Opinion on  The Governor and Company of the Bank of Ireland (IRE)
A battered bank worth looking at

Ideas can come from anywhere I suppose. I was reading Fortune magazine's list of stocks to look at for 2008 and came upon Bank of Ireland. Subjecting the stock to further analysis does indeed look like there's some significant value there.

Even if you simply consider the P/E at this time, 6 is a near-historical low for this company and for the industry. A very basic value investing approach might snap up this company on those merits alone. The company has experienced very steady growth over the past several years at a clip of 25% annually. I would moderate that estimate for the future due to a couple of obvious observed factors: A slowdown of the housing market in Ireland on the lending side, a worldwide lack of liquidity.

On the up-side the obvious question is whether they have mired themselves in any subprime CDOs or other dubious investment vehicles. They in fact have minimal exposure to those types of investments. From a pure business standpoint the bank does have significant potential to expand into England and has indeed begun taking steps to do just that.  On the home-front the population growth rate in Ireland was recently named the fastest in the EU. With the demonstrated experience of the management team of this bank they have demonstrated the ability to capitalize on that growth. The stock has paid a nice dividend for many years and that helps to reduce the overall level of risk.

All things considered I would not hazard a guess for the bank's one year growth into next year but surely over the next 2-3 years an average annual growth of 15% would not be unexpected. As mentioned before its P/E ratio is unusually low and a ratio of 9 would seem to be more reasonable. To be safe I would additionally value the stock assuming that the dividend is moderated by at least 30% due to slowing market conditions as indicated above.

All of these items add up to a very undervalued stock and I typically consider a stock "overvalued" once its expected annual return dips into the 8% range. For IRE I wouldn't have concern about price unless it skyrocketed over $100. As such, I am long at $56 and will monitor its quarterly earnings and dividends, adjusting my assumptions accordingly and maintaining a good feel for a price at which I no longer expect to obtain a reasonable return.

Please note that I am not a short-term investor, and I look for value first and foremost. Unless for some reason there's an irrational run on a stock to uncomfortable levels I will simply hold a stock until it reaches a level where I no longer see the potential for a desirable annual return.