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Summary

  • Bank of Ireland shares have rallied significantly since my previous mention.
  • Wilbur Ross recently sold his stake.
  • Other European banks are trading at more attractive valuations.

Since my previous mention on January 4, 2012, in a piece entitled Bank Of Ireland Has Upside If Europe Continues To Improve, shares of The Governor and Company of the Bank of Ireland (NYSE:IRE) are up more than 230%.

IRE ChartIRE data by YCharts

IRE shares have benefited from an improving European economy and healthier banking system. As shown by the chart below, unemployment in Ireland has fallen by nearly 4% points since my previous piece. The Irish stock index, ISEQ, has rallied 73% since my previous piece. While IRE shares were significantly higher just a month ago, shares are still up sharply since January 2012.

Ireland Unemployment Rate ChartIreland Unemployment Rate data by YCharts

^IEOI Chart^IEOI data by YCharts

Wilbur Ross Sells Stake

In my previous piece, one of the reasons why I was optimistic about IRE was legendary value investor Wilbur Ross's large equity stake in the company. On June 10, 2014, just weeks ago, Ross announced that he was selling his remaining 5.5% stake in IRE. While Ross has said that the move was driven in part by an over concentration of banking holdings, it is fair to say that Ross is no longer as optimistic about IRE as he was in the past. Noted investor Prem Watsa, CEO of Fairfax Financial, and also a large IRE shareholder has said that he plans to hold his IRE stake for the long term.

Better Banks At Better Prices

Due to the significant rally in share price, IRE is now trading above book value. IRE is now trading at a similar valuation to HSBC (NYSE:HSBC), one of the premier banks in the world. IRE is also trading at a significantly higher valuation than both German banking giant Deutsche Bank (NYSE:DB) and British banking giant Barclays (NYSE:BCS). While both Deutsche Bank and Barclays have faced significant headwinds over the past few months, I believe the valuations are attractive compared to IRE. Eventually, I expect the legal challenges facing Deutsche Bank and Barclays to subside and both companies' shares to move higher. In my opinion, HSBC, DB, and BCS all offer better risk reward payoffs than IRE.

BCS Price to Book Value ChartBCS Price to Book Value data by YCharts

Conclusion

IRE shares have benefited from an improving European economy. Investors should consider following legendary investor Wilbur Ross's decision to take profits. Based on current valuations, I believe HSBC, Barclays, and Deutsche Bank offer a more attractive risk/reward than IRE.

Source: Time To Take Profits On Bank Of Ireland