goods in 2014.
Stocks posted strong gains in 2013, with the benchmark S&P 500 rising nearly 30pc and the European STOXX 600 index climbing over 17pc. Ireland's Overall ISEQ Index was the best performer among European indices, rising 33pc in 2013
"The positive move in markets came despite a sharp downgrade of earnings forecasts," noted Davy. "This was particularly evident in Europe, where 2013 market earnings per share forecasts declined by 13.4pc during the year and 2014 forecasts fell by almost 12pc.In Europe, the decline in earnings forecasts has been across all sectors as economic recovery failed to materialise in the region," added Davy. "This recovery is now forecast for 2014, with STOXX 600 earnings per share expected to increase by over 14pc."
It reckons that food group Aryzta will benefit, with Davy insisting that the company's growth potential and strong returns are not reflected in its current share valuation.
It said the company was engaged in ongoing improvement in operational efficiency. With a strong client base, it should also be able to leverage its product base across the US.
CRH, which is now headed by new CEO Albert Manifold, could also be a strong performer.
Davy said that CRH management has a target of restoring group returns to 10pc, "which, if achieved, implies a share price of over €26." CRH was trading at €18.94 in Dublin yesterday.
Shares in packaging group Smurfit Kappa should breach €20, Davy said.
It noted that the stock is currently changing hands based on an EBITDA rating that's lower than that of its European or US peers.
"We believe this ratings gap will continue to close and, combined with positive earnings momentum, will drive the share price to over €20."
Based on the potential for ongoing improvements for the Irish economy, Davy is betting that recruitment firm CPL, Independent News & Media, and Bank of Ireland are among the stocks that will benefit.
Ferry group ICG and insurer FBD could also be solid plays, according to Davy.
Other top picks are small-cap stocks such as travel software firm Datalex, which provides revenue-enhancing software solutions to leading airlines around the world.