When one thinks of countries with troubled economies, Ireland probably comes near the top of the list. Once the envy of countries around the world, the so-called Celtic Tiger has since been humbled amid the ongoing financial crisis. Real estate prices in Ireland have tumbled 40% from 2007, unemployment is at 14% and most of the country's banks have been nationalized to avoid their collapse. The Emerald Isle would seem to be on its knees.
But, while the Irish economy is certainly weak, it may not be nearly as soft as the media suggests. The Bank of Ireland reports that, in the first quarter of this year, real gross domestic product in the country rose 1.3% -- not strong, but certainly not recessionary. The bank also reports, "Ireland has a strong mix of high value merchandise and service exports, which have proven resilient as global growth has slowed."
The Irish newspaper Independent just reported, "Ireland has been given a ringing endorsement by the [European Union] for sticking to the terms of its bailout deal." Bloomberg reports, "Irish bonds are delivering the best returns in the world as investors bet the former Celtic Tiger is the most likely of the euro area's bailed-out nations to grow itself out of trouble." Yields on the country's 10-year bonds are down from over 14% in mid-July to 8.6% in mid-September.
The bottom line: Don't count Ireland out. As longtime readers know, in choosing stocks I generally use computerized strategies based on the writing of Wall Street gurus -- and a couple of Irish-based companies are currently liked by these strategies. One is Accenture (ACN), a global management consulting, technology-services and outsourcing giant, with more than 223,000 employees operating in more than 120 countries.
My Warren Buffett-based strategy thinks Accenture has considerable potential. It is a major player in its market, which is essential for the Buffett strategy to recommend a stock. Also, Accenture's debt --zero -- is a major plus. Further, the company is generating very high average returns on equity (48% over the past 10 years), returns on total capital (58.9% during the last decade) and positive free cash flow per share.
Alone among the strategies I use, the Buffett one calculates a likely annual return the investor can expect over the next 10 years. It uses two approaches to calculate the return and then averages them, and wants this number to be about 15% or more. With Accenture, the strategy calculates an expected rate of return of 16.6% -- which is, of course, excellent.
The second Irish company attracting interest from my strategies is Icon (ICLR). This is a global contract research organization that services the pharmaceutical, biotechnology and medical-device industries by doing contract drug development, data management, laboratory imaging and clinical testing. The company, which started in 1990 with five people, now employs over 7,100 in 38 countries.
My strategy modeled after Peter Lynch's investment approach favors Icon. This strategy particularly looks at the P/E/G ratio, or the price-to-earnings ratio relative to growth, as a measure of how much an investor is paying for growth. Required by the strategy is a P/E/G of 1.0 or less, and 0.5 or less is considered really notable. Icon is right near this barrier with 0.52. Like Accenture, it carries no debt, which is also in its favor.
Both of these companies are strong performers with well-priced stocks, and the fact that they are Irish should not be a turn-off to investors. Ireland is not dissolving into the sea, and these are strong companies that will likely continue performing well.